Document:

PURCHASE
        AND
        SALE
        AGREEMENT

      

      BY
        AND
        BETWEEN

      

      POGO
        PRODUCING
        COMPANY,

      AS
        SELLER,

       

      AND

      

      ENERGY
        XXI GOM, LLC,

      AS
        BUYER

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

    

      
        	
                ARTICLE
                  1 DEFINITIONS

              	 	
                1

              
	 	 	 
	
                ARTICLE
                  2 SALE AND TRANSFER OF ASSETS; CLOSING

              	 	
                19

              
	 	 	 	 
	
                2.01.

              	
                Assets

              	 	
                19

              
	 	 	 	 
	
                2.02.

              	
                Purchase
                  Price

              	 	
                19

              
	 	 	 	 
	
                2.03.

              	
                Closing

              	 	
                20

              
	 	 	 	 
	
                2.04.

              	
                Closing
                  Obligations

              	 	
                20

              
	 	 	 	 
	
                2.06.

              	
                Assumption

              	 	
                27

              
	 	 	 	 
	
                2.07.

              	
                Retained
                  Liabilities

              	 	
                28

              
	 	 	 	 
	
                2.08.

              	
                Imbalances
                  and Future Delivery/Payment Obligations

              	 	
                29

              
	 	 	 
	
                ARTICLE
                  3 REPRESENTATIONS AND WARRANTIES OF SELLER

              	 	
                31

              
	 	 	 	 
	
                3.01.

              	
                Organization
                  and Good Standing

              	 	
                31

              
	 	 	 	 
	
                3.02.

              	
                Authority;
                  No Conflict

              	 	
                31

              
	 	 	 	 
	
                3.03.

              	
                Bankruptcy

              	 	
                33

              
	 	 	 	 
	
                3.04.

              	
                Taxes

              	 	
                33

              
	 	 	 	 
	
                3.05.

              	
                Legal
                  Proceedings; Orders

              	 	
                33

              
	 	 	 	 
	
                3.06.

              	
                Environmental

              	 	
                34

              
	 	 	 	 
	
                3.07.

              	
                Equipment
                  and Personal Property

              	 	
                35

              
	 	 	 	 
	
                3.08.

              	
                Title
                  to Properties

              	 	
                36

              
	 	 	 	 
	
                3.09.

              	
                Brokers

              	 	
                36

              
	 	 	 	 
	
                3.10.

              	
                Tax
                  Sharing Agreements

              	 	
                36

              
	 	 	 	 
	
                3.11.

              	
                Consents
                  and Preferential Purchase Rights

              	 	
                36

              
	 	 	 	 
	
                3.12.

              	
                Imbalances
                  and Future Delivery/Payment Obligations

              	 	
                36

              
	 	 	 	 
	
                3.13.

              	
                Status
                  of Leases

              	 	
                37

              
	 	 	 	 
	
                3.14.

              	
                Contracts

              	 	
                37

              
	 	 	 	 
	
                3.15.

              	
                Laws
                  and Regulations

              	 	
                39

              
	 	 	 	 
	
                3.16.

              	
                Non-Consent
                  Operations

              	 	
                39

              
	 	 	 	 
	
                3.17.

              	
                Wells

              	 	
                39

              
	 	 	 	 
	
                3.18.

              	
                Outstanding
                  Capital Commitments

              	 	
                40

              
	 	 	 	 
	
                3.19.

              	
                Operation
                  of Assets Since Effective Time

              	 	
                40

              
	 	 	 	 
	
                3.20.

              	
                No
                  Pooling, Unitization, Communitization or Spacing
                  Orders

              	 	
                40

              

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	
                3.21.

              	
                Material
                  Factor

              	 	
                41

              
	 	 	 	 
	
                3.22.

              	
                No
                  Encumbrances

              	 	
                41

              
	 	 	 	 
	
                3.23.

              	
                Assets

              	 	
                41

              
	 	 	 	 
	
                3.24.

              	
                No
                  Orders

              	 	
                41

              
	 	 	 	 
	
                3.25.

              	
                Insurance
                  Claims

              	 	
                41

              
	 	 	 	 
	
                3.26.

              	
                Hurricane
                  Costs

              	 	
                41

              
	 	 	 	 
	
                3.27.

              	
                Legal
                  Privilege Documents

              	 	
                42

              
	 	 	 	 
	
                3.28.

              	
                Investment
                  Representations

              	 	
                42

              
	 	 	 	 
	
                3.29.

              	
                Acknowledgments
                  Regarding MMS Letter

              	 	
                43

              
	 	 	 
	
                ARTICLE
                  4 REPRESENTATIONS AND WARRANTIES OF BUYER

              	 	
                44

              
	 	 	 	 
	
                4.01.

              	
                Organization
                  and Good Standing

              	 	
                44

              
	 	 	 	 
	
                4.02.

              	
                Authority;
                  No Conflict

              	 	
                44

              
	 	 	 	 
	
                4.03.

              	
                Certain
                  Proceedings

              	 	
                45

              
	 	 	 	 
	
                4.04.

              	
                Knowledgeable
                  Investor

              	 	
                45

              
	 	 	 	 
	
                4.05.

              	
                Securities
                  Laws

              	 	
                45

              
	 	 	 	 
	
                4.06.

              	
                Due
                  Diligence

              	 	
                45

              
	 	 	 	 
	
                4.07.

              	
                Basis
                  of Buyer’s Decision

              	 	
                45

              
	 	 	 	 
	
                4.08.

              	
                Material
                  Factor

              	 	
                46

              
	 	 	 	 
	
                4.09.

              	
                Brokers

              	 	
                46

              
	 	 	 	 
	
                4.10.

              	
                Buyer's
                  Parent

              	 	
                46

              
	 	 	 
	
                ARTICLE
                  5 COVENANTS OF SELLER

              	 	
                48

              
	 	 	 	 
	
                5.01.

              	
                Access
                  and Investigation

              	 	
                48

              
	 	 	 	 
	
                5.02.

              	
                Operation
                  of the Assets

              	 	
                48

              
	 	 	 	 
	
                5.03.

              	
                Insurance

              	 	
                50

              
	 	 	 	 
	
                5.04.

              	
                Consent
                  and Waivers

              	 	
                51

              
	 	 	 	 
	
                5.05.

              	
                Notification

              	 	
                51

              
	 	 	 	 
	
                5.06.

              	
                Satisfaction
                  of Conditions

              	 	
                51

              
	 	 	 	 
	
                5.07.

              	
                Transition

              	 	
                52

              
	 	 	 	 
	
                5.08.

              	
                Unaudited
                  Financial Information

              	 	
                52

              
	 	 	 
	
                ARTICLE
                  6 COVENANTS OF BUYER

              	 	
                52

              
	 	 	 	 
	
                6.01.

              	
                Notification

              	 	
                52

              

      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

      
        	
                6.02.

              	
                Limitations
                  on Sections 5.05 & 6.01

              	 	
                53

              
	 	 	 	 
	
                6.03.

              	
                Satisfaction
                  of Conditions

              	 	
                53

              
	 	 	 
	
                ARTICLE
                  7 CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO
                  CLOSE

              	 	
                53

              
	 	 	 	 
	
                7.01.

              	
                Accuracy
                  of Representations

              	 	
                53

              
	 	 	 	 
	
                7.02.

              	
                Seller’s
                  Performance

              	 	
                53

              
	 	 	 	 
	
                7.03.

              	
                No
                  Proceedings

              	 	
                54

              
	 	 	 	 
	
                7.04.

              	
                No
                  Orders

              	 	
                54

              
	 	 	 
	
                ARTICLE
                  8 CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO
                  CLOSE

              	 	
                54

              
	 	 	 	 
	
                8.01.

              	
                Accuracy
                  of Representations

              	 	
                54

              
	 	 	 	 
	
                8.02.

              	
                Buyer’s
                  Performance

              	 	
                54

              
	 	 	 	 
	
                8.03.

              	
                No
                  Proceedings

              	 	
                55

              
	 	 	 	 
	
                8.04.

              	
                No
                  Orders

              	 	
                55

              
	 	 	 
	
                ARTICLE
                  9 TERMINATION

              	 	
                55

              
	 	 	 	 
	
                9.01.

              	
                Termination
                  Events

              	 	
                55

              
	 	 	 	 
	
                9.02.

              	
                Effect
                  of Termination

              	 	
                55

              
	 	 	 
	
                ARTICLE
                  10 INDEMNIFICATION; REMEDIES

              	 	
                56

              
	 	 	 	 
	
                10.01.

              	
                Survival

              	 	
                56

              
	 	 	 	 
	
                10.02.

              	
                Indemnification
                  and Payment of Damages by Seller

              	 	
                56

              
	 	 	 	 
	
                10.03.

              	
                Indemnification
                  and Payment of Damages by Buyer

              	 	
                58

              
	 	 	 	 
	
                10.04.

              	
                Time
                  Limitations

              	 	
                59

              
	 	 	 	 
	
                10.05.

              	
                Limitations
                  on Amount--Seller

              	 	
                59

              
	 	 	 	 
	
                10.06.

              	
                Limitations
                  on Amount--Buyer

              	 	
                60

              
	 	 	 	 
	
                10.07.

              	
                Procedure
                  for Indemnification--Third Party Claims

              	 	
                60

              
	 	 	 	 
	
                10.08.

              	
                Procedure
                  for Indemnification--Other Claims

              	 	
                62

              
	 	 	 	 
	
                10.09.

              	
                Extent
                  of Representations and Warranties

              	 	
                62

              
	 	 	 	 
	
                10.10.

              	
                Compliance
                  With Express Negligence Test.

              	 	
                63

              
	 	 	 	 
	
                10.11.

              	
                Limitations
                  of Liability

              	 	
                63

              
	 	 	 
	
                ARTICLE
                  11 TITLE MATTERS AND ENVIRONMENTAL MATTERS

              	 	
                64

              
	 	 	 	 
	
                11.01.

              	
                Title
                  Examination and Access

              	 	
                64

              
	 	 	 	 
	
                11.02.

              	
                Preferential
                  Purchase Rights

              	 	
                64

              

      

       

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

       

      
        	
                11.03.

              	
                Required
                  Consents

              	 	
                65

              
	 	 	 	 
	
                11.04.

              	
                Defensible
                  Title

              	 	
                66

              
	 	 	 	 
	
                11.05.

              	
                Title
                  Defects

              	 	
                67

              
	 	 	 	 
	
                11.06.

              	
                Seller’s
                  Right to Cure

              	 	
                68

              
	 	 	 	 
	
                11.07.

              	
                Contested
                  Title Defects

              	 	
                69

              
	 	 	 	 
	
                11.08.

              	
                Limitations
                  on Adjustments for Title Defects

              	 	
                70

              
	 	 	 	 
	
                11.09.

              	
                Interest
                  Additions

              	 	
                70

              
	 	 	 	 
	
                11.10.

              	
                Reconveyance

              	 	
                71

              
	 	 	 	 
	
                11.11.

              	
                Buyer’s
                  Environmental Assessment

              	 	
                72

              
	 	 	 	 
	
                11.12.

              	
                Environmental
                  Defect Notice

              	 	
                72

              
	 	 	 	 
	
                11.13.

              	
                Seller’s
                  Election with Respect to Environmental Defects

              	 	
                72

              
	 	 	 	 
	
                11.14.

              	
                Limitation

              	 	
                75

              
	 	 	 	 
	
                11.15.

              	
                Exclusive
                  Remedies

              	 	
                75

              
	 	 	 	 
	
                11.16.

              	
                Casualty
                  Loss and Condemnation

              	 	
                76

              
	 	 	 
	
                ARTICLE
                  12 GENERAL PROVISIONS

              	 	
                78

              
	 	 	 	 
	
                12.01.

              	
                Records

              	 	
                78

              
	 	 	 	 
	
                12.02.

              	
                Expenses

              	 	
                78

              
	 	 	 	 
	
                12.03.

              	
                Notices

              	 	
                78

              
	 	 	 	 
	
                12.04.

              	
                Jurisdiction;
                  Service of Process

              	 	
                79

              
	 	 	 	 
	
                12.05.

              	
                Further
                  Assurances

              	 	
                80

              
	 	 	 	 
	
                12.06.

              	
                Waiver

              	 	
                80

              
	 	 	 	 
	
                12.07.

              	
                Entire
                  Agreement and Modification

              	 	
                80

              
	 	 	 	 
	
                12.08.

              	
                Assignments,
                  Successors, and No Third-Party Rights

              	 	
                80

              
	 	
              	 	 
	
                12.09.

              	
                Severability

              	 	
                81

              
	 	 	 	 
	
                12.10.

              	
                Article
                  and Section Headings, Construction

              	 	
                81

              
	 	 	 	 
	
                12.11.

              	
                Time
                  of Essence

              	 	
                82

              
	 	 	 	 
	
                12.12.

              	
                Governing
                  Law

              	 	
                82

              
	 	 	 	 
	
                12.13.

              	
                Counterparts.

              	 	
                82

              
	 	 	 	 
	
                12.14.

              	
                Waiver
                  of Texas Deceptive Trade Practices - Consumer Protection
                  Act

              	 	
                82

              
	 	 	 	 
	
                12.15.

              	
                Limited
                  Arbitration

              	 	
                83

              
	 	 	 	 
	
                12.16.

              	
                Tax
                  Deferred Exchange

              	 	
                84

              
	 	 	 	 
	
                12.17.

              	
                Press
                  Release

              	 	
                84

              
	 	 	 	 
	
                12.18.

              	
                Confidentiality

              	 	
                85

              
	 	 	 	 
	
                12.19.

              	
                Financial
                  Information

              	 	
                85

              

      

    

     

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

     

    EXHIBITS
      AND SCHEDULES

    

    Exhibit
      “A” Schedule
      of Wells 

    Exhibit
      “B” Schedule
      of Leases and Contracts

    Exhibit
      “C-1” Form
      of
      Assignment of Record
      Title and Bill of Sale (OCS Leases)

    Exhibit
      “C-2” Form
      of
      Assignment of Operating Rights and Bill of Sale (OCS Leases)

    Exhibit
      “C-3” Form
      of
      Assignment and Bill of Sale of Oil, Gas and Mineral Leases (State
      Leases)

    Exhibit
      “D” Seller’s
      Disclosure Schedule

    Exhibit
      “E” Buyer’s
      Disclosure Schedule

    Exhibit
      “F” Form
      of
      Certificates

    Exhibit
      “G” Excluded
      Third Party-Owned Equipment

    Schedule
      2.02 Allocation
      of Purchase Price

     

    
      
        
        

      

      
        v

        
          

        

      

      
        
        

      

    

    PURCHASE
      AND SALE AGREEMENT

    

    This
      Purchase and Sale Agreement (this "Agreement")
      is
      made as of April 24, 2007, by and among Pogo
      Producing Company, a
      Delaware corporation ("Seller"),
      and
      Energy XXI GOM, LLC, a Delaware limited
      liability company (“Buyer”).
      

     

    RECITALS

     

    Seller
      desires to sell, and Buyer desires to purchase, all of Seller’s undivided
      interests in certain oil, gas, and mineral properties and related assets and
      contracts, for the consideration and on the terms set forth in this
      Agreement.

     

    AGREEMENT

     

    For
      and
      in consideration of the promises contained herein and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties, intending to be legally bound, agree as follows:

     

    ARTICLE
      1 

     

    DEFINITIONS

     

    For
      purposes of this Agreement, in addition to other capitalized terms defined
      in
      this Agreement, the following terms have the meanings specified or referred
      to
      in this Article 1 when capitalized:

     

    “AAA”
      -
      as
      defined in Section 12.15.

     

    “AFE”
      -
      an
“Authority for Expenditure” as customarily used in the oil and gas
      industry.

     

    “Affiliate”
      - any
      Person directly or indirectly controlled by, controlling, or under common
      control with, Buyer or Seller, including any subsidiary of Buyer or Seller
      and
      any “affiliate” of Buyer or Seller within the meaning of Reg. §240.12b-2 of the
      Securities Exchange Act of 1934, as amended, with “control,” as used in this
      definition, meaning possession, directly or indirectly, of the power to direct
      or cause the direction of management, policies or action through ownership
      of
      voting securities, contract, voting trust, or membership in management or in
      the
      group appointing or electing management or otherwise through formal or informal
      arrangements or business relationships.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Aggregate
      Environmental Defect Value”
      -
      as
      defined in Section 11.14.

     

    “Aggregate
      Title Defect Value”
      -
      as
      defined in Section 11.08.

     

    “Agreed
      Interest Rate”
      - LIBOR
      plus two percent (2%) per annum.

     

    “Allocated
      Values”
      - the
      values assigned among the Assets as set forth on Schedule 2.02.

     

    “Assets”
      -
      all of
      (A) Seller’s Record Title interests, Operating Rights, working interests, net
      revenue interests, overriding royalty interests, net profits interests, carried
      interests, rights and interests under non-consent or non-participation
      provisions of operating or similar agreements, post-payout interests, and any
      other interests of a similar nature attributable to the following, except to
      the
      extent constituting Excluded Assets: (i) the Leases, (ii) the Equipment, (iii)
      Hydrocarbons produced after the Effective Time, (iv) the Contracts, (v) the
      Claims, (vi) the Surface Rights, (vii) the Suspense Funds; and (vii) the Asset
      Records; (B) the Sea Robin condensate removal facilities operated by Devon,
      (C)
      the South Pass 49 oil pipeline system, (D) the Bonito oil pipeline system,
      and
      (E) the High Island oil pipeline system. 

     

    "Asset
      Records"
      - All
      lease files, land files, well files, gas and oil sales contract files, gas
      processing files, division order files, abstracts, title opinions, land surveys,
      cores, logs, geological and geophysical information, maps, hazard surveys,
      engineering data and reports, production records, reserve studies and
      evaluations (insofar as they cover and exist within the boundaries of the
      Assets), and other books, records, data, files, maps and accounting records,
      in
      each case to the extent related to the Assets, or used or held for use in
      connection with the ownership, use, maintenance, or operation
      thereof.

     

    "Assumed
      Liabilities”
      -
      as
      defined in Section 2.06.

     

    “Breach”
      -
      a
“Breach” of a representation, warranty, covenant, obligation, or other provision
      of this Agreement or any instrument delivered pursuant to this Agreement shall
      be deemed to have occurred if there is or has been any inaccuracy in or breach
      of, or any failure to perform or comply with, such representation, warranty,
      covenant, obligation, or other provision.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Business
      Day”
      -
      any day
      other than a Saturday, Sunday, or any other day on which commercial banks in
      the
      United States of America are authorized or required by law or executive order
      to
      close.

     

    “Buyer’s
      Closing Documents”
      -
      as
      defined in Section 4.02(a).

     

    “Buyer’s
      Disclosure Schedule”
      -
      the
      disclosure schedule attached as Exhibit
      E.

     

    “Buyer
      Group”
      -
      as
      defined in Section 10.02.

     

    “Buyer’s
      Parent”
      - Energy
      XXI (Bermuda) Limited, a Bermuda company.

     

    “Casualty
      Loss” -
      any
      loss,
      damage or destruction of the Assets that occurs during the period between the
      date of this Agreement and Closing for any reason, including any act of God,
      fire, explosion, collision, earthquake, windstorm, flood or other casualty,
      but
      excluding any loss, damage or destruction as a result of depreciation, ordinary
      wear and tear and any change in condition of the Assets for production of
      Hydrocarbons through normal depletion (which exclusion shall include the
      watering-out of any Well, collapsed casing or sand infiltration of any
      Well).

     

    "Claims"
      - All of
      Seller’s right, title and interest in and to any claims, demands, causes of
      action, rights of recovery, rights of set-off, rights to refunds and similar
      rights against third parties (including, without limitation, (i) claims against
      insurers under the insurance policies required to be maintained until Closing
      pursuant to Section 5.03, and
      (ii)
      claims for indemnification and contribution) to the extent related to (a) the
      ownership, use, construction, maintenance or operation of the Assets after
      the
      Effective Time, (b) any damage to the Assets not repaired or replaced prior
      to
      the Effective Time, (c) the Assumed Liabilities, or any portion thereof, if
      any,
      including any claims for refunds, prepayments, offsets, recoupment, judgments
      and the like, whether received as payment or credit against future liabilities,
      in each case to the extent related to the matters covered by clauses (a), (b),
      or (c) above; provided, however, that the term "Claims" shall not include (1)
      any
      claims or causes of action against Seller or any Affiliate of Seller, (2) any
      claims or rights against insurers or other third parties for Retained
      Liabilities for which Seller is responsible under this Agreement, and (3) any
      claims or rights against insurers, other than (I) claims or rights under the
      insurance policies required to be maintained until Closing pursuant to Section
      5.03 (except for Retained Liabilities), (II) claims or rights with respect
      to
      the matters referenced in (c) above, and (III) claims or rights referenced
      in
      Section 11.16.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Closing”
      -
      as
      defined in Section 2.03.

     

    “Closing
      Date”
      -
      as
      defined in Section 2.03.

     

    “Commission”
      -
      the
      Securities and Exchange Commission.

     

    “Confidentiality
      Agreement”
      -
      that
      certain Confidentiality Agreement between Buyer and Seller dated March 7,
      2007.

     

    “Consent”
      - any
      approval, consent, ratification, waiver, or other authorization (including
      any
      Governmental Authorization) from any Person which is required to be obtained
      in
      connection with the execution or delivery of this Agreement or the consummation
      of the Contemplated Transactions.

     

    “Contemplated
      Transactions”
      -
      all of
      the transactions contemplated by this Agreement, including, but not limited
      to:

     

    
      	 	
              (a)

            	
              the
                sale of the Assets by Seller to
                Buyer;

            

    

     

    
      	 	
              (b)

            	
              the
                execution, delivery, and performance of the Instruments of Conveyance
                and
                all other instruments and documents required under this
                Agreement;

            

    

     

    
      	 	
              (c)

            	
              the
                performance by Buyer and Seller of their respective covenants and
                obligations under this Agreement;
                and

            

    

     

    
      	 	
              (d)

            	
              Buyer’s
                acquisition, ownership, and exercise of control over the
                Assets.

            

    

     

    “Contract”
      - any
      valid and subsisting contract, agreement, or instrument by which any of the
      Assets are bound, or that directly relates to or is otherwise directly
      applicable to any of the Assets, only to the extent applicable to the Assets
      rather than Seller’s other properties, including but not limited to, operating
      agreements, unitization, pooling and communitization agreements, declarations
      and orders, joint venture agreements, farmin and farmout agreements, water
      rights agreements, platform agreements, production handling agreements,
      exploration agreements, participation agreements, exchange agreements,
      transportation or gathering agreements, agreements for the sale and purchase
      of
      Hydrocarbons or processing agreements to the extent applicable to the Assets
      or
      the production of Hydrocarbons from the Assets, including, without limitation,
      those listed on Exhibit
      B
      that are
      valid and subsisting and directly relate to or are otherwise directly applicable
      to any of the Assets. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    “Covered
      Liabilities”
      -
      as
      defined in Section 2.06.

     

    “Cure”
      -
      as
      defined in Section 11.06.

     

    “Cure
      Notice”
      -
      as
      defined in Section 11.06.

     

    “DTPA”
      -
      as
      defined in Section 12.14.

     

    “Damages”
      -
      as
      defined in Section 10.02.

     

    “Defect
      Value”
      - as
      defined in Section 11.05.

     

    “Defensible
      Title”
      -
      as
      defined in Section 11.04.

     

    "De
      Minimis
      Environmental Defect Cost"
      - as
      defined in Section 11.14.

     

    "De
      Minimis
      Title Defect Cost"
      - as
      defined in Section 11.08.

     

    “Deposit”
      -
      the
      Deposit Shares and $2,027,000 cash.

     

     “Deposit
      Shares”
      -
      3,980,000 common shares, par value $.001, of Buyer’s Parent.

     

    “Effective
      Time”
      - April
      1, 2007, at 7:00 a.m., Central Time.

     

    “Encumbrance”
      - any
      charge, equitable interest, privilege, lien, mortgage, deed of trust, production
      payment, option, pledge, collateral assignment, security interest, right of
      first refusal, restriction, encroachment, defect, or irregularity of any
      kind.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Environment”
      -
      soil,
      land, surface or subsurface strata, surface waters (including navigable waters,
      ocean waters, seabed, streams, ponds, drainage basins, and wetlands),
      groundwater, drinking water supply, stream sediments, ambient air (including
      indoor air), plant and animal life, and any other environmental medium or
      natural resource. 

     

    “Environmental
      Claim Date”
      -
      as
      defined in Section 11.11.

     

    “Environmental
      Condition”
      -
      any
      event occurring or condition existing prior to the Closing Date with respect
      to
      the Assets, the Environment, or Hazardous Materials Released on or from the
      Assets, which causes an Asset to be subject to liability or Remediation under,
      or not in compliance with, an Environmental Law. 

     

    “Environmental
      Defect”
      -
      an
      Environmental Condition discovered by Buyer as a result of any Buyer’s
      Environmental Assessment conducted by or on behalf of Buyer pursuant to Section
      11.11 of this Agreement.

     

    “Environmental
      Defect Notice”
      -
      as
      defined in Section 11.12.

     

    “Environmental
      Defect Value”
      -
      as
      defined in Section 11.12.

     

    “Environmental
      Law”
      -
      any
      applicable Legal Requirement that requires or relates to:

     

    
      	 	
              (a)

            	
              advising
                appropriate authorities, employees, or the public of Releases or
                threatened Releases to the
                Environment;

            

    

     

    
      	 	
              (b)

            	
              preventing
                or reducing to acceptable levels the Release of Hazardous Materials
                to the
                Environment;

            

    

     

    
      	 	
              (c)

            	
              reducing
                the quantities, preventing the Release, or minimizing the hazardous
                characteristics of Hazardous Materials that are
                generated;

            

    

     

    
      	 	
              (d)

            	
              protecting
                natural resources, species, or ecological
                amenities;

            

    

     

    
      	 	
              (e)

            	
              reducing
                to acceptable levels the risks inherent in the transportation of
                Hazardous
                Materials;

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    
       

      
        	 	
                (f)

              	
                cleaning
                  up Hazardous Materials that have been Released, preventing the
                  threat of
                  Release, or paying the costs of such clean up or
                  prevention;

              

      

       

    

    
      	 	
              (g)

            	
              making
                responsible parties pay private parties, or groups of them, for damages
                done to their health or the Environment, or permitting self-appointed
                representatives of the public interest to recover for injuries done
                to
                public assets; or

            

    

     

    
      	 	
              (h)

            	
              protecting
                human health, safety and the Environment.

            

    

     

    “Environmental
      Liabilities”
      -
      any
      cost, Damage, expense, liability, obligation, or other responsibility arising
      from or under either an Environmental Law or third party claims relating to
      the
      Environment, Environmental Conditions, or the Release, handling, or use of
      Hazardous Materials, and which relates to the Assets or the ownership or
      operation of the same.

     

    “Environmental
      Material Adverse Effect”
      - any
      Environmental Liabilities that are reasonably expected to result in Damages
      to
      Seller or Buyer in an amount exceeding $250,000 per
      occurrence, or $1,000,000 in
      the
      aggregate.

     

    “Environmental
      Rejection Notice”
      -
      as
      defined in Section 11.13(b).

     

    “Equipment”
      - any
      and all
      wells, equipment, and facilities located on or used in connection with the
      Leases, including, but not limited to, the Wells, pumps, platforms, well
      equipment (surface and subsurface), saltwater disposal wells, water wells,
      lines
      and facilities, sulfur recovery facilities, processing facilities, compressors,
      compressor stations, dehydration facilities, treatment facilities, pipeline
      gathering lines, flow lines, transportation lines, valves, meters, separators,
      tanks, tank batteries, and other fixtures.

     

    “Escrow
      Agent”
      - Wells
      Fargo Bank, National Association, in its capacity as Escrow Agent under the
      Escrow Agreement.

     

    “Escrow
      Agreement”
      - the
      Escrow Agreement dated as of the Closing Date among the Escrow Agent, Buyer
      and
      Seller. 

     

    “Exchange
      Act”
      - the
      Securities Exchange Act of 1934, as amended.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    “Excluded
      Assets”
      -
      the
      following assets, which are not covered by the transaction contemplated by
      this
      Agreement:

     

    
      	 	
              (a)

            	
              (i)
                all trade credits, accounts receivable, notes receivable. and other
                receivables attributable to the Assets with respect to any period
                of time
                prior to the Effective Time, (ii) all deposits, cash, checks in process
                of
                collection, cash equivalents, and funds attributable to the Assets
                with
                respect to any period of time prior to the Effective Time, and (iii)
                funds
                attributable to third parties for production of Hydrocarbons prior
                to the
                Effective Time but suspended or impounded by
                Seller;

            

    

    

    
      	 	
              (b)

            	
              all
                corporate, financial, and tax records of Seller, subject to Section
                12.01
                below;

            

    

    

    
      	 	
              (c)

            	
              all
                claims and causes of action of Seller (other than the Claims) (i)
                arising
                from acts, omissions, or events, or damage to or destruction of property
                occurring prior to the Effective Time, and (ii) affecting any of
                the other
                Excluded Assets;

            

    

    

    
      	 	
              (d)

            	
              all
                rights, titles, claims, and interests of Seller arising prior to
                the
                Effective Time (i) under any policy or agreement of insurance or
                indemnity, (ii) under any bond, or (iii) to any insurance proceeds
                or
                awards, except in each case the
                Claims;

            

    

    

    
      	 	
              (e)
                

            	
              all
                Hydrocarbons produced from or attributable to the Assets with respect
                to
                all periods prior to the Effective Time, excluding all rights and
                interests with respect to Imbalances as of the Effective Time, together
                with all proceeds from or attributable to such
                Hydrocarbons;

            

    

    

    
      	 	
              (f)
                

            	
              claims
                of Seller for refund of, or loss carry forwards with respect to (i)
                production, ad valorem, or any other taxes attributable to any period
                prior to the Effective Time, or (ii) income or franchise taxes or
                any
                other taxes attributable to any of the other Excluded
                Assets;

            

    

    

    
      	 	
              (g)

            	
              all
                amounts due or payable to Seller as adjustments or refunds under
                any
                Contracts, with respect to periods prior to the Effective Time,
                specifically including, without limitation, (i) credits, adjustments,
                or
                refunds under the Deep Water Royalty Relief Act or any other act,
                statute,
                rule, law, or regulation, and (ii) amounts recoverable from audits
                under
                operating agreements, but excluding all rights and interests with
                respect
                to Imbalances as of the Effective
                Time;

            

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    
      	 	
              (h)

            	
              all
                amounts due or payable to Seller as adjustments to insurance premiums
                related to any period prior to the Effective
                Time;

            

    

    

    
      	 	
              (i)

            	
              all
                proceeds, benefits, income, or revenues accruing (and any security
                or
                other deposits made) with respect to (i) the Assets prior to the
                Effective
                Time, but excluding all rights and interests with respect to Imbalances
                as
                of the Effective Time; and (ii) any of the other Excluded
                Assets;

            

    

    

    
      	 	
              (j)

            	
              all
                legal files; attorney-client communications or attorney work product;
                records and documents subject to legal privilege; and auditor’s reports;
                provided, however, that Buyer shall be entitled to receive copies
                of title
                abstracts and title opinions with respect to the Assets and these
                copies
                (but not the originals) will be included in the Assets, with the
                understanding that Seller makes no representation regarding the accuracy
                of any such title abstracts or title
                opinions;

            

    

    

    
      	 	
              (k)

            	
              any
                seismic, geochemical, and geophysical information and data licensed
                by
                unaffiliated third parties to
                Seller;

            

    

    

    
      	 	
              (l)

            	
              all
                of Seller’s and its Affiliates’ intellectual property, including but not
                limited to proprietary computer software, patents, trade secrets,
                copyrights, names, marks, and logos, but not including proprietary
                seismic, geochemical, and geophysical information and
                data;

            

    

    

    
      	 	
              (m)

            	
              any
                pipelines, fixtures, tanks, or equipment located on the Assets that
                belong
                to third parties (other than Affiliates of Seller), such as lessors
                or
                purchasers of Hydrocarbons as listed on Exhibit
                G;

            

    

    

    
      	 	
              (n)

            	
              any
                Contract the transfer of which to Buyer is prohibited by any bona
                fide
                third party restriction or Legal Requirement and the necessary consents
                to
                transfer are not obtained as contemplated by Section 11.03;
                and

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (o)

            	
              any
                Surface Rights the transfer of which to Buyer is restricted by any
                Legal
                Requirement and the necessary authorizations or consents to transfer
                under
                such Legal Requirement are not
                obtained.

            

    

     

    “Final
      Amount”
      - as
      defined in Section 2.05(c).

     

    “Final
      Settlement Date”
      -
      as
      defined in Section 2.05(c).

     

    “Final
      Settlement Statement”
      -
      as
      defined in Section 2.05(c).

     

    “Future
      Delivery/Payment Obligation”
      - any
      obligation of Seller (i) under any contract or agreement for the sale of gas
      from the Assets containing a take-or-pay, advance payment, prepayment, or
      similar provision, or under any gathering, transmission, or any other contract
      or agreement with respect to any of the Assets, to gather, deliver, process,
      or
      transport any gas without then or thereafter receiving full payment therefor,
      (ii) to deliver any quantities of gas or to pay any penalties or other amounts,
      in connection with the violation of any of the terms of any gas contract or
      other agreement with shippers with respect to the Assets, or (iii) to pay any
      penalties or other payments under any gas transportation or other agreement
      as a
      result of the delivery of quantities of gas from the Wells in excess of the
      contract requirements; provided that Future Delivery/Payment Obligations shall
      not include any Imbalances.

     

    “Governmental
      Authorization”
      -
      any
      approval, consent, license, permit, registration, variance, exemption, waiver,
      or other authorization issued, granted, given, or otherwise made available
      by or
      under the authority of any Governmental Body or pursuant to any Legal
      Requirement.

     

    “Governmental
      Body”
      -
      any:

     

    
      	 	
              (a)

            	
              nation,
                state, county, city, town, village, district, or other jurisdiction
                of any
                nature;

            

    

     

    
      	 	
              (b)

            	
              federal,
                state, local, municipal, foreign, or other
                government;

            

    

     

    
      	 	
              (c)

            	
              governmental
                or quasi-governmental authority of any nature (including any governmental
                agency, branch, department, official, or entity and any court or
                other
                tribunal);

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (d)

            	
              multi-national
                organization or body; or

            

    

     

    
      	 	
              (e)

            	
              body
                exercising, or entitled to exercise, any administrative, executive,
                judicial, legislative, police, regulatory, or taxing authority or
                power of
                any nature.

            

    

     

    “Hazardous
      Materials”
      - any
      (i) chemical, constituents, material, pollutant, contaminant, substance or
      waste
      that is regulated by any Governmental Body or may form the basis of liability
      under any Environmental Law; (ii) asbestos containing material, lead-based
      paint, polychlorinated biphenyls, or radon; and (iii) petroleum, Hydrocarbons,
      or petroleum products.

     

    "Hurricane
      Costs"
      - all
      costs for the restoration, repair, and/or replacement of all physical damage
      to
      the Equipment and other tangible property included in the Assets to the extent
      such damage is attributable to hurricanes.

     

    “Hydrocarbons”
      - oil,
      gas, minerals, and other gaseous and liquid hydrocarbons or any combination
      of
      the foregoing, produced from and attributable to the Leases.

     

    "Imbalances"
      -
      over-production or under-production or over-deliveries or under-deliveries
      with
      respect to Hydrocarbons produced from or allocated to the Assets, regardless
      of
      whether such over-production or under-production or over-deliveries or
      under-deliveries arise at the platform, wellhead, pipeline, gathering system,
      transportation system, processing plant or other location, including, without
      limitation, any imbalances under gas balancing or similar agreements, platform
      imbalances under production handling agreements, imbalances under processing
      agreements and imbalances under gathering or transportation
      agreements.

     

    “Instruments
      of Conveyance”
      -
      the
      instruments of conveyance transferring title to the Assets. For each OCS Lease,
      Seller and Buyer shall execute, acknowledge, and deliver five (5) originals
      of
      an Assignment and Bill of Sale substantially in the form of Exhibit “C-1,” where
      Seller owns Record Title, or Exhibit “C-2,” where Seller owns only Operating
      Rights. For all State Leases, Seller and Buyer shall execute, acknowledge,
      and
      deliver five (5) originals of an Assignment and Bill of Sale substantially
      in
      the form of Exhibit “C-3,” along with such counterpart instruments as may be
      required by the relevant Governmental Body, prepared on the form promulgated
      by
      such Governmental Body. In addition, Seller and Buyer shall execute,
      acknowledge, and deliver a general assignment, bill of sale and conveyance
      covering all Assets, in a
      form to
      be mutually and reasonably agreed to by Buyer and Seller,
      and such
      other instruments as may be necessary to convey all of the Assets (including
      but
      not limited to Assignments of Overriding Royalty) in forms that are mutually
      acceptable to the parties. The foregoing Instruments of Conveyance shall contain
      a special warranty of title pursuant to which Seller warrants Defensible Title
      to the Assets unto Buyer, its successors and assigns with respect thereto,
      against every Person whomsoever lawfully claiming or to claim the same or any
      part thereof by, through or under Seller or any Affiliate of
      Seller.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    “Interest
      Addition”
      -
      as
      defined in Section 11.09.

     

    “Interest
      Addition Notice”
      -
      as
      defined in Section 11.09.

     

    “Interest
      Addition Rejection Notice”
      -
      as
      defined in Section 11.09.

     

    “Interest
      Addition Value”
      -
      as
      defined in Section 11.09.

     

    “IRC”
      -
      the
      Internal Revenue Code of 1986 or any successor law, and regulations issued
      by
      the IRS pursuant to the Internal Revenue Code or any successor law.

     

    “IRS”
      -
      the
      United States Internal Revenue Service or any successor agency, and, to the
      extent relevant, the United States Department of the Treasury.

     

    “Knowledge”
      -
      an
      individual will be deemed to have "Knowledge" of a particular fact or other
      matter if such individual is actually aware of such fact or other matter. A
      Person (other than an individual) will be deemed to have "Knowledge" of a
      particular fact or other matter if any individual who is serving as an officer
      or director (other than an officer or director holding a management position
      set
      forth below with respect to such management position) of such Person has, or
      at
      any relevant time had, Knowledge of such fact or other matter. Seller will
      also
      be deemed to have "Knowledge" of a particular fact or other matter if any of
      the
      individuals who on the date of this Agreement or the Closing Date hold the
      following management positions, after due inquiry, has,
      or
      at any relevant time had, knowledge of such fact or other matter: Executive
      Vice
      President-Operations; Senior Operations Manager; Manager of Environmental,
      Safety & Health; or Manager of Revenue Accounting.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    “Leases”
      -
      the
      oil, gas, and mineral leases described on Exhibit
      B,
      together with all interest derived from such leases in or to any pools or units
      which include any lands covered by any such leases or all or a part of any
      such
      leases or include any Wells, including those pools or units shown on
Exhibit
      B,
      and all
      tenements, hereditaments, and appurtenances belonging to such leases and such
      pooled areas or units.

     

    “Legal
      Requirement”
      -
      any
      federal, state, local, municipal, foreign, international, or multinational
      law,
      Order, constitution, ordinance, or rule, including rules of common law,
      regulation, statute, treaty, or other legally enforceable directive or
      requirement.

     

    "LIBOR"
      - for
      the day in question or the previous banking day if the day in question is not
      a
      banking day, the interest rate per annum (rounded upward to the nearest whole
      multiple of 1/16 of 1% per annum if such rate is not such a multiple) equal
      to
      the rate per annum at which six (6) months deposits in U.S. Dollars are offered
      by the principal office of Barclays Bank in London, England to prime banks
      in
      the London interbank market at 11:00 A.M. (London time) on such
      day.

     

    “MMS”
      - the
      United States Department of the Interior Minerals Management
      Service.

     

    “MitEnergy
      Retained Liability”
      -
      Seller’s contractual liability to pay for Hurricane Costs attributable to the
      interests in the Assets of MitEnergy Upstream LLC, pursuant to a contract
      between Seller and MitEnergy Upstream LLC.

     

    “Net
      Revenue Interest”
      - for
      any Well or Lease (or the specified zone(s) therein), Seller’s share
      of
      the Hydrocarbons produced, saved, and marketed therefrom (after satisfaction
      of
      all royalties, overriding royalties, nonparticipating royalties, net profits
      interests, or other similar burdens on or measured by production of
      Hydrocarbons).

     

    “Non-Operated
      Assets”
      - Assets
      operated by any Person other than Seller or an Affiliate of Seller.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    “OCS
      Lease”
      - a
      Lease
      of submerged lands under the Outer Continental Shelf Lands Act, issued by the
      MMS. 

     

    “Operating
      Rights”
      - with
      respect to an OCS Lease, a leasehold interest that is classified by the MMS
      as
      an “operating rights” interest under its rules and regulations and entitles the
      holder to conduct drilling and related operations, but the holder of which
      does
      not have a contractual relationship with the MMS, and cannot relinquish or
      terminate the OCS Lease.

     

    “Order”
      -
      any
      award, decision, injunction, judgment, order, ruling, subpoena, or verdict
      entered, issued, made, or rendered by any court, administrative agency, or
      other
      Governmental Body or by any arbitrator.

     

    “Organizational
      Documents”
      -
      (a) the articles or certificate of incorporation and the bylaws of a
      corporation; (b) the articles of organization and regulations of a limited
      liability company; (c) the certificate of limited partnership and limited
      partnership agreement of a limited partnership; and (d) any amendment to
      any of the foregoing.

     

    “Parent
      Registration Statement”
      - as defined in Section 4.10(b).

     

    “Permitted
      Encumbrance”
      -
      any of
      the following: (a) any obligations or duties reserved to or vested in any
      municipality or other Governmental Body to regulate any Asset in any manner
      including all applicable Legal Requirements, except to the extent any of the
      same have been applied or exercised, individually or in the aggregate, in a
      manner which operates to reduce Seller’s Net Revenue Interest in a Well below
      that shown in Exhibit A or increase Seller’s Working Interest in a Well above
      that shown in Exhibit A without a proportionate increase in the Net Revenue
      Interest; (b) the terms and conditions of all leases, options, servitudes,
      contracts for sale, purchase, exchange, refining or processing of Hydrocarbons,
      operating agreements, construction agreements, construction and operation
      agreements, participation agreements, shoot-to-earn agreements, exploration
      agreements, partnership agreements, processing agreements, plant agreements,
      pipeline, gathering, exchange, and transportation agreements, disposal
      agreements, permits, licenses, and any other agreements affecting the Assets,
      including those set forth as Contracts on Exhibit B attached hereto, but only
      to
      the extent that they do not, individually or in the aggregate, (i) operate
      to
      reduce Seller’s Net Revenue Interest in a Well below that shown in Exhibit A or
      increase Seller’s Working Interest in a Well above that shown in Exhibit A
      without a proportionate increase in the Net Revenue Interest or (ii) except
      in
      the case of Contracts listed on Exhibit B, adversely affect the ownership and/or
      operation of the affected Assets (as currently used or owned) in any material
      respect; (c) the Consents identified in Part 3.11 of Seller’s Disclosure
      Schedule with respect to which prior to Closing (i) waivers or consents have
      been obtained from the appropriate Person, (ii) the applicable period of time
      for asserting such rights has expired without any exercise of such rights,
      or
      (iii) mutually agreed upon arrangements have been made by the parties to allow
      Buyer to receive substantially the same economic benefits as if all such waivers
      and consents had been obtained;(d) easements, rights-of-way, servitudes,
      permits, surface leases, and other similar rights on, over, or in respect of
      any
      of the Assets, as long as any such encumbrances, individually or in the
      aggregate, do not interfere in any material respect with the exploration,
      development, or operation of the Assets burdened thereby; (e) lessor’s
      royalties, overriding royalties, production payments, net profits interests,
      reversionary interests, and similar burdens with respect to a Well if the net
      cumulative effect of such burdens does not operate to reduce Seller’s Net
      Revenue Interest in such Well below that shown in Exhibit A or increase Seller’s
      Working Interest in such Well above that shown in Exhibit A without a
      proportionate increase in the Net Revenue Interest, (f) such other defects
      or
      irregularities of title or Encumbrances as Buyer may have waived in writing
      or
      which Buyer shall be deemed to have waived pursuant to the provisions of Section
      11.05 hereof; and (g) conventional rights of reassignment obligating Seller
      to
      reassign its interests in any portion of the Leases to a third party in the
      event Buyer intends to release or abandon such interest prior to the expiration
      of the primary term or other termination of such interest.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    “Person”
      -
      any
      individual, corporation (including any non-profit corporation), general or
      limited partnership, limited liability company, joint venture, estate, trust,
      association, organization, labor union, or other entity or Governmental
      Body.

     

    “Post-Closing
      Amount”
      - as
      defined in Section 2.05(c).

     

    “Post-Closing
      Date”
      - as
      defined in Section 2.05(c).

     

    “Preferential
      Purchase Right”
      -
      any
      right or agreement that enables any Person to purchase or acquire any Asset
      or
      any interest therein or portion thereof as a result of or in connection with
      the
      execution or delivery of this Agreement or the consummation of the Contemplated
      Transactions.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    “Preliminary
      Amount”
      -
      as
      defined in Section 2.05(a).

     

    “Proceeding”
      -
      any
      action, arbitration, audit, hearing, investigation, request for information,
      litigation, or suit (whether civil, criminal, administrative, investigative,
      or
      informal) commenced, brought, conducted, or heard by or before, or otherwise
      involving, any Governmental Body or arbitrator.

     

    “Property
      Costs”
      -
      as
      defined in Section 2.05(a).

     

    “Purchase
      Price”
      -
      as
      defined in Section 2.02.

     

    “Record
      Title”
      - with
      respect to an OCS Lease, an ownership interest in the OCS Lease that is
      classified as a “record title” interest under the rules and regulations of the
      MMS and which includes the right to explore for and develop oil, gas, or sulphur
      resources, as well as responsibilities for all lease liabilities created or
      established during tenure of ownership, and which also includes the right to
      relinquish the OCS Lease.

     

    “Registration
      Rights Agreement”
      - the
      Registration Rights Agreement of even date herewith between Buyer’s Parent and
      Seller.

     

    “Rejection
      Notice”
      - as
      defined in Section 11.07.

     

    “Release”
      - any
      pouring, pumping, seeping, spilling, migrating, leaking, placing, discarding,
      emptying, abandoning, injecting, discharging, emitting, dumping, burying or
      disposing into the Environment of any Hazardous Materials.

     

    “Remediate”
      or “Remediation”
      -
      any
      action
      or work taken to remove or otherwise remedy an Environmental Condition,
      including (i) any survey, site assessment, audit, investigation, inspection,
      sampling, analysis, removal, excavation, pump and treat, cleanup, abatement,
      corrective action, remediation, disposal, storage, handling, or treatment and
      (ii) any action required to bring any Asset or operating
      practice or similar course of conduct by Seller or its Affiliates into
      compliance with applicable Environmental Laws.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    “Representative”
      - with
      respect to a particular Person, any director, officer, employee, agent,
      consultant, advisor, or other representative of such Person, including legal
      counsel, accountants, and financial advisors.

     

    "Reserve
      Report"
      - the
      reserve report dated December 31, 2006, of Ryder Scott with respect to the
      Leases and Wells. 

     

    "Retained
      Assets"
      - Any
      rights, titles, interests, assets and properties that are originally included
      in
      the Assets under the terms of this Agreement, but that are subsequently excluded
      from the Assets or sale under this Agreement pursuant to the terms of this
      Agreement at any time before or after Closing.

     

    "Retained
      Liabilities"
      - as
      defined in Section 2.07.

     

    “Seller’s
      Closing Documents”
      - as
      defined in Section 3.02 (a).

     

    “Seller’s
      Disclosure Schedule”
      - the
      disclosure schedule attached as Exhibit
      D.

     

    “Seller
      Group”
      -
      as
      defined in Section 10.03.

     

    “State
      Lease”
      - a
      Lease
      from any state of the United States of America, or from a Governmental Body
      of
      any state of the United States of America.

     

    “Seller
      Operated Assets”
      - Assets
      operated by Seller or an Affiliate of Seller.

     

    "Surface
      Rights"
      -
      All
      easements, permits, licenses, servitudes, rights-of-way, surface or seabed
      leases, and other surface or seabed rights appurtenant to, and used or held
      for
      use in connection with the Assets.

     

    “Suspense
      Funds”
      -
      Proceeds
      of production and associated penalties and interest in respect of any of the
      Assets that are payable to third parties and are being held in suspense by
      Seller as the operator of such Assets.

     

    “Tax”
      -
      any tax
      (including any income tax, capital gains tax, value-added tax, sales tax,
      property tax, severance tax, gift tax, or estate tax), levy, assessment, tariff,
      duty (including any customs duty), deficiency, or other fee, and any related
      charge or amount (including any fine, penalty, interest, or addition to tax),
      imposed, assessed, or collected by or under the authority of any Governmental
      Body or payable pursuant to any tax-sharing agreement or any other contract
      relating to the sharing or payment of any such tax, levy, assessment, tariff,
      duty, deficiency, or fee.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    “Tax
      Return”
      -
      any
      return (including any information return), report, statement, schedule, notice,
      form, or other document or information filed with or submitted to, or required
      to be filed with or submitted to, any Governmental Body in connection with
      the
      determination, assessment, collection, or payment of any Tax or in connection
      with the administration, implementation, or enforcement of or compliance with
      any Legal Requirement relating to any Tax.

     

    “Threatened”
      -
      a
      claim, Proceeding, dispute, action, or other matter will be deemed to have
      been
      "Threatened" if any demand or statement has been made (orally or in writing)
      to
      a party or any of its officers, directors, or employees that would lead a
      prudent Person to conclude that such a claim, Proceeding, dispute, action,
      or
      other matter is likely to be asserted, commenced, taken, or otherwise pursued
      in
      the future.

     

    “Title
      Claim Date”
      -
      as
      defined in Section 11.05.

     

    “Title
      Defect”
      -
      any
      matter
      affecting the Assets that, in the opinion of Buyer, would not give Buyer
      Defensible Title, in accordance with Section 11.04 hereof.

     

    “Title
      Defect Notice(s)”
      -
      as
      defined in Section 11.05.

     

    “Violation
      of Environmental Laws”
      -
      a
      violation of, or the failure to perform any obligation imposed by, an
      Environmental Law.

     

    “Wells”
      - oil
      and gas wells located on the Leases, and more particularly described on
Exhibit
      A,
      which
Exhibit
      A
      may also
      include possible well locations and exploratory prospects.

     

    “Working
      Interest”
      - for
      any Well (or the specified zone(s) therein) or Lease, that share of costs and
      expenses associated with the exploration, maintenance, development and operation
      of such Well or Lease that Seller is required to bear and pay.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      2 

     

    SALE
      AND TRANSFER OF ASSETS; CLOSING

     

    2.01. Assets.
      Subject
      to the terms and conditions of this Agreement, at the Closing, Seller shall
      sell
      and transfer the Assets to Buyer.

     

    2.02. Purchase
      Price.
      Subject
      to any adjustments that may be made under Section 2.05, the purchase price
      (the
      "Purchase
      Price")
      for
      the Assets will be
      Four Hundred Nineteen Million Five Hundred Thousand Dollars
      ($419,500,000).
      The
      Purchase Price for the Assets shall be allocated among the Assets as set forth
      in Schedule 2.02 hereto. The amount so allocated to a part of the Assets shall
      constitute the Allocated Values for such part of the Assets. Seller and Buyer
      agree to be bound by the allocation set forth in Schedule 2.02 for purposes
      of
      Article 11 hereof. Contemporaneously herewith, (i)
      Buyer, Buyer’s Parent and Seller have executed and delivered the Escrow
      Agreement, (ii) Buyer’s Parent and Seller have executed and delivered the
      Registration Rights Agreement; and (iii) Buyer has delivered to the Escrow
      Agent
      the cash portion of the Deposit and a scanned copy of the certificate
      representing the Deposit Shares issued in the name of Seller, to Seller a
      certified copy of resolutions adopted by the Board of Directors of Buyer’s
      Parent authorizing Buyer’s Parent’s issuance and delivery of the Deposit Shares,
      and to Seller an opinion of Appleby, Hunter Bailhache regarding Buyer’s Parent
      and the Deposit Shares. This Agreement shall not be deemed effective until
      the
      actions described in the immediately preceding sentence have occurred. Within
      two (2) Business Days after the date of execution of this Agreement, Buyer
      shall
      deliver to the Escrow Agent the certificate representing the Deposit Shares
      issued in the name of Seller. If the Closing timely occurs, Buyer and Seller
      shall direct the Escrow Agent to return the Deposit to Buyer at Closing. If
      the
      Closing does not timely occur as a result of the Breach by Buyer of the terms
      of
      this Agreement and there has been no Breach by Seller of the terms of this
      Agreement, Buyer and Seller shall direct the Escrow Agent to deliver the Deposit
      to Seller as its sole and exclusive remedy and as liquidated damages (and not
      as
      a penalty), subject to Seller's additional recourse against Buyer and Buyer's
      Parent for any Breach of Section 4.10, the Escrow Agreement, or the Registration
      Rights Agreement, and the right to recover attorneys’ fees, costs, and expenses
      pursuant to Section 12.15 in enforcing Seller's rights in respect of the Deposit
      and such other provisions and agreements. If the Closing does not timely occur
      for any other reason, Buyer and Seller shall direct the Escrow Agent to return
      the Deposit to Buyer. Any interest or other earnings on the Deposit minus any
      fees and expenses of the Escrow Agent shall be delivered to the party to whom
      the Deposit is delivered to pursuant to the terms set forth herein. If the
      Closing does not timely occur as a result of the Breach by Seller of the terms
      of this Agreement and there has been no Breach by Buyer of the terms of the
      Agreement, Buyer at its option may (a) terminate this Agreement and Seller
      shall
      be liable to Buyer for all Damages incurred by Buyer arising out of such Breach
      and termination not to exceed the actual costs, expenses, and fees incurred
      by
      Buyer in evaluating, negotiating, entering into, terminating, and enforcing
      this
      Agreement, plus Two Million Dollars ($2,000,000), or (b) enforce specific
      performance of the duties and obligations of Seller under this Agreement.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    2.03. Closing.
      The
      purchase and sale (the "Closing")
      provided for in this Agreement shall take place at the offices of Seller, at
      10:00 a.m. (local time) on or before June 1, 2007, or such other time as the
      parties may agree upon (the “Closing
      Date”).
      Subject to the provisions of Articles 9, 10, and 11, failure to consummate
      the
      purchase and sale provided for in this Agreement on the date and time and at
      the
      place determined pursuant to this Section 2.03 shall not result in the
      termination of this Agreement and shall not relieve any party of any obligation
      under this Agreement. Ten (10) Business Days prior to the Closing Date, Seller
      will deliver to Buyer a statement setting forth in reasonable detail Seller’s
      determination of the Preliminary Amount based upon the best information
      available at the time of Closing.

     

    2.04. Closing
      Obligations.
      At
      the
      Closing:

     

    
      	 	
              (a)

            	
              Seller
                shall deliver (and execute, as appropriate), or cause to be delivered
                (and
                executed, as appropriate), to
                Buyer:

            

    

     

    
      	 	
              (i)

            	
              the
                Instruments of Conveyance;

            

    

     

    
      	 	
              (ii)

            	
              possession
                of the Assets(except the Suspense Funds, which shall be conveyed
                to Buyer
                by way of a downward adjustment to the Purchase Price as provided
                in
                Section 2.05(b)(ii)(E));

            

    

     

    
      	 	
              (iii)

            	
              a
                certificate, in substantially the form set forth in Exhibit F, executed
                by
                Seller (a) representing and warranting to Buyer that each of Seller’s
                representations and warranties in this Agreement is true and correct
                in
                all material respects (or, with respect to representations and warranties
                qualified by materiality, in all respects) as of the Closing Date
                as if
                made on the Closing Date (except to the extent any such representation
                or
                warranty is stated to relate to an earlier date in which case such
                representation and warranty was true and correct on and as of such
                earlier
                date) and (b) representing and warranting to Buyer that Seller has
                performed and complied in all material respects with each of the
                Seller’s
                covenants and conditions in this Agreement prior to or as of the
                Closing
                Date;

            

    

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (iv)

            	
              a
                certificate executed by the secretary or assistant secretary of Seller
                certifying as to and attaching the following: (a) true, correct and
                complete copies the Seller’s organizational documents (together with any
                and all amendments), (b) true, correct, and complete copies of resolutions
                of Seller’s board of directors or other managing authority, as
                appropriate, authorizing and approving the execution, delivery, and
                performance of the Agreement, the Instruments of Conveyance, or other
                documents delivered pursuant to this Agreement and (c) the incumbency
                for
                each officer of Seller executing this Agreement, the Instruments
                of
                Conveyance, or other documents delivered pursuant to this
                Agreement;

            

    

     

    
      	 	
              (v)

            	
              such
                documents as Buyer or counsel for Buyer may reasonably request, including
                but not limited to letters-in-lieu of transfer order to purchasers
                of
                production from the Wells;

            

    

     

    
      	 	
              (vi)

            	
              the
                financial information described in Article 12.19;
                and

            

    

     

    
      	
            	(vii)	
              instructions
                directing the Escrow Agent to deliver the Deposit to Buyer. The Escrow
                Agent's delivery and Buyer’s acceptance of the certificates of the Deposit
                Shares shall constitute the Buyer's Parent's repurchase of the Deposit
                Shares from Seller, without payment by Buyer's Parent and without
                recourse
                or warranty whatsoever against Seller. 

            

    

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              Buyer
                shall deliver (and execute, as appropriate) to
                Seller:

            

    

     

    
      	 	
              (i)

            	
              the
                Preliminary Amount by wire transfer to the account(s) specified by
                Seller
                in written notice given by Seller to Buyer at least ten (10) Business
                Days
                prior to the Closing Date; 

            

    

     

    
      	 	
              (ii)

            	
              the
                Instruments of Conveyance;

            

    

     

    
      	 	
              (iii)

            	
              a
                certificate, in substantially the form set forth in Exhibit F, executed
                by
                Buyer (a) representing and warranting to Seller that each of Buyer’s
                representations and warranties in this Agreement is true and correct
                in
                all material respects as of the Closing Date as if made on the Closing
                Date (except to the extent any such representation or warranty is
                stated
                to relate to an earlier date in which case such representation and
                warranty was true and correct on and as of such earlier date) and
                (b)
                representing and warranting to Seller that Buyer has performed and
                complied in all material respects with each of the Buyer’s covenants and
                conditions in this Agreement prior to or as of the Closing
                Date;

            

    

     

    
      	 	
              (iv)

            	
              a
                certificate executed by the secretary or assistant secretary of Buyer
                certifying as to and attaching the following: (a) true, correct and
                complete copies the Buyer’s organizational documents (together with any
                and all amendments), (b) true, correct and complete copies of resolutions
                of Buyer’s board of directors or other managing authority, as appropriate,
                authorizing and approving the execution, delivery, and performance
                of the
                Agreement, the Instruments of Conveyance, or other documents delivered
                pursuant to this Agreement and (c) the incumbency for each officer
                of
                Buyer executing this Agreement, the Instruments of Conveyance, or
                other
                documents delivered pursuant to this
                Agreement;

            

    

     

    
      	 	
              (v)

            	
              such
                other documents as Seller or counsel for Seller may reasonably
                request.

            

    

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    2.05. Allocations
      and Adjustments. If
      the
      Closing occurs:

     

    
      	 	
              (a)

            	
              Notwithstanding
                the effective time of the Instruments of Conveyance, Buyer shall
                be
                entitled to all revenues, production, proceeds, income, and products
                from
                or attributable to the Assets on and after the Effective Time, and
                to all
                other income, proceeds, receipts and credits earned with respect
                to the
                Assets on or after the Effective Time, and shall be responsible for
                (and
                entitled to any refunds with respect to) all Property Costs attributable
                to the Assets and incurred on and after the Effective Time. Seller
                shall
                be entitled to all revenues, production, proceeds, income, accounts
                receivable, and products from or attributable to the Assets prior
                to the
                Effective Time, and shall be responsible for (and entitled to any
                refunds
                with respect to) all Property Costs attributable to the Assets and
                incurred on or prior to the Effective Time. “Earned” and "incurred,” as
                used in this Agreement, shall be interpreted in accordance with generally
                accepted accounting principles and Council of Petroleum Accountants
                Society (COPAS) standards. “Property
                Costs”
                shall mean all amounts attributable to the operation and ownership
                of the
                Assets reasonably incurred in the ordinary course of business and
                not in
                Breach of this Agreement, but excludes any Damages arising out of
                or
                resulting from an Environmental Defect identified by or on behalf
                of Buyer
                pursuant to Article 11, which Environmental Defect commenced prior
                to the
                Effective Time and for which Environmental Defect Buyer does not
                receive a
                reduction of the Purchase Price equal to the Environmental Defect
                Value.
                For purposes of allocating revenues, production, proceeds, income,
                accounts receivable, and products under this Section, (i) liquid
                hydrocarbons produced into storage facilities will be deemed to be
“from
                or attributable to” the Wells when they pass through the pipeline
                connecting into the storage facilities into which they are run, and
                (ii)
                gaseous hydrocarbons and liquid hydrocarbons produced into pipelines
                will
                be deemed to be “from or attributable to” the Wells when they pass through
                the delivery point sales meters on the pipelines through which they
                are
                transported. In order to accomplish the foregoing allocation of
                production, the parties shall rely upon gauging, metering, and strapping
                procedures conducted by Seller, with prior notice to Buyer and right
                of
                Buyer to witness such procedures, on
                or about the Effective Time to the extent possible and, unless
                demonstrated to be inaccurate, shall utilize reasonable interpolating
                procedures to arrive at an allocation of production when exact gauging,
                metering, and strapping data is not available on hand as of the Effective
                Time. Ad valorem taxes for 2007 shall be prorated on a daily basis,
                with
                Buyer liable for the portion allocated to the period on and after
                the
                Effective Time and Seller liable for the portion allocated to the
                period
                before the Effective Time. If the amount of such taxes for part,
                or all,
                of the Assets is not available on the Closing Date, proration of
                taxes
                shall be made on the basis of taxes assessed in the previous year,
                with a
                subsequent cash adjustment of such proration to be made between Seller
                and
                Buyer when actual tax figures are available. Property Costs shall
                not
                include any amounts which constitute or relate to Retained Liabilities.
                The "Preliminary
                Amount"
                shall be the Purchase Price, adjusted as provided in Section 2.05(b),
                based upon the best information available at time of the
                Closing.

            

    

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              The
                Purchase Price shall be, without
                duplication,

            

    

     

    
      	 	
              (i)

            	
              increased
                by the following amounts:

            

    

     

    
      	 	
              (A)

            	
              the
                aggregate amount of all non-reimbursed Property Costs which are
                attributable to the period from and after the Effective Time and
                which
                have been incurred and paid by Seller with respect to the Wells and
                Leases;

            

    

     

    
      	 	
              (B)

            	
              the
                aggregate amount of all upward adjustments pursuant to Article
                11;

            

    

     

    
      	 	
              (C)

            	
              any
                other upward adjustment mutually agreed upon by the parties;
                and

            

    

     

    
      	 	
              (D)

            	
              the
                amount Seller is underproduced as set forth in Part 3.12(a) of Seller’s
                Disclosure Schedule times $7.00 per MMBtu (or, with respect to oil
                Imbalances, $60.00 per barrel).

            

    

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              decreased
                by the following amounts:

            

    

     

    
      	 	
              (A)

            	
              the
                aggregate amount of (i) proceeds received by Seller from the sale
                of
                Hydrocarbons produced from and attributable to the Assets from and
                after
                the Effective Time for which Buyer is entitled under Section 2.05(a)
                and
                (ii) other proceeds received with respect to the Assets for which
                Buyer
                would otherwise be entitled under Section
                2.05(a);

            

    

     

    
      	 	
              (B)

            	
              the
                amount of any downward adjustment relating to Title Defects as set
                forth
                in Article 11;

            

    

     

    
      	 	
              (C)

            	
              the
                aggregate amount of all downward adjustments pursuant to Article
                11;

            

    

     

    
      	 	
              (D)

            	
              Seller’s
                share of estimated ad valorem taxes through the Effective Time;
                

            

    

     

    
      	 	
              (E)

            	
              the
                amount of the Suspense Funds;

            

    

     

    
      	 	
              (F)

            	
              the
                amount of any other downward adjustment mutually agreed upon by the
                parties;

            

    

     

    
      	 	
              (G)

            	
              the
                amount Seller is overproduced as set forth in Part 3.12(a) of Seller’s
                Disclosure Schedule times $7.00 per MMBtu (or, with respect to oil
                Imbalances, $60.00 per barrel); and

            

    

     

    
      	 	
              (H)

            	
              the
                value of Seller’s total Future/Delivery Payment Obligations as set forth
                in Part 3.12(c) of Seller’s Disclosure
                Schedule.

            

    

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	
              Subject
                to the arbitration provisions of Article 12.15 as to adjustments
                under
                Section 2.05(b)(ii)(B) and (c), as soon as practicable after Closing,
                but
                no later than one hundred eighty (180) days following the Closing
                Date,
                Seller shall prepare and submit to Buyer, a statement (the “Final
                Settlement Statement”)
                setting forth each adjustment or payment which was not finally determined
                as of the Closing Date and showing the values used to determine such
                adjustments to reflect the final adjusted Purchase Price. On or before
                sixty (60) days after receipt of the Final Settlement Statement,
                Buyer
                shall deliver to Seller a written report containing any changes that
                Buyer
                proposes be made to the Final Settlement Statement. During this sixty
                (60)
                day period, Buyer shall be given reasonable access to Seller's books
                and
                records relating to the matters required to be accounted for in the
                Final
                Settlement Statement, permitted to review the working papers of Seller
                relating to the Final Settlement Statement, and given reasonable
                access to
                the employees of Seller primarily responsible for the preparation
                of the
                Final Settlement Statement. Seller and Buyer shall undertake to agree
                with
                respect to the amounts due pursuant to the post-closing adjustment
                no
                later than one hundred eighty (180) days after the Closing Date (the
                “Post-Closing
                Date”).
                If Seller and Buyer are unable to agree by the Post-Closing Date
                as to
                adjustment matters not subject to arbitration in accordance with
                this
                Agreement, Seller and Buyer shall nevertheless adjust the Purchase
                Price
                to take into account all agreed-upon adjustments at that time. The
                Purchase Price, as adjusted on the Post-Closing Date, shall be called
                the
                “Post-Closing
                Amount.”
                If (a) the Post-Closing Amount is more than the Preliminary Amount,
                Buyer
                shall pay to Seller the amount of the difference; or (b) the Post-Closing
                Amount is less than the Preliminary Amount, Seller shall pay to Buyer
                the
                amount of the difference. Such payment, together with interest at
                the
                Agreed Interest Rate, shall be made within five (5) Business Days
                after
                the Post-Closing Date by wire transfer to accounts specified by Seller
                or
                Buyer, as appropriate. For those adjustment matters not subject to
                arbitration in accordance with this Agreement, and as to which Seller
                and
                Buyer are unable to reach agreement by the Post-Closing Date, Seller
                shall
                select an independent accounting firm in Houston, Texas, from a list
                of
                two such firms provided by Buyer (neither of which shall be the
                independent accounting firm regularly used by Buyer or Seller), which
                firm
                shall determine the Purchase Price adjustment or payment amount in
                accordance with the terms and conditions set forth in this Agreement.
                The
                decision of such independent accounting firm shall be binding on
                Seller
                and Buyer, and the fees and expenses of such independent accounting
                firm
                shall be borne one-half (1/2) by Seller and one-half (1/2) by Buyer.
                The
                date upon which the Purchase Price is established, as provided in
                the
                preceding sentence, shall be called the “Final
                Settlement Date,”
                and the final adjusted Purchase Price shall be called the “Final
                Amount.”
                If (a) the Final Amount is more than the Post-Closing Amount, Buyer
                shall
                pay to Seller the amount of the difference; or (b) the Final Amount
                is
                less than the Post-Closing Amount, Seller shall pay to Buyer the
                amount of
                the difference. Such payment, together with interest at the Agreed
                Interest Rate, shall be made within five (5) Business Days of the
                Final
                Settlement Date by wire transfer to accounts specified by Seller
                or Buyer,
                as appropriate. 

            

    

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    2.06. Assumption.
      If
      the
      Closing occurs, from and after the Closing Date, Buyer shall assume, pay, and
      discharge the following liabilities insofar as allocable to the Assets
      (“Assumed
      Liabilities”):

     

    Any
      and
      all duties, claims, damages, expenses, fines, penalties, costs (including
      attorneys’ fees and expenses), liabilities, and obligations ("Covered
      Liabilities") (i) attributable to or resulting from the ownership or operation
      of the Assets from and after the Effective Time under any Contract, Governmental
      Authorization, or Lease (except for the Retained Liabilities); (ii) imposed
      by
      any Legal Requirement relating to the Assets, other than any violations of
      any
      Legal Requirement prior to the Closing Date, (iii) for plugging, abandonment,
      and surface restoration of the oil, gas, injection, water, or other wells
      located on the lands covered by the Leases, (iv) from any act, omission,
      event, condition, or occurrence accruing subsequent to the Effective Time
      relating to the Assets (except for the Retained Liabilities), (v) under the
      AFE’s listed in Part 3.26 of the Seller’s Disclosure Schedule related to
      Hurricane Costs, but only to the extent pertaining to the interest in the Assets
      being acquired by Buyer (that is, exclusive of the MitEnergy Retained
      Liability), (vi) attributable to the Suspense Funds; and (vii) attributable
      to
      all Environmental Liabilities relating to the Assets; provided, however, the
      provisions of this Section 2.06 shall not relieve Seller from (i) liability
      resulting from a material Breach, if any, of its representations, warranties,
      or
      covenants under this Agreement, as provided in Article 10 or (ii) those
      obligations of Seller under Article 11 that continue after the Closing
      Date.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    Liabilities
      which constitute liabilities attributable to the Excluded Assets and/or Retained
      Assets, as well as Assumed Liabilities attributable to the Assets, shall be
      reasonably and fairly apportioned between Assumed Liabilities for which Buyer
      is
      responsible and liabilities with respect to the Excluded Assets and/or Retained
      Assets for which Seller is responsible. The Assumed Liabilities shall not
      include any Retained Liabilities.

     

    2.07. Retained
      Liabilities.
      Seller
      shall retain, perform, pay, and discharge the following (collectively "Retained
      Liabilities"):

    

    
      	 	
              (a)

            	
              all
                Covered Liabilities attributable to or resulting from any claim for
                personal injury or death or property damage occurring between the
                Effective Time and the Closing Date to the extent Seller has liability
                for
                such claim and such claim arises out of or is attributable to Seller’s
                use, ownership, or operation of the Assets; provided, however, that,
                Seller’s obligations under this clause (a) shall not exceed the aggregate
                amount of Seller’s insurance coverage with respect to such claims under
                the insurance policies required to be maintained until Closing pursuant
                to
                Section 5.03; 

            

    

     

    
      	 	
              (b)

            	
              any
                liability arising prior to the Effective Time with respect to gas
                pipeline
                Imbalances;

            

    

     

    
      	
            	(c)	
              any
                liability arising out of the Proceedings listed in Part 2.07(c) of
                Seller’s Disclosure Schedule; 

            

    

    

    
      	
            	(d)	
              the
                MitEnergy Retained Liability; and

            

    

    

    
      	
            	(e)	
              any
                demand, claim, liability, obligation, responsibility, cost (including
                cost
                of remediation), expenses, fine, penalty, judgment, or settlement
                attributable to or arising out of any actual or threatened Release
                of
                Hazardous Materials at or from real properties offsite of the Assets
                where
                Seller or any of its Affiliates transported, disposed, or arranged
                for the
                transportation or disposal of Hazardous Materials resulting from
                operation
                of the Assets.

            

    

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    2.08. Imbalances
      and Future Delivery/Payment Obligations.
      Should
      either party discover any inaccuracy in Parts 3.12(a), 3.12(c), or 3.12(d)
      of
      Seller’s Disclosure Schedule prior to six (6) months after the Closing, it shall
      promptly give the other party notice of such inaccuracy. Either party may assert
      one or more claims for an adjustment under this Section by delivering a written
      notice of each such claim to the other party prior to six (6) months after
      the
      Closing or, in the case of Buyer, within five (5) Business Days after Buyer's
      receipt of notice of such inaccuracy from Seller as required by this Section
      2.08, if later. If it is determined that there is an inaccuracy in the
      Imbalances set forth in Part 3.12(a) of Seller’s Disclosure Schedule or in the
      Future Delivery/Payment Obligations set forth in Part 3.12(c) of Seller’s
      Disclosure Schedule, then (i) if such claim is made before Closing, an
      adjustment to the Purchase Price will be made as set forth below or (ii) if
      such
      claim is made after Closing, a post-Closing adjustment to the Purchase Price
      will be made as set forth below (and in the case of a post-Closing adjustment,
      the payor will also pay the payee interest at the Agreed Interest Rate on the
      amount of the adjustment from the date of Closing to the date of payment):
      

     

    (a) 
      Imbalances. 

     

    
      	 	
              (i)

            	
              If
                Seller’s total net Imbalance reflects that Seller is more overproduced or
                less underproduced than as set forth in Part 3.12(a) of Seller’s
                Disclosure Schedule, then the Purchase Price shall be reduced by
                the net
                change in the total Imbalance times $7.00 per MMBtu (or, with respect
                to
                oil Imbalances, $60.00 per barrel);
                or

            

    

     

    
      	 	
              (ii)

            	
              If
                Seller’s total net Imbalance reflects that Seller is more underproduced
                or
                less overproduced than as set forth in Part 3.12(a) of Seller’s Disclosure
                Schedule, then the Purchase Price shall be increased by the net change
                in
                the total Imbalance times $7.00 per MMBtu (or, with respect to oil
                Imbalances, $60.00 per barrel).

            

    

     

    (b) 
      Future
      Delivery/Payment Obligations. 

     

    
      	 	
              (i)

            	
              If
                the value of Seller’s total Future Delivery/Payment Obligations is greater
                than the value of Seller’s total Future Delivery/Payment Obligations as
                set forth in Part 3.12(c) of Seller’s Disclosure Schedule (with gas
                delivery obligations being valued at the rate of $7.00 per MMBtu,
                oil
                delivery obligations being valued at $60.00 per barrel, and penalty
                payment obligations being valued at the dollar amount thereof), then
                the
                Purchase Price shall be reduced by the net change in the value of
                Seller’s
                total Future Delivery/Payment Obligations;
                or

            

    

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              If
                the value of Seller’s total Future Delivery/Payment Obligations is less
                than the value of Seller’s total Future Delivery/Payment Obligations as
                set forth in Part 3.12(c) of Seller’s Disclosure Schedule (with gas
                delivery obligations being valued at the rate of $7.00 per MMBtu,
                oil
                delivery obligations being valued at $60.00 per barrel, and penalty
                payment obligations being valued at the dollar amount thereof), then
                the
                Purchase Price shall be increased by the net change in the value
                of
                Seller’s total Future Delivery/Payment
                Obligations.

            

    

     

    This
      Section 2.08 provides the exclusive remedy for any inaccuracies in Parts 3.12(a)
      or 3.12(c) of Seller’s Disclosure Schedule. With respect to any claims made
      before Closing, an adjustment to the Purchase Price will be made at Closing
      in
      the manner provided above. With respect to any claims made after Closing,
      post-Closing adjustments to the Purchase Price will be made in the manner
      provided above. If the Purchase Price is reduced as a result of any such
      post-Closing adjustment, Seller will pay to Buyer the amount of such adjustment,
      plus interest at the Agreed Interest Rate on the amount of the adjustment from
      the date of Closing to the date of payment by Seller. If the Purchase Price
      is
      increased as a result of any such post-Closing adjustment, Buyer will pay to
      Seller the amount of such adjustment, plus interest at the Agreed Interest
      Rate
      on the amount of the adjustment from the date of Closing to the date of payment
      by Buyer. If one or more claims are made under this Section 2.08 post-Closing,
      the amount owing with respect to any post-Closing claim will take into account
      the other adjustments to the Purchase Price (at Closing and post-Closing) made
      pursuant to this Section 2.08. No deductible or limitation of liability
      elsewhere in this Agreement shall be applied to reduce Seller’s and Buyer's
      respective obligations under this Section 2.08. Notwithstanding
      anything to the contrary contained in this Section 2.08, no adjustment to the
      Purchase Price will be required (i) under Section 2.08(a) if it is
      determined that the actual total net Imbalance volumes are within 2% above
      or
      below those shown in Part 3.12(a) of Seller’s Disclosure Schedule or
      (ii) under Section 2.08(b) if it is determined that actual value of
      Seller’s total Future Delivery/Payment Obligations are within 2% above or below
      the value shown in Part 3.12(c) of Seller’s Disclosure Schedule.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      3 

     

    REPRESENTATIONS
      AND WARRANTIES OF SELLER

     

    Seller
      represents and warrants to Buyer, as of the date of this Agreement, as
      follows:

     

    3.01. Organization
      and Good Standing.Seller
      is
      a Delaware corporation, duly organized, validly existing, and in good standing
      under the laws of the state of Delaware and every state in which it is qualified
      to do business, and in each jurisdiction in which the Assets are located, with
      full corporate power and authority to conduct its business as it is now being
      conducted, and to own or use the properties and assets that it purports to
      own
      or use. Seller is not a “foreign person” for purposes of Section 1445 or Section
      7701 of the IRC.

     

    3.02. Authority;
      No Conflict. 

     

    
      	 	
              (a)

            	
              The
                execution, delivery, and performance of this Agreement and the
                Contemplated Transactions have been duly and validly authorized by
                all
                necessary corporate action on the part of Seller. This Agreement
                has been
                duly executed and delivered by Seller and at the Closing all instruments
                executed and delivered by Seller at or in connection with the Closing
                shall have been duly executed and delivered by Seller. This Agreement
                constitutes the legal, valid, and binding obligation of Seller,
                enforceable against Seller in accordance with its terms, except as
                such
                enforceability may be limited by applicable bankruptcy or other similar
                laws affecting the rights and remedies of creditors generally and
                by
                general principles of equity (regardless of whether such enforceability
                is
                considered in a proceeding in equity or at law). Upon the execution
                and
                delivery by Seller of the Instruments of Conveyance at the Closing,
                such
                Instruments of Conveyance shall constitute legal, valid, and binding
                transfers and conveyances of the Assets. Upon the execution and delivery
                by Seller of any other documents at the Closing (collectively with
                the
                Instruments of Conveyance, the "Seller’s
                Closing Documents"),
                Seller’s Closing Documents shall constitute the legal, valid, and binding
                obligations of Seller, enforceable against Seller in accordance with
                their
                respective terms, except as such enforceability may be limited by
                applicable bankruptcy or other similar laws affecting the rights
                and
                remedies of creditors generally and by general principles of equity
                (regardless of whether such enforceability is considered in a proceeding
                in equity or at law). Except as set forth in Part 3.02 of Seller’s
                Disclosure Schedule, Seller has the absolute and unrestricted right,
                power, authority, and capacity to execute and deliver this Agreement
                and
                Seller’s Closing Documents, and to perform its obligations under this
                Agreement and Seller’s Closing
                Documents.

            

    

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              Except
                as set forth in Part 3.02 of Seller’s Disclosure Schedule, neither
                the execution and delivery of this Agreement by Seller nor the
                consummation or performance of any of the Contemplated Transactions
                by
                Seller shall, directly or indirectly (with or without notice or lapse
                of
                time):

            

    

     

    
      	 	
              (i)

            	
              contravene,
                conflict with, or result in a violation of (A) any provision of the
                Organizational Documents of Seller, or (B) any resolution adopted
                by the
                board of directors or the stockholders of
                Seller;

            

    

     

    
      	 	
              (ii)

            	
              contravene,
                conflict with, or result in a violation of, or give any Governmental
                Body
                or other Person the right to challenge any of the Contemplated
                Transactions, to terminate, accelerate, or modify any terms of, or
                to
                exercise any remedy or obtain any relief under, any Contract or agreement
                or any Legal Requirement or Order to which Seller, or any of the
                Assets,
                may be subject;

            

    

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (iii)

            	
              contravene,
                conflict with, or result in a violation of any of the terms or
                requirements of, or give any Governmental Body the right to revoke,
                withdraw, suspend, cancel, terminate, or modify, any Governmental
                Authorization that relates to the
                Assets;

            

    

     

    
      	 	
              (iv)

            	
              result
                in the imposition or creation of any Encumbrance upon or with respect
                to
                any of the Assets.

            

    

     

    3.03. Bankruptcy.
      There
      are
      no bankruptcy, reorganization, or arrangement proceedings being contemplated
      by
      Seller or, to the Knowledge of Seller, pending or Threatened against
      Seller.

     

    3.04. Taxes.
      Seller
      has filed or caused to be filed all Tax Returns that it has been or was required
      to file, either separately or as a member of a consolidated group, pursuant
      to
      applicable Legal Requirements. All Tax Returns filed by (or that include on
      a
      consolidated basis) Seller are true, correct, and complete. Seller has paid
      all
      Taxes that have become due pursuant to those Tax Returns or otherwise, or
      pursuant to any assessment received by Seller, to the extent not being contested
      in good faith without, to the Knowledge of Seller, any lien for Taxes having
      been filed or recorded against any of the Assets. Seller does not have any
      Knowledge of any Threatened Tax assessment against it except as disclosed in
      Part 3.04 of Seller’s Disclosure Schedule. To the Knowledge of Seller,
      except as disclosed in Part 3.04 of Seller’s Disclosure Schedule, none of
      the Assets were bound as of the Effective Time and/or will be bound following
      the Closing by any tax partnership agreement of or binding upon Seller or its
      assigns affecting any of the Assets.

     

    3.05. Legal
      Proceedings; Orders.

     

    
      	 	
              (a)

            	
              Except
                as set forth in Part 3.05 of Seller’s Disclosure Schedule, there is no
                pending Proceeding against Seller or any of its
                Affiliates:

            

    

     

    
      	 	
              (i)

            	
              that
                relates to or may affect any of the Assets;
                or

            

    

     

    
      	 	
              (ii)

            	
              that
                challenges, or that may have the effect of preventing, delaying,
                making
                illegal, or otherwise interfering with, any of the Contemplated
                Transactions.

            

    

     

    
      	 	 	
              (b)

            	
              Except
                as set forth in Part 3.05 of Seller’s Disclosure Schedule, to Seller’s
                Knowledge: (1) no Proceeding of the type referenced in Section 3.05
                (a)
                has been Threatened, (2) no event has occurred nor does any circumstance
                exist that may give rise to or serve as a basis for the commencement
                of
                any such Proceeding, and (3) no basis exists for any claim by any
                employee
                of Seller or any other person under any Legal Requirement for which
                Buyer
                could become liable as a successor or
                otherwise.

            

    

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	
              Except
                as set forth in Part 3.05 of Seller’s Disclosure Schedule, there is no
                Order adversely affecting the use or ownership of the Seller Operated
                Assets, and to Seller’s Knowledge, the Non-Operated Assets, to which
                Seller, or any of the Assets, is
                subject.

            

    

     

    
      	 	 	
              (d)

            	
              Except
                as
                set forth in Part 3.05 of Seller’s Disclosure Schedule, there is no Order
                or Proceeding restraining, enjoining, or otherwise prohibiting or
                making
                illegal the consummation of the Contemplated Transactions or which,
                if
                determined adversely to Seller, could result in a material diminution
                of
                the benefits contemplated by this Agreement or the Contemplated
                Transactions.

            

    

    

    3.06. Environmental. 

     

     

    
      	 	
              (a)

            	
              To
                the Knowledge of Seller, except as set forth in Part 3.06 of Seller’s
                Disclosure Schedule, or except as would not have an Environmental
                Material
                Adverse Effect, there are no Violations of Environmental Laws that
                arise
                from events occurring at or conditions existing on the Assets during
                the
                period Seller owned the affected Assets, which have not been corrected
                or
                Remediated and all applicable fines or penalties paid in full under
                the
                requirements of any Governmental Body having
                jurisdiction.

            

    

     

    
      	 	
              (b)

            	
              To
                the Knowledge of Seller, except as set forth in Part 3.06 of Seller’s
                Disclosure Schedule, there are no Environmental Liabilities that
                arise
                from events occurring at or conditions existing on the Assets during
                the
                period Seller owned the affected Assets, except as would not have
                an
                Environmental Material Adverse
                Effect.

            

    

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	
              Except
                as set forth in Part 3.06 of Seller’s Disclosure Schedule or except as
                would not have an Environmental Material Adverse Effect, all Governmental
                Authorizations required under applicable Environmental Laws that
                are
                necessary to the operation of the Seller Operated Assets or, to the
                Knowledge of Seller, any other Assets, have been obtained and are
                in full
                force and effect, and Seller has operated the Seller Operated Assets
                in
                compliance with such Permits.

            

    

     

    
      	 	
              (d)

            	
              Except
                as set forth in Part 3.06 of Seller’s Disclosure Schedule, or except as
                would not have an Environmental Material Adverse Effect, neither
                Seller
                nor any of its Affiliates has received any notifications of any
                Proceedings pending or, to the Knowledge of the Seller, threatened
                against
                Seller or the Assets and alleging that Seller or the Assets are in
                violation of or otherwise subject to liability under applicable
                Environmental Law.

            

    

     

    
      	 	
              (e)

            	
              Except
                as would not have an Environmental Material Adverse Effect, there
                has been
                no claim asserting liability for exposure of any Person or property
                to
                Hazardous Materials in connection with the
                Assets.

            

    

    

    
      	 	
              (f)

            	
              Seller
                either has made, or will, immediately after the execution of this
                Agreement, make available to Buyer all environmental assessment,
                investigatory, and audit reports, studies, analyses, and correspondence
                (other than correspondence that exists solely in electronic form)
                relating
                to the Assets that are in the possession or control of Seller or
                any of
                its Affiliates and addressing Releases or threatened Releases,
                Remediations, Environmental Liabilities, Environmental Conditions,
                or
                Violations of Environmental Laws.

            

    

     

    3.07. Equipment
      and Personal Property.

     

    
      	 	
              (a)

            	
              Except
                as set forth in Part 3.07(a) of the Seller's Disclosure Statement,
                all
                Equipment (i) is in an operable state of repair adequate to maintain
                normal operations and (ii) is suitable for the purposes for which
                such
                Equipment is being used. Seller has all material easements, rights
                of way,
                licenses, and Governmental Authorizations necessary to access, construct,
                operate, maintain, and repair the Equipment in material compliance
                with
                all Legal Requirements. Except to the extent included in the Assets,
                neither Seller nor any Affiliate of Seller owns any gathering systems,
                downstream transportation systems, or gas processing facilities in
                or
                through which any Hydrocarbons are gathered, transported, or
                processed.

            

    

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              Subject
                to and without limiting Section 3.07(a), to the extent the Assets
                constitute personal property or fixtures, Seller expressly disclaims
                and
                negates (a) any implied or express warranty of merchantability, (b)
                any
                implied or express warranty of fitness for a particular purpose,
                (c) any
                implied or express warranty of conformity to models or samples of
                materials, and (d) any other warranty of any nature, express or implied,
                except as expressly provided herein, and all such Assets are to be
                conveyed "As Is" and "Where Is," with all
                faults.

            

    

     

    3.08. Title
      to Properties.
      On
      the
      Closing Date, Seller shall convey to Buyer Defensible Title to the Assets.
      Seller has delivered or made available to Buyer all items in its possession
      that
      would be relevant in the determination as to whether Seller has the ability
      to
      convey Defensible Title to the Assets.

     

    3.09. Brokers.
      Seller
      has not incurred any obligation or liability, contingent or otherwise, for
      broker’s or finder’s fees with respect to the transactions contemplated by this
      Agreement other than obligations that are the sole responsibility of
      Seller.

     

    3.10. Tax
      Sharing Agreements.
      There
      are
      no tax sharing agreements or any other contract relating to the sharing or
      payment of any Tax for which Buyer will have any liability in connection with
      the Contemplated Transactions.

     

    3.11. Consents
      and Preferential Purchase Rights.
      Except
      with respect to the MMS approvals, Part 3.11 of Seller’s Disclosure Schedule
      sets forth all Consents and Preferential Purchase Rights.

     

    3.12. Imbalances
      and Future Delivery/Payment Obligations.
      Except
      as
      set forth in Part 3.12(a) of Seller’s Disclosure Schedule, there are no
      Imbalances as of the Effective Time. To Seller's Knowledge, the current status
      of Imbalances is as set forth in Part 3.12(b) of Seller’s Disclosure Schedule.
      Except as set forth in Part 3.12(c) of Seller’s Disclosure Schedule, there are
      no Future Delivery/Payment Obligations as of the Effective Time. Except as
      set
      forth in Part 3.12(d) of Seller’s Disclosure Schedule, no Future
      Delivery/Payment Obligations are attributable to the period after the Effective
      Time. Notwithstanding anything to the contrary contained in this Agreement,
      Seller makes no representation or warranty with respect to gas pipeline
      Imbalances, which, pursuant to Section 2.07, constitute Retained Liabilities.
      

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    3.13. Status
      of Leases.
       
      (i) To
      Seller’s Knowledge, the
      Leases have been maintained according to their terms, in compliance with the
      agreements to which the Leases are subject; (ii) all royalties (other than
      royalties held in suspense), delay rentals, and other payments due under the
      Leases which are Seller Operated Assets (and to Seller’s Knowledge with respect
      to the other Leases) have been properly and timely paid and all conditions
      necessary to keep the Leases in force have been fully performed by Seller and
      each other Person that is a party thereto; (iii) to Seller’s Knowledge, except
      as shown on the Exhibits hereto, and without expanding or enlarging any warranty
      of title given elsewhere herein, the Leases are presently in force and effect
      as
      to all water bottoms and depths; and (iv) neither Seller nor, to Seller’s
      Knowledge, any other party to any Lease has received notice or threat of any
      claim or action seeking to terminate, cancel, rescind, or procure a judicial
      reformation of any Lease or any provisions thereof or seeking the release of
      any
      Lease (or portion thereof). Each
      Lease is a legal, valid and binding agreement, enforceable in accordance with
      its terms, of Seller and of each other Person that is a party thereto, and,
      except as set forth in Part 3.13 of Seller’s Disclosure Schedule, there is no,
      and Seller has not received notice of any, breach or default (nor is it aware
      of
      any condition or event which, after notice or lapse of time or both, would
      constitute a breach or default) thereunder. 

     

    3.14. Contracts.

     

    
      	 	
              (a)

            	
              Set
                forth on Part 3.14 of Seller’s Disclosure Schedule (and segregated in Part
                3.14 among the below categories) is a true, complete, and correct
                description of each contract, agreement, lease, or similar arrangement
                which is included in the Assets (or by which any of the Assets is
                bound)
                and which:

            

    

     

    
      	 	
              (i)

            	
              is
                between Seller and any Affiliate of
                Seller;

            

    

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              is
                a contract for the sale, purchase, processing, or transportation
                of any
                Hydrocarbons or any other Assets, except those Hydrocarbon sales,
                purchase, processing or transportation agreements which can be terminated
                by Seller and its assigns upon not more than forty-five (45) days
                notice
                without penalty or detriment to Seller and its
                assigns;

            

    

     

    
      	 	
              (iii)

            	
              creates
                a purchase option, right of first refusal, call, or preferential
                purchase
                right on any Hydrocarbons;

            

    

     

    
      	 	
              (iv)

            	
              creates
                any area of mutual interest or similar provision with respect to
                the
                acquisition by Seller or its assigns of any interest in any Hydrocarbons,
                land or asset, or contains any restrictions on the ability of Seller
                or
                its assigns to compete with any other
                Person;

            

    

     

    
      	 	
              (v)

            	
              is
                a participation, partnership, joint venture, farmout, farmin, or
                similar
                agreement;

            

    

     

    
      	 	
              (vi)

            	
              creates
                or evidences any Preferential Purchase Right or
                Consent;

            

    

     

    
      	 	
              (vii)

            	
              evidences
                an obligation in excess of $250,000.00 to pay a deferred purchase
                price of
                property, except accounts payable arising in the ordinary course
                of
                business;

            

    

     

    
      	 	
              (viii)

            	
              evidences
                a lease or rental of any land, building or other improvements or
                portion
                thereof, excluding Leases; or

            

    

     

    
      	 	
              (ix)

            	
              is
                necessary to own and operate the Assets in the manner that they were
                owned
                and operated on the date of this Agreement or that creates any material
                obligation related to the Assets.

            

    

     

    
      	 	
              (b)

            	
              Seller
                has made available to Buyer true, complete, and correct copies of
                all
                Contracts and Leases (together with all amendments and supplements
                to such
                Contracts and Leases and all waivers of any terms thereof) listed
                on
                Exhibit B and/or Part 3.14 of Seller’s Disclosure
                Schedule.

            

    

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	
              Except
                as set forth on Parts 3.02 and 3.14 of Seller’s Disclosure Schedule, and
                except where the failure would not have a material adverse effect
                on the
                operations or value of the Assets, taken as a whole, (1) each Contract
                is
                in full force and effect and constitutes a legal, valid, and binding
                agreement, enforceable in accordance with its terms, of each party
                thereto; (2) there are no violations or breaches of any Contract
                or
                existing facts or circumstances which upon notice or the passage
                of time
                or both will constitute a violation or breach thereof; (3) no notice
                of
                the exercise or attempted exercise of premature termination, price
                reduction, market-out or curtailment of any Contract has been received
                by
                Seller or any Affiliate of Seller nor, to the Knowledge of Seller,
                any
                other party to such Contract; (4) no notice has been received by
                Seller or
                any Affiliate of Seller nor, to the Knowledge of Seller, any other
                party
                to such Contract, that any party thereto intends not to honor its
                obligations under any Contract; and (5) Seller nor, to the Knowledge
                of
                Seller, any other party to such Contract, is not participating in
                any
                discussions or negotiations regarding modification of any
                Contract.

            

    

     

    
      	 	
              (d)

            	
              Except
                as set forth in Part 3.11 of Seller’s Disclosure Schedule, the Contracts
                are freely assignable without the Consent of third
                parties.

            

    

     

    3.15. Laws
      and Regulations.
      Except
      as
      set forth in Part 3.15 of Seller’s Disclosure Schedule, (a) the Seller Operated
      Assets are, and the operation of the Seller Operated Assets is, and to the
      Knowledge of Seller, the Non-Operated Assets are, and the operation of the
      Non-Operated Assets is, in compliance in all material respects with the
      provisions and requirements of all Legal Requirements (other than requirements
      of Environmental Laws which are governed by Section 3.06 rather than this
      Section); and (b) Seller has in effect all Governmental Authorizations necessary
      for it to own, lease, or operate the Assets and to carry on its business with
      respect to the Assets, and there has occurred no default under any such
      Governmental Authorization. Seller has not received any notice that it, its
      Affiliates or any such operator is, in default (or with the giving of notice
      or
      lapse of time or both, would be in default) under any such Governmental
      Authorization.

     

    3.16. Non-Consent
      Operations.
      Seller
      has not elected not to participate in any operation or activity proposed with
      respect to the Assets which could result in any of Seller’s interest in any
      Assets becoming subject to a penalty or forfeiture as a result of such election
      not to participate in such operation or activity, except to the extent reflected
      in the Net Revenue Interests and Working Interests set forth in Exhibit
      A.

    

    3.17. Wells. To
      the
      Knowledge of Seller, all Wells have been drilled and completed within the limits
      permitted by all applicable Leases, contracts, and pooling or unit agreements,
      and by Legal Requirements. To the Knowledge of Seller, no Well is subject to
      penalties on allowables after the Effective Time because of any overproduction
      or any other violation of Legal Requirements. Except as set forth in Part 3.17
      of Seller’s Disclosure Schedule, there are no wells, platforms, or other
      Equipment located on the Seller Operated Assets, and to the Knowledge of Seller,
      on the Non-Operated Assets, that: (i) Seller is currently obligated by any
      Legal
      Requirement or contract to currently plug and abandon; (ii) are subject to
      exceptions to a requirement to plug and abandon issued by a Governmental Body;
      or (iii) have been plugged and abandoned in a manner that does not comply in
      all
      material respects with Legal Requirements.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    

    3.18. Outstanding
      Capital Commitments.
      To
      Seller’s Knowledge, as of the Effective Time and as of the date of this
      Agreement, there were and are no outstanding AFEs or other commitments to make
      capital expenditures which are binding on Seller or the Assets and which Seller
      reasonably anticipates will individually require expenditures by the owner
      of
      the Assets after the Effective Time in excess of $250,000.00, other than those
      shown on Part 3.18 of Seller’s Disclosure Schedule.

    

    3.19. Operation
      of Assets Since Effective Time.
      From
      the
      Effective Time until the date of this Agreement, Seller (a) has conducted the
      business with respect to the Assets only in the ordinary course of business,
      (b)
      has conducted such business in the manner required under Section 5.02(a)(i)
      through (iv) had such provisions been applicable during such period, and (c)
      has
      not taken any action for which consent or waiver by Buyer would have been
      required under Section 5.02(b)(ii), (v), (vi), (vii) or (viii) had such
      provisions been applicable during such period.

    

    3.20. No
      Pooling, Unitization, Communitization or Spacing Orders.
      Seller
      represents and warrants that no pooling, unitization, communitization, or
      spacing orders or agreements have been entered or promulgated after the
      Effective Time, and Seller has not received any notice of any proposed pooling,
      unitization, communitization or spacing orders or agreements, with respect
      to
      the Assets that would cause any change to Seller’s Net Revenue Interests or
      Working Interests as set forth in Exhibit A hereto. 

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    3.21. Material
      Factor.
      Seller
      acknowledges that Seller's representations under this Article are a material
      inducement to Buyer to enter into this Agreement and close the Contemplated
      Transactions with Seller.

    

    3.22. No
      Encumbrances.
      Except
      as
      set forth in Part 3.22 of the Seller’s Disclosure Schedule, there are no
      Encumbrances affecting the interests of Seller in the Assets.

     

    3.23.  Assets.
      The
      Assets include all of the interests of Seller and its Affiliates in the
      properties included in the Assets.

    

    3.24. No
      Orders.
      Except
      as
      set forth in Part 3.24 of the Seller’s Disclosure Schedule, neither Seller, its
      Affiliates, nor, to the Knowledge of Seller, the operator of any Asset is
      subject to any Order with respect to any Asset other than Orders that are
      generally applicable to offshore oil and gas operators or that would not have
      an
      Environmental Material Adverse Effect.

    

    3.25. Insurance
      Claims.
      Part
      3.25
      of the Seller’s Disclosure Schedule sets forth a complete list of all claims
      made by Seller under insurance policies during the five (5) year period
      preceding the execution of this Agreement with respect to operations of, or
      damage or destruction to, the Assets.

    

    3.26. Hurricane
      Costs.
      All
      physical damage to the Equipment and other tangible property included in the
      Seller Operated Assets has been restored, repaired, and replaced. Part 3.26(a)
      of the Seller’s Disclosure Schedule sets forth a complete list of all
      outstanding AFE’s for Hurricane Costs. To Seller’s Knowledge, there are no cost
      overruns expected with respect to such AFE’s except as set forth on Part 3.26(b)
      of the Seller’s Disclosure Schedule.

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    3.27. Legal
      Privilege Documents.
      Part
      3.27
      of the Seller’s Disclosure Schedule sets forth a complete list of all records,
      documents, and other materials regarding the Assets that were not provided
      to
      Buyer as a result of being subject to legal privilege or which constitute
      Excluded Assets by virtue of being subject to legal privilege.

    

    3.28. Investment
      Representations.

     

    
      	 	
              (a)

            	
              Seller
                has (i) the ability to bear the economic risks of ownership of the
                Deposit
                Shares which may be delivered to Seller under the terms of the Agreement
                and (ii) the knowledge and experience in financial and business matters
                necessary for evaluating the merits and risks of investing in Deposit
                Shares; 

            

    

     

    
      	 	
              (b)

            	
              Seller
                has had such opportunity as it has deemed appropriate to ask questions
                of
                and receive answers from persons acting on behalf of Buyer’s Parent and
                Buyer concerning Buyer’s Parent, Buyer and the Contemplated Transactions
                in order to make an informed investment decision with respect to
                the
                Deposit Shares;

            

    

     

    
      	 	
              (c)

            	
              Seller
                would not be acquiring the Deposit Shares under the terms and conditions
                of the Escrow Agreement as a result of or after any advertisement,
                article, notice or other communication published in any newspaper,
                magazine or similar media or broadcast over television or radio or
                presented at any seminar or
                meeting;

            

    

     

    
      	 	
              (d)

            	
              Seller
                is an “accredited investor” as such term is defined in Rule 501
                promulgated under the Securities Act of 1933, as amended (the
                “Securities
                Act”);
                

            

    

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (e)

            	
              Seller
                would be acquiring the Deposit Shares upon the terms and conditions
                set
                forth in the Escrow Agreement for investment and for Seller’s own account
                and not with the current view to, or for resale in connection with,
                any
                distribution;

            

    

     

    
      	 	
              (f)

            	
              Seller
                understands that the Deposit Shares have not been registered under
                the
                Securities Act or under any state securities or blue sky laws, and,
                as a
                result, are subject to substantial restrictions on transfer subject,
                however, to the provisions of the Registration Rights
                Agreement;

            

    

     

    
      	 	
              (g)

            	
              Seller
                acknowledges that appropriate legends will be placed on the certificates
                representing the Deposit Shares indicating the restrictions on transfer
                of
                the Deposit Shares, but such legends shall be subject to removal
                upon
                registration under the circumstances described in the Registration
                Rights
                Agreement or as otherwise provided by law;
                and

            

    

     

    
      	 	
              (h)

            	
              Seller
                acknowledges that the Deposit Shares must be held indefinitely unless
                subsequently registered under the Securities Act and any applicable
                state
                securities or blue sky laws, whether pursuant to the Registration
                Rights
                Agreement or otherwise, or sold or otherwise transferred pursuant
                to
                exemptions from registration under the Securities Act and/or such
                state
                securities laws.

            

    

     

    3.29. Acknowledgments
      Regarding MMS Letter.
       Buyer
      acknowledges the disclosure by Seller of that certain letter dated February
      5,
      2007, from Chris Oynes, Regional Director of the MMS, to Seller, pertaining
      to
      Seller’s compliance performance. The Parties acknowledge that such letter could
      be interpreted to be applicable to several of the representations and warranties
      contained in this Article 3. Buyer agrees that the disclosure of such letter
      in
      Part 3.15 of the Disclosure Schedule constitutes adequate disclosure in
      connection with any other representation and warranty in this Article 3 to
      which
      such letter might be interpreted to be applicable. 

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      4 

     

    REPRESENTATIONS
      AND WARRANTIES OF BUYER

     

    Buyer
      represents and warrants to Seller, as of the date of this Agreement, as
      follows:

     

    4.01. Organization
      and Good Standing. Buyer
      is
      duly organized, validly existing, and in good standing under the laws of
      Delaware and
      in
      every state in which it is qualified to do business, and in each jurisdiction
      in
      which the Assets are located.

     

    4.02. Authority;
      No Conflict.

     

    
      	 	
              (a)

            	
              This
                Agreement constitutes the legal, valid, and binding obligation of
                Buyer,
                enforceable against Buyer in accordance with its terms, except as
                such
                enforceability may be limited by applicable bankruptcy or other similar
                laws affecting the rights and remedies of creditors generally and
                by
                general principles of equity (regardless of whether such enforceability
                is
                considered in a proceeding in equity or at law). Upon the execution
                and
                delivery by Buyer of the Instruments of Conveyance and any other
                documents
                executed and delivered by Buyer at the Closing (collectively, the
                "Buyer’s
                Closing Documents"),
                the Buyer’s Closing Documents shall constitute the legal, valid, and
                binding obligations of Buyer enforceable against Buyer in accordance
                with
                their respective terms, except as such enforceability may be limited
                by
                applicable bankruptcy or other similar laws affecting the rights
                and
                remedies of creditors generally and by general principles of equity
                (regardless of whether such enforceability is considered in a proceeding
                in equity or at law). Buyer has the absolute and unrestricted right,
                power, authority, and capacity to execute and deliver this Agreement
                and
                the Buyer’s Closing Documents, and to perform its obligations under this
                Agreement and the Buyer’s Closing
                Documents.

            

    

     

    
      	 	
              (b)

            	
              Except
                as disclosed to Seller on Part 4.02 of Buyer’s Disclosure Schedule,
                neither the execution and delivery of this Agreement by Buyer nor
                the
                consummation or performance of any of the Contemplated Transactions
                by
                Buyer shall give any Person the right to prevent, delay, or otherwise
                interfere with any of the Contemplated
                Transactions.

            

    

     

    
      	 	
              (c)

            	
              Except
                with respect to the MMS Approvals, or as disclosed to Seller on Part
                4.02
                of Buyer’s Disclosure Schedule, Buyer is not and shall not be required to
                give any notice to or obtain any Consent from any Person in connection
                with the execution and delivery of this Agreement or the consummation
                or
                performance of any of the Contemplated
                Transactions.

            

    

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    4.03. Certain
      Proceedings.
      There
      is
      no pending Proceeding that has been commenced against Buyer that challenges,
      or
      may have the effect of preventing, delaying, making illegal, or otherwise
      interfering with, any of the Contemplated Transactions. To Buyer’s Knowledge, no
      such Proceeding has been Threatened.

     

    4.04. Knowledgeable
      Investor.
      Buyer
      is
      an experienced and knowledgeable investor in the oil and gas business. Prior
      to
      entering into this Agreement, Buyer was advised by its own legal, tax, and
      other
      professional counsel concerning this Agreement, the Contemplated Transactions,
      the Assets, and their value, and it has relied solely thereon and on the
      representations and obligations of Seller in this Agreement and the documents
      to
      be executed by Seller in connection with this Agreement at Closing. Buyer is
      acquiring the Assets for its own account and not for distribution.

     

    4.05. Securities
      Laws.
      The
      solicitation of offers and the sale of the Assets by Seller have not been
      registered under any securities laws. Buyer represents that at no time has
      it
      been presented with or solicited by or through any public promotion or any
      form
      of advertising in connection with this transaction. Buyer represents that it
      intends to acquire the Assets for its own benefit and account and that it is
      not
      acquiring the Assets with the intent of distributing fractional, undivided
      interests that would be subject to regulation by federal or state securities
      laws, and that if it sells, transfers, or otherwise disposes of the Assets
      or
      fractional undivided interests therein, it shall do so in compliance with
      applicable federal and state securities laws.

     

    4.06. Due
      Diligence.
      Without
      limiting or impairing any representation, warranty, covenant, or agreement
      of
      Seller contained in this Agreement and the Seller's Closing Documents, or
      Buyer's right to rely thereon, Buyer represents that it has performed, or shall
      perform before the Closing, such review and due diligence with respect to the
      Assets, which includes reviewing well data and other files in performing
      necessary evaluations, assessments, and other tasks involved in evaluating
      the
      Assets as it deems necessary to enable it to make an informed decision to
      acquire the Assets under the terms of this Agreement.

     

    4.07. Basis
      of Buyer’s Decision.
       Buyer
      represents that by reason of its knowledge and experience in the evaluation,
      acquisition, and operation of oil and gas properties, Buyer has evaluated the
      merits and the risks of purchasing the Assets from Seller, and has formed an
      opinion based solely on Buyer’s knowledge and experience, Buyer’s due diligence
      and Seller’s representations, warranties, covenants and agreements contained in
      this Agreement and Seller’s Closing Documents, and not on any other
      representations or warranties by Seller. Buyer represents that it has not relied
      and shall not rely on any statements by Seller or its representatives (other
      than those representations, warranties, covenants and agreements of Seller
      contained in this Agreement and Seller’s Closing Documents) in making its
      decision to enter into this Agreement or to close this transaction.

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

    4.08. Material
      Factor.
      Buyer
      acknowledges that Buyer's representations under this Article are a material
      inducement to Seller to enter into this Agreement and close the Contemplated
      Transactions with Buyer.

     

    4.09. Brokers.
      Buyer
      has
      not incurred any obligation or liability, contingent or otherwise, for broker’s
      or finder’s fees with respect to the transactions contemplated by this Agreement
      other than obligations that are the sole responsibility of Buyer.

     

    4.10. Buyer's
      Parent. 
      With
      respect to Buyer's Parent:

     

    
      	 	
              (a)

            	
              Buyer's
                Parent is a company duly organized, validly existing and in good
                standing
                under the laws of Bermuda and every state in which it is qualified
                to do
                business, with full power and authority to conduct its business as
                it is
                now being conducted and to own or use the properties and assets that
                it
                purports to own or use.

            

    

     

    
      	 	
              (b)

            	
              The
                authorized, issued and outstanding capital of Buyer's Parent is as
                described in Buyer's Parent's registration statement on Form S-1
                (File No.
                333-140916), declared effective by the Commission on or about April
                6,
                2007 (the "Parent Registration Statement"). Parent has no options,
                warrants or other securities convertible into or exchangeable for
                or with
                any of Parent's common shares or other securities except as described
                in
                the Parent Registration Statement. The forms of memorandum of association
                and bye-laws attached as exhibits to the Parent Registration Statement
                and
                provided to counsel for Seller reflect the true and complete copies
                of
                such instruments, including all amendments and as in effect on the
                date
                hereof.

            

    

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	
              The
                Deposit Shares have been duly and validly issued to Seller for valid
                consideration, and the Deposit Shares are fully paid, non-assessable
                common shares of Buyer's Parent. The Deposit Shares have been duly
                registered in the name of Seller, with no stop orders or other
                restrictions on transfer, except for the terms of the Escrow
                Agreement.

            

    

     

    
      	 	
              (d)

            	
              Buyer's
                Parent has the absolute and unrestricted right, power, authority,
                and
                capacity to issue the Deposit Shares to Seller. Buyer's Parent has
                obtained all necessary consents, including without limitation the
                consent
                of its board of directors, required for the issuance and delivery
                of the
                Deposit Shares to Seller, and no consent of any shareholders or other
                third parties is required for such issuance or delivery. Buyer's
                Parent's
                issuance and delivery of the Deposit Shares and execution, delivery
                and
                performance of the Registration Rights Agreement will not contravene,
                conflict with, or result in a violation of any provision of its memorandum
                of association or bye-laws, or any resolution adopted by the board
                of
                directors or the shareholders of Buyer's Parent; or contravene, conflict
                with, or result in a violation of, or give any Governmental Body
                or other
                Person the right to challenge such issuance and delivery, to terminate,
                accelerate, or modify any terms of, or to exercise any remedy or
                obtain
                any relief under, any material Contract or agreement or any Legal
                Requirement or Order to which Buyer's Parent may be subject. Without
                limiting the generality of the foregoing, the "Termination Date"
                under
                Bye-Law 49 of Buyer's Parent's Bye-Laws has occurred and there are,
                as of
                the date of this Agreement, no restrictions on Buyer's Parent nor
                rights
                of shareholders or other Persons arising under such Bye-Law
                49.

            

    

     

    
      	 	
              (e)

            	
              Buyer,
                on behalf of Buyer's Parent, acknowledges the issuance of the Deposit
                Shares, agrees that Seller shall not be required to give the notice
                described in Bye-Law 50.1, and further agrees that Seller shall not
                be
                deemed in default as described in Bye-Law 50.3 as a result of Seller's
                holdings of the Deposit Shares.

            

    

     

    
      	 	
              (f)

            	
              The
                Registration Statement on Form S-1 (File No. 333-140916), including
                the
                exhibits thereto, declared effective
                by
                the Commission on or about April 6, 2007 (the “Registration Statement”),
                at the time the Registration Statement was declared effective by
                the
                Commission, did not include an untrue statement of a material fact
                or omit
                to state a material fact required to be stated therein or necessary
                to
                make the statements therein not
                misleading.

            

    

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

    

    ARTICLE
      5 

     

    COVENANTS
      OF SELLER

     

    5.01. Access
      and Investigation.
      Between
      the date of this Agreement and the Closing Date, Seller shall (a) afford Buyer
      and its Representatives full and complete access during normal business hours
      to
      Seller’s personnel, properties, contracts, books and records, and other
      documents and data, (b) furnish promptly Buyer and its Representatives with
      copies of all such contracts, books and records, and other existing documents
      and data as Buyer and its Representatives may reasonably request (and upon
      Buyer’s request use reasonable efforts to obtain the consent of third party
      operators to give Buyer and its Representatives reasonable access to similar
      information with respect to Assets not operated by Seller or an Affiliate of
      Seller), (c) make available to Buyer immediately after the date of this
      Agreement all environmental assessment, investigatory, and audit reports,
      studies, analyses, and correspondence (other
      than correspondence that exists solely in electronic form)
      relating
      to the Assets that are in the possession or control of Seller or any of its
      Affiliates, addressing Releases or threatened Releases, Remediations,
      Environmental Liabilities, Environmental Conditions, or Violations of
      Environmental Laws, and (d) furnish promptly to Buyer and its Representatives
      with such additional financial, operating, and other data and information as
      Buyer may reasonably request;
      PROVIDED
      THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT AND IN THE SELLER'S CLOSING
      DOCUMENTS, SELLER MAKES NO WARRANTY, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
      AS
      TO THE ACCURACY OR COMPLETENESS OF THE DOCUMENTS, INFORMATION, BOOKS, RECORDS,
      FILES, AND OTHER PERTINENT DATA THAT IT MAY PROVIDE TO
      BUYER.

     

    
      5.02. Operation
        of the Assets. 

       

    

    
      
        	 	
                (a)

              	
                Between
                  the date of this Agreement and the Closing Date, Seller shall conduct
                  the
                  business relating to the Assets only in the ordinary course of
                  business.
                  By way of example, and not as a limitation, during such period,
                  Seller
                  shall use commercially reasonable efforts
                  to:

              

      

       

      
        	 	
                (i)

              	
                maintain
                  the Assets and operate the Assets or cause the Assets to be operated
                  in
                  the ordinary course of business;

              

      

       

    

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              pay
                or cause to be paid all bonuses and rentals, royalties, overriding
                royalties, shut-in royalties, and minimum royalties and development
                and
                operating expenses, current taxes, and other payments incurred with
                respect to the Assets except (i) royalties held in suspense as a
                result of
                title issues and that do not give any third party a right to cancel
                an
                interest in an Asset and (ii) expenses or royalties being contested
                in
                good faith and for which adequate reserves have been provided, unless
                the
                nonpayment of such contested expenses or royalties could result in
                the
                loss of a Lease, in which case Seller will notify Buyer and obtain
                Buyer’s
                approval prior to withholding such
                payment;

            

    

     

    
      	 	
              (iii)

            	
              maintain
                the personal property comprising part of the Assets in at least as
                good a
                condition as it is on the date hereof, subject to ordinary wear and
                tear;
                

            

    

     

    
      	 	
              (iv)

            	
              safeguard
                and maintain confidential all records of a nonpublic nature (including
                without limitation geological and geophysical data and maps and
                interpretations thereof) that relate to the Assets;
                and

            

    

     

    
      	 	
              (v)

            	
              keep
                Buyer reasonably informed regarding current and proposed activities
                and
                operations relating to the Assets.

            

    

     

    
      	 	
              (b)

            	
              Similarly,
                between the date of this Agreement and Closing, Seller shall not,
                without
                Buyer’s consent:

            

    

     

    
      	 	
              (i)

            	
              take
                any action that would cause its representations or warranties under
                this
                Agreement to be materially incorrect as of the Closing Date except
                in the
                ordinary course of business;

            

    

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              abandon
                any Asset (except the abandonment of producing leases not capable
                of
                producing in paying quantities after the expiration of their primary
                terms);

            

    

     

    
      	 	
              (iii)

            	
              commence,
                propose, or agree to participate in any single operation with respect
                to
                the Wells or Leases with an anticipated cost in excess of $250,000
                except
                for emergency operations;

            

    

     

    
      	 	
              (iv)

            	
              elect
                to participate in any single operation proposed by a third party
                with
                respect to the Wells or Leases with an anticipated cost in excess
                of
                $250,000, except for emergency
                operations;

            

    

     

    
      	 	
              (v)

            	
              terminate,
                cancel or materially amend or modify any Contract or
                Lease;

            

    

     

    
      	 	
              (vi)

            	
              waive
                any right of material value under any Contract or
                Lease;

            

    

     

    
      	 	
              (vii)

            	
              sell,
                lease, encumber, or otherwise dispose of all or any portion of any
                Assets,
                except sales of Hydrocarbons in the ordinary course of business under
                Hydrocarbon sales agreements which meet the requirements of paragraph
                (viii) below or which are listed in Part 3.14(a)(ii) of Seller’s
                Disclosure Schedule; or

            

    

     

    
      	 	
              (viii)

            	
              enter
                into any new production sales, processing, gathering, or transportation
                agreement with respect to the Wells not terminable by Buyer without
                penalty after Closing on forty-five (45) days notice or
                less.

            

    

     

    
      5.03. Insurance.

       

      
        	 	 	 	
                (a)

              	
                Seller
                  shall maintain in force during the period from the date of this
                  Agreement
                  until Closing, all of Seller’s excess liability, workers compensation,
                  auto liability, property and casualty, and well control insurance
                  policies
                  in the amounts and with the coverages currently maintained by Seller
                  covering the Assets and the Retained Assets.

              

      

       

    

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              Notwithstanding
                subparagraph (a) above, the daily pro-rated annual premiums for insurance
                that accrue after the Effective Time and are attributable to the
                insurance
                coverage for the period after the Effective Time until the Closing
                will
                constitute Property Costs. Buyer shall not be responsible for, and
                Property Costs shall not include, any minimum or minimum earned premiums
                in excess of the daily pro-rated annual premiums attributable to
                such
                insurance coverage.

            

    

     

    5.04. Consent
      and Waivers.
      Seller
      agrees to use commercially reasonable efforts to obtain prior to Closing written
      waivers of all Preferential Purchase Rights and all waivers and Consents
      necessary for the transfer of the Assets to Buyer; provided that in the event
      Seller is unable to obtain all such waivers and Consents after using such
      reasonable efforts, such failure to satisfy shall not constitute a Breach of
      this Agreement. 

     

    5.05. Notification.
      Between
      the date of this Agreement and the Closing Date, Seller shall promptly notify
      Buyer in writing if Seller obtains Knowledge of any fact or condition that
      causes or constitutes a Breach, in any material respect, of any of Buyer’s
      representations and warranties as of the date of this Agreement, or if Seller
      obtains Knowledge of the occurrence after the date of this Agreement of any
      fact
      or condition that would (except as expressly contemplated by this Agreement)
      cause or constitute a Breach, in any material respect, of any such
      representation or warranty had such representation or warranty been made as
      of
      the time of occurrence or discovery of such fact or condition. During the same
      period, Seller shall promptly notify Buyer if Seller obtains Knowledge of the
      occurrence of any Breach, in any material respect, of any covenant of Seller
      in
      this Article 5 or of the occurrence of any event that may make the satisfaction
      of the conditions in Article 7 impossible or unlikely. The covenants set forth
      in this Section 5.05 are subject to the limitations set forth below in Section
      6.02.

     

    5.06. Satisfaction
      of Conditions.
       Between
      the date of this Agreement and the Closing Date, Seller shall use commercially
      reasonable efforts to cause the conditions in Article 7 to be satisfied;
      provided that in the event Seller is unable to satisfy such conditions after
      using such commercially reasonable efforts, such failure to satisfy shall not
      constitute a Breach of this Agreement; provided further, however, the foregoing
      shall not constitute a waiver of Seller’s Breach of any of the other provisions
      of this Article 5 or any other Breach of this Agreement. 

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

     

    5.07. Transition.
       Seller
      will cooperate with Buyer in arranging an orderly transition of the operatorship
      of the Seller Operated Assets to Buyer as of the Closing Date. Within five
      (5)
      days after the execution of this Agreement, Seller will provide Buyer (i) a
      list
      of all contractors and suppliers providing services or supplies in connection
      with the Seller Operated Assets and (ii) a complete inventory of all Equipment
      and other personal property owned and/or leased by Seller or its Affiliates
      and
      used in connection with the operation of the Seller Operated Assets. Seller
      will
      keep Buyer fully and promptly advised of all activities and operations
      concerning the Seller Operated Assets. From time to time as requested by Buyer,
      Seller will meet with Buyer concerning operations of the Seller Operated Assets
      and the steps necessary to complete an orderly transition of the operatorship
      of
      the Seller Operated Assets as of the Closing Date.

    

    5.08. Unaudited
      Financial Information.
      Within
      five (5) Business Days after the execution of this Agreement, Seller will
      provide Buyer with unaudited statements of revenue and direct operating
      expenses, including production volumes, of the Assets for the three month
      periods ended September 30, 2003, December 31, 2003, March 31, 2004, June 30,
      2004, September 30, 2004, December 31, 2004, March 31, 2005, June 30, 2005,
      September 30, 2005, December 31, 2005, March 31, 2006, June 30, 2006, September
      30, 2006, December 31, 2006, and March 31, 2007. Within ninety (90) days after
      the Closing, Seller will provide Buyer with unaudited statements of revenue
      and
      direct operating expenses, including production volumes, of the Assets for
      the
      period April 1, 2007, to the Closing Date.

     

    ARTICLE
      6 

     

    COVENANTS
      OF BUYER

     

    6.01. Notification.
      Between
      the date of this Agreement and the Closing Date, Buyer shall promptly notify
      Seller in writing if Buyer obtains Knowledge of any Breach, in any material
      respect, of any of Seller’s representations and warranties as of the date of
      this Agreement, or if Buyer obtains Knowledge of an occurrence after the date
      of
      this Agreement that would (except as expressly contemplated by this Agreement)
      cause or constitute a Breach, in any material respect, of any such
      representation or warranty had such representation or warranty been made as
      of
      the time of occurrence or discovery of such fact or condition. During the same
      period, Buyer shall promptly notify Seller if Buyer obtains Knowledge of the
      occurrence of any Breach, in any material respect, of any covenant of Buyer
      in
      this Article 6 or of the occurrence of any event that may make the satisfaction
      of the conditions in Article 8 impossible or unlikely.

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

     

     

    6.02. Limitations
      on Sections 5.05 & 6.01.
      Should
      there be any dispute as to whether a party had Knowledge that a representation
      or warranty of the other party had been Breached or would be Breached in any
      material respect or that any covenant or agreement of the other party had been
      Breached in any material respect, the burden of proof regarding such party’s
      Knowledge shall be on the party claiming that Knowledge existed. There shall
      be
      no Breach of the covenants in Section 5.05 or Section 6.01 as a result of a
      party’s failure to report a Breach of any representation or warranty or a Breach
      of any covenant or agreement of which it had Knowledge if the party subject
      to
      the Breach also had Knowledge thereof prior to Closing.

     

    6.03. Satisfaction
      of Conditions.
      Between
      the date of this Agreement and the Closing Date, Buyer shall use commercially
      reasonable efforts to cause the conditions in Article 8 to be satisfied;
      provided that in the event Buyer is unable to satisfy such conditions after
      using such commercially reasonable efforts such failure to satisfy shall not
      constitute a Breach of this Agreement; provided further, however, the foregoing
      shall not constitute a waiver of Buyer's Breach of any of the other provisions
      of this Article 6 or any other Breach of this Agreement. 

     

    ARTICLE
      7 

     

    CONDITIONS
      PRECEDENT TO BUYER’S OBLIGATION TO CLOSE

     

    Buyer's
      obligation to purchase the Assets and to take the other actions required to
      be
      taken by Buyer at the Closing is subject to the satisfaction, at or prior to
      the
      Closing, of each of the following conditions (any of which may be waived by
      Buyer, in whole or in part):

     

    7.01. Accuracy
      of Representations.
      All
      of
      Seller’s representations and warranties in this Agreement must have been
      accurate in all material respects (or, with respect to representations and
      warranties qualified by materiality, in all respects) as of the date of this
      Agreement, and must be accurate in all material respects (or, with respect
      to
      representations and warranties qualified by materiality, in all respects) as
      of
      the Closing Date as if made on the Closing Date.

    
       

      7.02. Seller’s
        Performance.

       

      
        	 	
                (a)

              	
                All
                  of the covenants and obligations that Seller is required to perform
                  or to
                  comply with pursuant to this Agreement at or prior to the Closing
                  must
                  have been duly performed and complied with in all material
                  respects.

              

      

       

    

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

       

    

    
      	 	
              (b)

            	
              Seller
                must deliver, or be prepared to deliver, each document required to
                be
                delivered by it pursuant to
                Section 2.04.

            

    

     

    7.03. No
      Proceedings.
      Since
      the
      date of this Agreement, there must not have been commenced or Threatened against
      Seller, or against any Affiliates thereof, any Proceeding (other than by Buyer
      or an Affiliate of Buyer) seeking to restrain, enjoin or otherwise prohibit
      or
      make illegal, or seeking to recover material damages on account of, any of
      the
      Contemplated Transactions. 

     

    7.04. No
      Orders.
      There
      shall be no Order of any Governmental Body having appropriate jurisdiction
      restraining, enjoining or otherwise prohibiting the consummation of the
      transactions contemplated herein.

     

    ARTICLE
      8 

     

    CONDITIONS
      PRECEDENT TO SELLER’S OBLIGATION TO CLOSE

     

    Seller’s
      obligation to sell the Assets and to take the other actions required to be
      taken
      by Seller at the Closing is subject to the satisfaction, at or prior to the
      Closing, of each of the following conditions (any of which may be waived by
      Seller, in whole or in part):

     

    8.01. Accuracy
      of Representations.
      All
      of
      Buyer’s representations and warranties in this Agreement must have been accurate
      in all material respects as of the date of this Agreement, and must be accurate
      in all material respects as of the Closing Date as if made on the Closing
      Date.

     

    8.02. Buyer’s
      Performance.

     

    
      	 	
              (a)

            	
              All
                of the covenants and obligations that Buyer is required to perform
                or to
                comply with pursuant to this Agreement at or prior to the Closing
                must
                have been duly performed and complied with in all material
                respects.

            

    

     

    
      	 	
              (b)

            	
              Buyer
                must deliver, or be prepared to deliver, each document required to
                be
                delivered by it pursuant to
                Section 2.04.

            

    

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

     

    8.03. No
      Proceedings.
      Since
      the date of this Agreement, there must not have been commenced or Threatened
      against Buyer, or against any Affiliates thereof, any Proceeding (other than
      by
      Seller or an Affiliate of Seller) seeking to restrain, enjoin or otherwise
      prohibit or make illegal, or seeking to recover material damages on account
      of,
      any of the Contemplated Transactions.

     

    8.04. No
      Orders. There
      shall be no Order of any Governmental Body having appropriate jurisdiction
      restraining, enjoining or otherwise prohibiting the consummation of the
      transactions contemplated herein.

     

    ARTICLE
      9 

     

    TERMINATION

     

    9.01. Termination
      Events.
      This
      Agreement may, by written notice given prior to or at the Closing, be
      terminated:

     

    
      	 	
              (a)

            	
              by
                either Buyer or Seller if a material Breach of any provision of this
                Agreement has been committed by the other party and such Breach has
                not
                been waived in writing or cured;

            

    

     

    
      	 	
              (b)

            	
              by
                mutual written consent of Buyer and
                Seller;

            

    

     

    
      	 	
              (c)

            	
              by
                either Buyer or Seller if the Closing has not occurred (other than
                as a
                result of a Breach by the party seeking to terminate this Agreement)
                on or
                before June 30, 2007, or such later date as the parties may agree
                upon in
                writing;

            

    

     

    
      	 	
              (d)

            	
              by
                Buyer if the conditions in Article 7 have not been satisfied on or
                before
                June 30, 2007;

            

    

     

    
      	 	
              (e)

            	
              by
                Seller if the conditions in Article 8 have not been satisfied on
                or before
                June 30, 2007; or

            

    

     

    
      	 	
              (f)

            	
              as
                provided in Article 11.

            

    

     

    9.02. Effect
      of Termination.
      Each
      party's rights of termination under Article 11 are in addition to the rights
      it
      may have under this Article 9. If this Agreement is terminated pursuant to
      Section 9.01, all further obligations of the parties under this Agreement shall
      terminate, but such termination shall not impair nor restrict (a) the rights
      of
      either party against the other with respect to the Deposit, or under Article
      10
      and (b) the right of Buyer to recover any Damages incurred by it arising out
      of
      any Breach by Seller of this Agreement and the termination of this Agreement
      as
      a result thereof.

     

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      10 

     

    INDEMNIFICATION;
      REMEDIES

     

    10.01. Survival. All
      representations, warranties, covenants, and agreements contained in this
      Agreement shall survive the Closing and continue for one (1) year following
      the
      Closing Date (or, if termination of this Agreement occurs under Article 9,
      then
      one (1) year following the termination under Article 9, in the case of Sections
      10.02(c), 10.03(c) and 10.03(d) only), except:

     

    
      	 	
              (a)

            	
              those
                contained in Section 3.06 shall terminate on the Closing, those contained
                in Section 3.08 (other than for matters arising between the Title
                Claim
                Date and the Closing) shall terminate on the Title Claim Date, and
                those
                contained in Section 3.08 for matters arising between the Title Claim
                Date
                and the Closing shall terminate three (3) months after the Closing
                Date;

            

    

     

    
      	 	
              (b)

            	
              if
                another survival period for making a claim is expressly provided
                in the
                underlying covenant, agreement, representation, or warranty, then
                such
                other survival period shall apply with respect to such specific covenant,
                agreement, representation, or
                warranty;

            

    

     

    
      	 	
              (c)

            	
              the
                indemnities contained in this Article 10 shall survive the Closing
                and
                continue in accordance with their respective terms set forth below
                in this
                Article 10; and

            

    

     

    
      	 	
              (d)

            	
              the
                representations, warranties, covenants, and agreements in Article
                12 and
                in Sections 3.01, 3.02, 3.09, 3.10, 4.01, and 4.09 shall continue
                indefinitely. 

            

    

    
       

      10.02. Indemnification
        and Payment of Damages by Seller.
        Except
        as
        otherwise limited in this Article 10, from and after the Closing (or before
        or
        after the Closing in the case of Section 10.02(c) below) Seller shall defend,
        indemnify, and hold harmless Buyer and its respective Representatives,
        stockholders, controlling persons, and Affiliates (collectively, the
        "Buyer
        Group")
        for,
        and shall pay to the Buyer Group the amount of, any loss, liability, demand,
        judgment, settlement, fine, penalty, expense, cost, Remediation cost or expense,
        attorneys fees and expenses, claim, or damage, whether or not involving a
        third-party claim (collectively, "Damages"),
        arising from:

       

      
        	 	
                (a)

              	
                any
                  Breach of any representation or warranty made by Seller in this
                  Agreement,
                  or in any certificate delivered by Seller pursuant to this
                  Agreement;

              

      

       

    

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

       

    

    
      	 	
              (b)

            	
              any
                Breach by Seller of any covenant or obligation of Seller in this
                Agreement;

            

    

     

    
      	 	
              (c)

            	
              any
                claim by any Person for brokerage or finder's fees or commissions
                or
                similar payments based upon any agreement or understanding alleged
                to have
                been made by any such Person with Seller (or any Person acting on
                its
                behalf) in connection with any of the Contemplated
                Transactions;

            

    

     

    
      	 	
              (d)

            	
              any
                Retained Liabilities;

            

    

     

    
      	 	
              (e)

            	
              the
                use, ownership, or operation of the Assets by Seller or any Affiliate
                of
                Seller prior to the Effective Time, except to the extent assumed
                by Buyer
                as Assumed Liabilities; 

            

    

     

    
      	 	
              (f)

            	
              the
                use, ownership, or operation of the Excluded
                Assets;

            

    

     

    
      	 	
              (g)

            	
              the
                use, ownership, or operation of the Retained Assets;
                or

            

    

     

    
      	 	
              (h)

            	
              Seller’s
                or its agents’, contractors’ or employees’ performance of (or failure to
                perform) the Remediation work pursuant to Section 11.13(a) or their
                presence on the Assets in connection with such Remediation
                work,
                WHETHER
                OR NOT BASED UPON STRICT LIABILITY OR CAUSED BY THE SOLE OR CONCURRENT
                NEGLIGENCE (WHETHER ACTIVE OR PASSIVE) OF BUYER GROUP, OR ANY PERSON
                OR
                ENTITY, UNLESS SUCH INJURY WAS OCCASIONED SOLELY BY THE GROSS NEGLIGENCE
                OR INTENTIONAL TORT OF BUYER OR ANY OFFICER, DIRECTOR, OR EMPLOYEE
                OR
                AGENT OF BUYER.

            

    

     

    
      
        
        

      

      
        57

        
          

        

      

      
        
        

      

    

     

    Except
      for Buyer's termination rights under Articles 9 and 11 of this Agreement and
      the
      special warranty of title in the Instruments of Conveyance, the remedies
      provided in this Article 10 (if Closing occurs) and Section 2.02 (if Closing
      does not occur) are Buyer's and Buyer Group's exclusive remedies for Seller's
      Breaches. Seller’s obligations under Section 10.02(g) are not intended to cover,
      and shall not release Buyer Group from, any obligations and responsibilities
      that any member of Buyer Group may have (i) as owner of the Assets from and
      after the Effective Time or (ii) as a participating party in any non-consent
      or
      similar operation in which a member of Seller Group does not participate from
      and after the Effective Time.

     

    10.03. Indemnification
      and Payment of Damages by Buyer.
      Except
      as
      otherwise limited in this Article 10, from and after the Closing (or before
      or
      after the Closing in the case of Sections 10.03(c) and 10.03(d) below) Buyer
      shall defend, indemnify and hold harmless Seller and its Representatives,
      stockholders, controlling persons, and Affiliates (collectively, the
      "Seller
      Group")
      for,
      and shall pay to Seller Group the amount of any Damages arising
      from:

     

    
      	 	
              (a)

            	
              any
                Breach of any representation or warranty made by Buyer in this Agreement
                or in any certificate delivered by Buyer pursuant to this
                Agreement;

            

    

     

    
      	 	
              (b)

            	
              any
                Breach by Buyer of any covenant or obligation of Buyer in this
                Agreement;

            

    

     

    
      	 	
              (c)

            	
              any
                claim by any Person for brokerage or finder's fees or commissions
                or
                similar payments based upon any agreement or understanding alleged
                to have
                been made by any such Person with Buyer (or any Person acting on
                its
                behalf) in connection with any of the Contemplated Transactions;
                or

            

    

     

    
      	 	
              (d)

            	
              any
                loss, liability, claim, damage or suit which any of Buyer's employees
                or
                agents or their heirs, executors, or assigns may assert against Seller,
                based upon injury to person, including death or to property, arising
                in
                any manner whatsoever from any inspections of Seller’s property prior to
                Closing, WHETHER
                OR NOT BASED UPON STRICT LIABILITY OR CAUSED BY THE SOLE OR CONCURRENT
                NEGLIGENCE (WHETHER ACTIVE OR PASSIVE) OF SELLER, OR ANY PERSON OR
                ENTITY,
                UNLESS
                SUCH INJURY WAS OCCASIONED SOLELY BY THE GROSS NEGLIGENCE
                OR
                INTENTIONAL TORT OF SELLER OR ANY OFFICER, DIRECTOR, OR EMPLOYEE
                OR AGENT
                THEREOF;

            

    

     

    
      
        
        

      

      
        58

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (e)

            	
              the
                use, ownership, or operation of the Assets from and after the Effective
                Time, excluding any Damages arising from any Retained Liabilities;
                and

            

    

     

    
      	 	
              (f)

            	
              the
                Assumed Liabilities.

            

    

     

    Except
      for Seller’s termination rights under Articles 9 and 11 of this Agreement, the
      remedies provided in this Article 10 (if Closing occurs) and Section 2.02 (if
      Closing does not occur) are Seller's and Seller Group’s exclusive remedies for
      Buyer's Breaches. Buyer's indemnities under Sections 10.03(e) and (f) are
      subject and subordinate to any claims for indemnity that Buyer may have against
      Seller pursuant to Section 10.02(a) or 10.02(b). Buyer’s obligations under
      Sections 10.03(e) and (f) are not intended to cover, and shall not release
      Seller Group from, any obligations and responsibilities that any member of
      Seller Group may have as owner of the Excluded Assets from and after the
      Effective Time.

     

    10.04. Time
      Limitations.
      Neither
      Seller nor Buyer shall have any liability (for indemnification or otherwise)
      with respect to any Breach of any representation, warranty, covenant, or
      agreement under this Agreement unless, during the survival period set forth
      in
      Section 10.01 with respect to such representation, warranty, covenant, or
      agreement, the other party notifies the Breaching party of a claim specifying
      the factual basis of that claim in reasonable detail to the extent then known
      by
      the party asserting such claim. Claims for indemnity under Sections 10.02(a),
      10.02(b), 10.02(d), 10.02(e), 10.03(a), 10.03(b), and 10.03(d) with respect
      to
      the Breach of any representation, warranty, covenant, or agreement may only
      be
      made during the survival period set forth in Section 10.01 with respect to
      the
      particular representation, warranty, covenant, or agreement as to which a claim
      of Breach is being made. The parties' respective indemnity obligations under
      Section 10.02(c), 10.02(d), 10.02(f), 10.02(g), 10.02(h), 10.03(c), 10.03(e),
      and 10.03(f) shall
      survive indefinitely. 

     

    10.05. Limitations
      on Amount--Seller.
      If
      the
      Closing occurs, Seller shall have no liability under Section 10.02 until the
      total of all Damages indemnified thereunder exceeds one percent (1%) of the
      Purchase Price, and then Seller shall be liable for the entire amount of such
      Damages, not to exceed, however, fifteen percent (15%) of the Purchase Price.
      Notwithstanding the foregoing and anything to the contrary in the Agreement,
      no
      limit on liability under this Section and no deductible or liability threshold
      under this Agreement shall be applied to reduce Seller’s obligations under
      Section 10.02 with respect to Sections 2.02, 2.05, 2.08, 3.01, 3.02, 3.07(b),
      3.09, 3.10, 3.12 (in regard to Part
      3.12(d) of Seller’s Disclosure Schedule),
      3.20,
      5.02, 5.03, 10.02(c), 10.02(d), 10.02(f), 10.02(g), 10.02(h), 12.01, 12.02,
      12.05, and 12.16 or Article 11. Seller's liability for a breach of Section
      3.08
      for matters arising between the Title Claim Date and the Closing shall be
      subject to the deductibles and limitations to the extent made applicable under
      Section 11.08 rather than this Section.

     

    
      
        
        

      

      
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    10.06. Limitations
      on Amount--Buyer.
      If
      the
      Closing occurs, Buyer shall have no liability under Section 10.03 until the
      total of all Damages indemnified thereunder exceeds one percent (1%) of the
      Purchase Price, and then Buyer shall be liable for the entire amount of such
      Damages, not to exceed, however, fifteen percent (15%) of the Purchase Price.
      Notwithstanding the foregoing and anything to the contrary in the Agreement,
      no
      limit on liability under this Section and no deductible or liability threshold
      under this Agreement shall be applied to reduce Buyer’s obligations under
      Section 10.03 with respect to Sections 2.02, 2.05, 2.08, 4.01, 4.09, 10.03(c),
      12.02, and 12.05.

     

    10.07. Procedure
      for Indemnification--Third Party Claims. 

     

    
      	 	
              (a)

            	
              Promptly
                after receipt by an indemnified party under Section 10.02 or 10.03
                of a
                claim for Damages or notice of the commencement of any Proceeding
                against
                it, such indemnified party shall, if a claim is to be made against
                an
                indemnifying party under such Section, give notice to the indemnifying
                party of the commencement of such claim. The failure of any indemnified
                party to give notice of a claim as provided in this Section 10.07
                shall
                not relieve the indemnifying party of its obligations under this
                Article
                10 except to the extent such failure results in insufficient time
                being
                available to permit the indemnifying party to effectively defend
                against
                the claim or otherwise prejudices the indemnifying party’s ability to
                defend against the claim.

            

    

     

    
      
        
        

      

      
        60

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              If
                any Proceeding referred to in Section 10.07(a) is brought against
                an
                indemnified party and it gives notice to the indemnifying party of
                the
                commencement of such Proceeding, the indemnifying party shall be
                entitled
                to participate in such Proceeding and, to the extent that it wishes
                (unless (i) the indemnifying party is also a party to such Proceeding
                and
                the indemnified party determines in good faith that joint representation
                would be inappropriate, or (ii) the indemnifying party fails to provide
                reasonable assurance to the indemnified party of its financial capacity
                to
                defend such Proceeding and provide indemnification with respect to
                such
                Proceeding), to assume the defense of such Proceeding with counsel
                reasonably satisfactory to the indemnified party and, after notice
                from
                the indemnifying party to the indemnified party of its election to
                assume
                the defense of such Proceeding, the indemnifying party shall not,
                as long
                as it diligently conducts such defense, be liable to the indemnified
                party
                under this Article 10 for any fees of other counsel or any other
                expenses
                with respect to the defense of such Proceeding, in each case subsequently
                incurred by the indemnified party in connection with the defense
                of such
                Proceeding. If the indemnifying party assumes the defense of a Proceeding,
                no compromise or settlement of such claims may be effected by the
                indemnifying party without the indemnified party's consent unless
                (A)
                there is no finding or admission of any violation of Legal Requirements
                or
                any violation of the rights of any Person and no effect on any other
                claims that may be made against the indemnified party, and (B) the
                sole
                relief provided is monetary damages that are paid in full by the
                indemnifying party, and (C) the indemnified party shall have no liability
                with respect to any compromise or settlement of such claims effected
                without its consent.

            

    

     

    
      	 	
              (c)

            	
              Notwithstanding
                the foregoing, if an indemnified party determines in good faith that
                there
                is a reasonable probability that a Proceeding may adversely affect
                it or
                its Affiliates other than as a result of monetary damages for which
                it
                would be entitled to indemnification under this Agreement, the indemnified
                party may, by notice to the indemnifying party, assume the exclusive
                right
                to defend, compromise, or settle such Proceeding, but the indemnifying
                party shall not be bound by any determination of a Proceeding so
                defended
                or any compromise or settlement effected without its consent (which
                may
                not be unreasonably withheld).

            

    

     

    
      
        
        

      

      
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    10.08. Procedure
      for Indemnification--Other Claims.
      A
      claim
      for indemnification for any matter not involving a third-party claim may be
      asserted by notice to the party from whom indemnification is
      sought.

     

    10.09. Extent
      of Representations and Warranties.

     

    
      	 	
              (a)

            	
              
                EXCEPT
                  AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT OR THE
                  SELLER'S
                  CLOSING DOCUMENTS, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES
                  WHATSOEVER, AND DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR
                  ANY
                  REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED
                  (ORALLY OR IN WRITING) TO BUYER (INCLUDING ANY OPINION, INFORMATION
                  OR
                  ADVICE WHICH MAY HAVE BEEN PROVIDED TO BUYER BY ANY AFFILIATE OR
                  REPRESENTATIVE OF SELLER OR BY ANY INVESTMENT BANK OR INVESTMENT
                  BANKING
                  FIRM, ANY PETROLEUM ENGINEER OR ENGINEERING FIRM, SELLER’S COUNSEL OR ANY
                  OTHER AGENT, CONSULTANT OR REPRESENTATIVE). WITHOUT LIMITING THE
                  GENERALITY OF THE FOREGOING, EXCEPT AS AND TO THE EXTENT EXPRESSLY
                  SET
                  FORTH IN THIS AGREEMENT OR THE SELLER'S CLOSING DOCUMENTS, SELLER
                  EXPRESSLY DISCLAIM AND NEGATES ANY REPRESENTATION OR WARRANTY,
                  EXPRESS,
                  IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHERWISE RELATING TO (A)
                  THE TITLE
                  TO ANY OF THE ASSETS, EXCEPT THAT SELLER EXPRESSLY WARRANTS THAT
                  THE
                  LEASES ARE FREE AND CLEAR OF ALL LIENS, SECURITY INTERESTS, ENCUMBRANCES
                  OR DEFECTS IN TITLE, EXCEPT PERMITTED ENCUMBRANCES, (B) THE CONDITION
                  OF
                  THE ASSETS (INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS
                  WARRANTY
                  OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, OR OF
                  CONFORMITY
                  TO MODELS OR SAMPLES OF MATERIALS), IT BEING DISTINCTLY UNDERSTOOD
                  THE
                  ASSETS ARE BEING SOLD “AS IS,” “WHERE IS” AND “WITH ALL FAULTS AS TO ALL
                  MATTERS,” (C) ANY INFRINGEMENT BY SELLER OF ANY PATENT OR PROPRIETARY
                  RIGHT OF ANY THIRD PARTY, (D) ANY INFORMATION, DATA, OR OTHER MATERIALS
                  (WRITTEN OR ORAL) FURNISHED TO BUYER BY OR ON BEHALF OF SELLER
                  (INCLUDING
                  WITHOUT LIMITATION, IN RESPECT OF GEOLOGICAL AND ENGINEERING DATA,
                  THE
                  EXISTENCE OR EXTENT OF OIL, GAS, OR THE MINERAL RESERVES, THE
                  RECOVERABILITY OF SUCH RESERVES, ANY PRODUCT PRICING ASSUMPTIONS,
                  AND THE
                  ABILITY TO SELL OIL OR GAS PRODUCTION AFTER CLOSING), AND (E) THE
                  ENVIRONMENTAL CONDITION AND OTHER CONDITION OF THE ASSETS AND ANY
                  POTENTIAL LIABILITY ARISING FROM OR RELATED TO THE
                  ASSETS.

              

            

    

     

    
      
        
        

      

      
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              (b)

            	
              Buyer
                acknowledges and affirms that it has made its own independent
                investigation, analysis, and evaluation of the Contemplated Transactions
                (including Buyer’s own estimate and appraisal of the extent and value of
                Seller’s Hydrocarbon reserves attributable to the Assets and an
                independent assessment and appraisal of the environmental risks associated
                with the acquisition of the Assets). Buyer acknowledges that in entering
                into this Agreement it has relied on the aforementioned investigation
                and
                the representations and warranties of Seller contained in this Agreement
                and the Seller’s Closing Documents. Buyer
                hereby irrevocably covenants to refrain from, directly or indirectly,
                asserting any claim, or commencing, instituting, or causing to be
                commenced, any Proceeding of any kind against Seller, or any Affiliate
                thereof, alleging facts contrary to the foregoing acknowledgment
                and
                affirmation; provided, however, that nothing in this Section 10.09(b)
                shall prevent the assertion of a claim for indemnification and/or
                payment
                of damages as provided for in Section 10.02.

            

    

    

    10.10. Compliance
       With Express Negligence Test. THE
      PARTIES AGREE THAT THE OBLIGATIONS OF THE INDEMNIFYING PARTY TO INDEMNIFY THE
      INDEMNIFIED PARTY SHALL BE WITHOUT REGARD TO THE NEGLIGENCE OR STRICT LIABILITY
      OF THE INDEMNIFIED PARTY, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE,
      PASSIVE, JOINT, CONCURRENT, OR SOLE.The
      foregoing is a specifically bargained for allocation of risk among the parties,
      which the parties agree and acknowledge satisfies the express negligence rule
      and conspicuousness requirement under Texas law.

     

    10.11. Limitations
      of Liability.
      In
      no
      event shall Seller or Buyer ever be liable to the other for any consequential,
      special, indirect, exemplary, or punitive damages relating to or arising out
      of
      the Contemplated Transactions; provided, however, that any consequential,
      special, indirect, exemplary, or punitive damages recovered by a third party
      (including a Governmental Body, but excluding any Affiliate of any party)
      against a party entitled to indemnity pursuant to this Article 10 shall be
      included in the Damages recoverable under such indemnity.

     

    
      
        
        

      

      
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    ARTICLE
      11 

     

    TITLE
      MATTERS AND ENVIRONMENTAL MATTERS

     

    11.01. Title
      Examination and Access.
      Buyer
      may
      make or cause to be made at its expense such examination as it may desire of
      the
      title of Seller to the Assets. For such purposes, Seller shall (a) give to
      Buyer
      and its Representatives full access at any reasonable time to all of the files,
      records, contracts, correspondence, computer output and data files, maps, data,
      reports, plats, abstracts of title, lease files, well files, unit files,
      division order files, production marketing files, title opinions, title files
      and title records, title insurance policies, ownership maps, surveys, and any
      other information, data, records, and files that Seller has (or has access
      to)
      relating in any way to the title to the Assets, the past or present operation
      thereof, and the marketing of production therefrom, except, however, where
      restricted by license agreements or other agreements or contracts with a
      non-affiliated third party; (b) furnish to Buyer all other information in the
      possession of or available to Seller with respect to the title to the Assets
      as
      Buyer may from time to time reasonably request, except to the extent that Seller
      is prohibited therefrom by any agreement or contract to which it is a party
      or
      of which it is a beneficiary with a non-affiliated third party; and (c)
      authorize Buyer and its representatives to consult with attorneys, abstract
      companies, and other Representatives of Seller, whether utilized in the past
      or
      presently, concerning title-related matters with respect to the Assets. Seller
      shall advise Buyer in writing of any restrictions, constraints or prohibition
      on
      the right of Seller to provide and disclose to Buyer all data and information
      herein provided, and Seller shall use commercially reasonable efforts to attempt
      to remove such restrictions, constraints, or prohibition or to obtain the
      consent to provide and disclose such data and information to Buyer.

     

    11.02. Preferential
      Purchase Rights.
      Within
      five (5) Business Days following the execution of this Agreement, Seller shall
      provide all notices necessary to comply with or obtain the waiver of all
      Preferential Purchase Rights which are applicable to the transactions
      contemplated by this Agreement prior to the Closing Date. To the extent any
      such
      Preferential Purchase Rights are
      exercised by any holders thereof, or waivers thereof
      are not
      obtained prior to the Closing Date, then the Assets subject to such Preferential
      Purchase Rights shall not be sold to Buyer and shall be excluded from the Assets
      and sale under this Agreement. The Purchase Price shall be adjusted downward
      by
      the Allocated Value of the Assets so excluded. If any holder of a Preferential
      Purchase Right applicable to this transaction initially elects to exercise
      that
      preferential right, but subsequently refuses or elects not to consummate the
      purchase under the preferential right (whether such failure occurs before or
      after the Closing Date), or if, after the Closing, the time period for a holder
      to exercise such a Preferential Purchase Right expires, the parties agree that
      Buyer shall purchase such interests covered by the preferential right in
      accordance with Allocated Value thereof (subject to the adjustments pursuant
      to
      Section 2.05) and the closing of such transaction shall take place on a date
      designated by Seller not more than one hundred eighty (180) days after the
      Closing Date. 

     

    
      
        
        

      

      
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    11.03. Required
      Consents.
      Within
      five (5) Business Days following the execution of this Agreement, Seller shall
      initiate all procedures required to comply with or obtain all Consents and
      the
      waiver of maintenance of uniform provisions required for the transfer of the
      Assets. If Seller shall fail to obtain any Consent or waiver of maintenance
      of
      uniform interest provision required for the transfer of any Asset, Seller’s
      failure shall be handled as follows:

     

    
      	 	
              (a)

            	
              If
                the holder of the right to consent or party to a maintenance of uniform
                interest provision affirmatively refuses to consent or waive prior
                to
                Closing, such refusal shall be considered a Title Defect under this
                Article and the Purchase Price shall be adjusted downward by the
                Allocated
                Value of the affected Asset. 

            

    

     

    
      	 	
              (b)

            	
              Except
                for approvals from Governmental Bodies normally received subsequent
                to
                assignment, if Seller reasonably believes a Consent or waiver will
                be
                obtained within a reasonable period of time subsequent to Closing,
                the
                Asset shall be held by Seller for the benefit of Buyer after Closing
                and
                Seller shall provide Buyer with the economic benefits thereof until
                such
                Consent or waiver is received or until one hundred eighty (180) days
                after
                the Closing, if later, and Buyer shall pay for the Asset at the Closing
                in
                accordance with this Agreement as though the Consent or waiver had
                been
                obtained. If Seller obtains the Consent or waiver within one hundred
                eighty (180) days after the Closing, then Seller shall deliver conveyances
                of the Asset to Buyer. If the Consent or waiver is not obtained or
                is
                affirmatively refused within one hundred eighty (180) days after
                the
                Closing, Seller shall promptly pay to Buyer an amount equal to the
                Allocated Value of the affected Asset (less any net revenues (revenues
                net
                of Property Costs) received by Buyer in connection with such Asset)
                plus
                interest on such amount from the Closing Date until paid at the Agreed
                Interest Rate, and Seller’s holding for the benefit of Buyer shall
                thereupon terminate.

            

    

     

    
      
        
        

      

      
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    11.04. Defensible
      Title.
      On
      the
      Closing Date, Seller shall convey to Buyer Defensible Title to the Assets.
      As
      used herein, the term “Defensible
      Title”
shall
      mean, as to the Assets, that title which is filed, recorded, or otherwise
      referenced of record in the records of the applicable Governmental Body in
      a
      manner which under applicable Legal Requirements constitutes constructive notice
      of ownership of such Asset to third parties acquiring an interest in or an
      encumbrance against such Asset, and which:

     

    
      
        	
              	(a)	
                Entitles
                  Seller, as to each Well (or the specified zone(s) therein), to
                  receive and retain without suspension, reduction or termination,
                  not less
                  than the Net Revenue Interest set forth for such Well (or the specified
                  zone(s) therein) in Exhibit
                  A,
                  through the plugging, abandonment, and salvage of such Well (or
                  the
                  specified zone(s) therein), except for any decrease (i) caused
                  by orders
                  of the appropriate regulatory body having jurisdiction over the
                  Well that
                  are promulgated after the Effective Time that concern pooling,
                  unitization, communitization, or spacing matters; or (ii) caused
                  by Buyer,
                  its successors or
                  assigns;

              

      

    

     

    
      
        	
              	(b)	
                Obligates
                  Seller, as to each Well (or the specified zone(s) therein),
                  to
                  bear not more than the Working Interest set forth for such Well
                  (or the
                  specified zone(s) therein) in Exhibit
                  A,
                  through the plugging, abandonment, and salvage of such Well (or
                  the
                  specified zone(s) therein), except for any increase (i) caused
                  by Buyer,
                  its successors or assigns; (ii) that also results in the Net Revenue
                  Interest associated with the Well being proportionately increased;
                  or
                  (iii) caused by orders of the appropriate regulatory body having
                  jurisdiction over the Well that are promulgated after the Effective
                  Time
                  that concern pooling, unitization, communitization, or spacing
                  matters;

              

      

    

     

    
      	
            	(c)	
              Is
                free and clear of all Encumbrances except for Permitted Encumbrances;
                and

            

    

     

    
      
        
        

      

      
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              	(d)	
                In
                  the
                  case of Assets other than Wells (such as pipeline interests and
                  undeveloped leasehold interests), entitles Seller to the ownership
                  interest reflected in Exhibit
                  A.

              

      

    

     

    11.05. Title
      Defects.  Buyer
      shall notify Seller in writing of Title Defects (“Title
      Defect Notice(s)”)
      no
      later than 5:00 p.m. Central Time on the seventh (7th)
      Business Day prior to the Closing Date (the “Title
      Claim Date”).
      The
      Title Defect Notice shall state with reasonable specificity: (i) the Asset
      affected;
      (ii) the particular Title Defect claimed; (iii) Buyer’s good faith estimate of
      the amount the Title Defect reduces the Allocated Value of the affected Asset
      (such amount being the “Defect
      Value”);
      and
      (iv) appropriate documentation, if any, substantiating Buyer’s claim. Without
      limiting Section 3.08 or the Instruments of Conveyance, Buyer shall conclusively
      be deemed to have waived any Title Defects not asserted by a Title Defect Notice
      no later than 5:00 p.m. Central Time on the Title Claim Date. For all Title
      Defects asserted in Title Defect Notices, Seller shall have the option of (a)
      curing the Title Defect, (b) contesting the Title Defect or Buyer’s good faith
      estimate of the Defect Value, (c) adjusting the Purchase Price downward by
      Buyer’s good faith estimate of the Defect Value, subject to the limitations set
      forth below, or (d) excluding the affected Asset and reducing the Purchase
      Price
      by the Allocated Value thereof. Seller shall notify Buyer in writing of its
      election no more than four (4) Business Days following its receipt of a Title
      Defect Notice, and Seller's failure to make an election shall be deemed an
      election under clause (c) of the preceding sentence.

     

    The
      Defect Value shall be determined pursuant to the following guidelines, where
      applicable:

     

    
      	
            	(a)	
              if
                the Title Defect is that the actual Net Revenue Interest attributable
                to
                any Well (or the specified zone(s) therein) is less than that stated
                in
                Exhibit A, then the Defect Value is the product of the Allocated
                Value of
                such Asset, multiplied by a fraction, the numerator of which is the
                difference between the Net Revenue Interest set forth in Exhibit
                A and the
                actual Net Revenue Interest, and the denominator of which is the
                Net
                Revenue Interest stated in Exhibit A;

            

    

     

    
      	
            	(b)	
              if
                the Title Defect results from Seller having a greater Working Interest
                in
                a Well (or the specified zone(s) therein) than the Working Interest
                specified therefor in Exhibit A, without a corresponding increase in
                the Net Revenue Interest, the Defect Value shall be equal to the
                present
                value (discounted at 10% compounded annually) of the increase in
                the costs
                and expenses forecasted in the Reserve Report with respect to such
                Well
                (or the specified zone(s) therein) for the period from and after
                the
                Effective Time which is attributable to such increase in Seller’s Working
                Interest;

            

    

     

    
      
        
        

      

      
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            	(c)	
              if
                the Title Defect results from the existence of a lien, security interest,
                pledge or collateral assignment, the Defect Value shall be an amount
                sufficient to fully discharge such lien, security interest, pledge
                or
                collateral assignment;

            

    

    

    
      	
            	(d)	
              if
                the Title Defect results from any matter not described in
                paragraphs (a), (b) or (c) above, the Defect Value shall be an amount
                equal to the difference between the value of the Well(s) (or the
                specified
                zone(s) therein) or other Asset with such Title Defect and the value
                of
                the Well(s) (or the specified zone(s) therein) or other Asset without
                such
                Title Defect (taking into account the Allocated Value of the affected
                Asset);

            

    

    

    
      	
            	(e)	
              if
                a Title Defect is not effective or does not affect a Well (or the
                specified zone(s) therein) or other Asset throughout the entire productive
                life of such Well (or the specified zone(s) therein) or other Asset,
                such
                fact shall be taken into account in determining the Defect
                Value.

            

    

    

    In
      no
      event, however, shall the total of the Defect Values related to a particular
      Asset exceed the Allocated Value of such Asset.

    

    11.06. Seller’s
      Right to Cure.  If
      Seller
      elects to cure a Title Defect, then Seller shall so notify Buyer in writing
      within four (4) Business Days after receipt of the particular Title Defect
      Notice (“Cure
      Notice”).
      Seller shall either cure the Title Defect to the reasonable satisfaction of
      Buyer (“Cure”),
      or if
      Seller is unable to Cure such Title Defect within sixty (60) days after receipt
      of the Title Defect Notice, adjust the Purchase Price downward by Buyer’s good
      faith estimate of the Defect Value set forth in the Title Defect Notice, subject
      to the limitations set forth below.

     

    If
      Seller
      elects to cure a Title Defect but is unable to do so prior to Closing, Seller
      shall convey the affected Asset to Buyer and Buyer shall pay for the affected
      Asset at Closing in accordance with this Agreement as though the Title Defect
      had been Cured; however, if Seller is unable to Cure the Title Defect within
      sixty (60) days after receipt of the Title Defect Notice, then Seller, at its
      sole option, shall either (a) adjust the Purchase Price downward by the Defect
      Value of that particular Title Defect, or (b) elect to have Buyer reconvey
      the
      affected Asset to Seller, whereupon the Purchase Price shall be adjusted
      downward by the Allocated Value of the affected Asset, less any net revenues
      (revenues net of Property Costs) received by Buyer in connection with the
      affected Asset.

     

    
      
        
        

      

      
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    11.07. Contested
      Title Defects.  If
      Seller
      contests the existence of a Title Defect or Buyer’s good faith estimate of the
      Defect Value, then Seller shall so notify Buyer in writing no more than five
      (5)
      Business Days after Seller’s receipt of the Title Defect Notice (“Rejection
      Notice”).
      The
      Rejection Notice shall state with reasonable specificity the basis of Seller’s
      rejection of the Title Defect or of Buyer’s good faith estimate of the Defect
      Value. Within thirty (30) days after Buyer’s receipt of the Rejection Notice,
      representatives of Buyer and Seller, knowledgeable in title matters, shall
      meet
      and, within seven (7) days after such meeting, either: (i) agree to mutually
      reject the particular Title Defect, or (ii) agree on the validity of such Title
      Defect and the Defect Value, in which case Seller shall have sixty (60) days
      after the date of such agreement within which to Cure such Title Defect and
      failing such Cure, to adjust the Purchase Price as provided above. If the
      parties cannot agree on either options (i) or (ii) in the preceding sentence,
      the Title Defect or the Defect Value subject to the Rejection Notice shall
      be
      submitted to arbitration in accordance with the procedures set forth in Section
      12.15. For any Title Defect asserted by Buyer in a Title Defect Notice by the
      Title Claim Date, if Seller fails to timely deliver a Rejection Notice or a
      Cure
      Notice, or, if applicable, to notify Buyer that Seller elects to exclude the
      affected Asset and reduce the Purchase Price by the Allocated Value thereof,
      then Seller shall be deemed to have accepted the validity of the Title Defect
      and Buyer’s good faith estimate of the Defect Value, and the Purchase Price
      shall be adjusted downward by an amount equal to the Defect Value of the Title
      Defect.

     

    In
      the
      event a contested Title Defect cannot be resolved prior to Closing, Seller
      shall
      convey the affected Asset to Buyer and Buyer shall pay for the Asset at Closing
      in accordance with this Agreement as though there were no Title Defect; however,
      if the Title Defect contest results in a determination that a Title Defect
      exists, and Seller elects not to Cure or is unable to Cure the Title Defect
      within sixty (60) days after such determination, then
      Seller, at its sole option, shall either (a) adjust the Purchase Price downward
      by the Defect Value of that particular Title Defect, or (b) elect to have Buyer
      reconvey the affected Asset to Seller, whereupon the Purchase Price shall be
      adjusted downward by the Allocated Value of the affected Asset, less any net
      revenues (revenues net of Property Costs) received by Buyer in connection with
      the affected Asset.

     

    
      
        
        

      

      
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    11.08. Limitations
      on Adjustments for Title Defects.  Notwithstanding
      the provisions of Sections 11.04, 11.05, 11.06, and 11.07, Seller is obligated
      to adjust the Purchase Price to account for Title Defects only if the aggregate
      Defect Value of all Title Defects that Seller has agreed to pay pursuant to
      Sections 11.05 or 11.06 or which are resolved pursuant to Section 11.07 (the
      “Aggregate
      Title Defect Value”)
      exceeds a deductible (not a threshold) equal
      to
      Five Hundred Thousand
      Dollars
      ($500,000.00).
      If the
      Defect Value for any single Asset is less than One Hundred Thousand Dollars
      ($100,000.00) ("De
      Minimis
      Title
      Defect Cost"),
      such
      value shall not be considered in calculating the Aggregate Title Defect Value.
      The aggregated Defect Value(s) for any Asset shall never exceed the Allocated
      Value of such Asset. If the sum of (i) the Aggregate Title Defect Value
      (including any unresolved disputed Title Defects and any uncured Title Defects,
      whether or not Seller has elected to attempt to cure), plus (ii) the Aggregate
      Environmental Defect Value (including any unresolved disputed Environmental
      Defects and any uncured Environmental Defects, whether or not Seller has elected
      to attempt to cure), plus (iii) the aggregate value of Assets requiring consent
      to assign for which a consent has not been obtained by the Closing Date, plus
      (iv) in connection only with Buyer’s election to terminate, the aggregate value
      of Assets subject to preferential purchase rights that have not been waived
      by
      the Closing Date, plus (v) in connection only with Buyer’s election to
      terminate, the aggregate costs to repair or replace any portion of the Assets
      subject to a Casualty Loss or condemnation that occurs after the date of this
      Agreement and prior to the Closing and any other Damages related thereto,
      exceeds twenty percent (20%) of the unadjusted Purchase Price, either Buyer
      or
      Seller may terminate this Agreement upon written notice to the other, and
      neither party shall thereafter have any further rights or obligations hereunder;
      provided, however, that the amounts covered by clause (iv) of this sentence
      shall not be taken into account for purposes of determining if Seller has a
      right to terminate this Agreement. Any claim by Buyer for Seller's Breach of
      Section 3.08 for matters arising between the Title Claim Date and the Closing,
      shall be subject to the limitations of this Section, however, in applying such
      limitations, the Defect Value of all Title Defects under this Article 11 shall
      be aggregated with the amounts claimed by Buyer for Seller's Breach of Section
      3.08 for matters arising between the Title Claim Date and the Closing. Buyer's
      claims for Breach by Seller of Section 5.02 shall not be subject to the
      limitations of this Section.

     

    11.09. Interest
      Additions.  If
      Seller
      discovers an increase in the Net Revenue Interest shown on Exhibit A with
      respect to an Asset that is free of Title Defects (an “Interest
      Addition”),
      then
      Seller shall, from time to time and without limitation, have the right to give
      Buyer written notice of such Interest Additions (“Interest
      Addition Notice”),
      as
      soon as practicable but not later than the Title Claim Date, stating with
      reasonable specificity the Asset affected, the particular Interest Addition
      claimed, and Seller’s good faith estimate of the amount the additional interest
      increases the value of the affected Asset over and above that Asset’s Allocated
      Value (“Interest
      Addition Value”).
      The
      Interest Addition Value shall be determined by multiplying the Allocated Value
      of the subject Well (or the specified zone(s) therein) by a fraction, the
      numerator of which is the increase in the Net Revenue Interest in such Well
      (or
      the specified zone(s) therein) over the Net Revenue Interest specified therefor
      in Exhibit A, and the denominator of which is the Net Revenue Interest specified
      for such Well (or the specified zone(s) therein) in Exhibit A. Seller shall
      conclusively be deemed to have waived any additional interest not asserted
      by an
      Interest Addition Notice on or before the Title Claim Date. If Buyer agrees
      with
      the existence of the Additional Interest and Seller’s good faith estimate of the
      Interest Addition Value, then the Purchase Price shall be adjusted upward by
      the
      amount of the Interest Addition Value. If Buyer contests the existence of the
      Interest Addition or Seller’s good faith estimate of the Interest Addition
      Value, then Buyer shall so notify Seller in writing within five (5) Business
      Days after Buyer’s receipt of the Interest Addition Notice (“Interest
      Addition Rejection Notice”).
      The
      Interest Addition Rejection Notice shall state with reasonable specificity
      the
      basis of Buyer’s rejection of the Additional Interest or of Buyer’s good faith
      estimate of the Interest Addition Value. Within ten (10) days after Seller’s
      receipt of the Interest Addition Rejection Notice, representatives of Buyer
      and
      Seller, knowledgeable in title matters, shall meet and either (a) agree to
      mutually reject the Interest Addition in which case Seller shall waive the
      Interest Addition, or (b) agree on the validity of such Interest Addition and
      the Interest Addition Value, in which case the Purchase Price shall be adjusted
      upward accordingly. If the parties cannot agree on either option (a) or (b)
      in
      the preceding sentence, the Interest Addition subject to the Interest Addition
      Rejection Notice shall be submitted to arbitration in accordance with the
      procedures set forth in Section 12.15. If Buyer fails to timely deliver an
      Interest Addition Rejection Notice, Buyer shall be deemed to have accepted
      the
      validity of the Interest Addition and Seller’s good faith estimate of the
      Interest Addition Value, and Seller shall be entitled to an upwards Purchase
      Price adjustment as described above. Buyer
      shall also promptly furnish Seller with written notice of any Interest Addition
      which is discovered by any of Buyer’s or any of its Affiliate’s employees, title
      attorneys, landmen, or other title examiners while conducting Buyer’s title
      review, due diligence, or investigation with respect to the Assets.

     

    
      
        
        

      

      
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    11.10. Reconveyance.  If
      the
      Purchase Price is adjusted downward by one hundred percent (100%) of the
      Allocated Value of any Asset, Buyer shall, at Seller’s sole option to be
      exercised no later than sixty (60) days after such Purchase Price adjustment,
      reconvey to Seller the Asset (effective as of the Effective Time). In connection
      with such reconveyance, Buyer shall pay Seller all revenues received by Buyer
      with respect to such reconveyed Assets and Seller shall reimburse Buyer for
      all
      Property Costs paid by Buyer with respect to such reconveyed
      Assets.

     

    
      
        
        

      

      
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    11.11. Buyer’s
      Environmental Assessment.
      Beginning
      on the date of this Agreement and ending seven (7) Business Days prior to the
      Closing Date (the “Environmental
      Claim Date”),
      Buyer
      shall have the right, at its sole cost, risk, and expense, to conduct an
      environmental assessment of the Assets. During normal business hours and after
      providing Seller reasonable prior notice of any such activities, Buyer and
      its
      representatives shall be permitted to enter upon the Assets operated by Seller
      and all buildings and improvements thereon, inspect the same, review all of
      Seller’s files and records (other than those for which Seller has an
      attorney-client privilege) relating to the Assets and generally conduct tests,
      examinations, and investigations.
      Seller
      will have the right to (i) observe such investigation and (ii) promptly receive
      a copy of all results, analyses, and reviews, except for such information for
      which Buyer has an attorney-client privilege. All information obtained or
      reviewed by Buyer shall be maintained confidential by Buyer.

     

    11.12. Environmental
      Defect Notice.  Buyer
      shall notify Seller in writing of any Environmental Defect (“Environmental
      Defect Notice(s)”)
      no
      later than 5:00 p.m. Central Time on the Environmental Claim Date. The
      Environmental Defect Notice shall state with reasonable specificity: (i) the
      Asset affected; (ii) a complete description of the Environmental Defect claimed;
      (iii) Buyer’s good faith estimate of the cost of Remediation of such
      Environmental Defect (the “Environmental
      Defect Value”);
      and
      (iv) appropriate documentation substantiating Buyer’s claim. Without limiting
      Section 3.06, Buyer shall conclusively be deemed to have waived any
      Environmental Defect not asserted by an Environmental Defect Notice by 5:00
      p.m.
      Central Time on the Environmental Claim Date.

     

    11.13. Seller’s
      Election with Respect to Environmental Defects.  For
      any
      Environmental Defect asserted in an Environmental Defect Notice, Seller, in
      its
      sole discretion, shall
      have the
      option of (i) Remediating the Environmental Defect, (ii) contesting the
      existence of the Environmental Defect or the Environmental Defect Value, (iii)
      paying the Environmental Defect Value as an adjustment to the Purchase Price
      subject to the limitations set forth below, or (iv) excluding the affected
      Asset
      and reducing the Purchase Price by the Allocated Value thereof. Seller shall
      notify Buyer in writing of its election no more than five (5) days following
      its
      receipt of an Environmental Defect Notice, and Seller's failure to make an
      election shall be deemed an election under clause (iii) of the preceding
      sentence.

     

    
      
        
        

      

      
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              (a)

            	
              If
                Seller elects to Remediate an Environmental Defect, Seller shall
                give
                written notice of such an election to Buyer no more than five (5)
                Business
                Days after receipt of the Environmental Defect Notice, together with
                Seller’s proposed plan and timing for such Remediation, and Seller shall
                remain liable for all Damages arising out of or in connection with
                such
                Environmental Defect until such time as the Remediation is
                completed.
                If
                Seller elects the option set forth in this clause (a), Seller shall
                implement such Remediation in a manner which is in compliance with
                all
                Legal Requirements and applicable Environmental Laws in a prompt
                and
                timely fashion for the type of Remediation. Seller's proposed plan
                and
                timing for such Remediation shall be subject to Buyer's approval
                which
                shall not be unreasonably withheld, conditioned, or delayed, however,
                Buyer may withhold approval of any Remediation that is reasonably
                estimated to take more than one hundred twenty (120) days to complete.
                If
                Buyer does not approve Seller's proposed plan and timing for such
                Remediation in accordance with the foregoing and the parties do not
                agree
                on a mutually acceptable plan and timing for such Remediation within
                ten
                (10) Business Days after Buyer's receipt of Seller's proposed plan
                and
                timing for such Remediation, then Buyer shall have the option to
                remove
                and exclude the Assets subject to such Remediation (together with
                other
                Assets which are appurtenant thereto) from the "Assets" and upon
                such
                election the Purchase Price shall be adjusted downward by one hundred
                percent (100%) of the Allocated Value of the Assets so removed and
                excluded from the "Assets." If such election by Buyer occurs after
                the
                Closing Date, the removed and excluded Assets shall be reconveyed
                by Buyer
                to Seller (effective as of the Effective Time), and the Purchase
                Price
                shall be reduced by the Allocated Value of the affected Asset. In
                connection with such reconveyance, Buyer shall pay Seller all revenues
                received by Buyer with respect to such reconveyed Assets and Seller
                shall
                reimburse Buyer for all Property Costs paid by Buyer with respect
                to such
                reconveyed Assets.

            

    

     

    
      
        
        

      

      
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              (b)

            	
              If
                Seller in good faith contests the existence of an Environmental Defect
                or
                the Environmental Defect Value, then Seller shall so notify Buyer
                in
                writing no more than five (5) Business Days after receipt of the
                Environmental Defect Notice (“Environmental
                Rejection Notice”).
                The Environmental Rejection Notice shall state with reasonable specificity
                the basis of Seller’s rejection of the Environmental Defect or the
                Environmental Defect Value. Within ten (10) days of Buyer’s receipt of the
                Environmental Rejection Notice, representatives of Buyer and Seller,
                knowledgeable in environmental matters, shall meet and, within twenty
                (20)
                days after Buyer’s receipt of such Environmental Rejection Notice, either:
                (i) agree to mutually reject the particular Environmental Defect
                Notice,
                or (ii) agree on the validity of such Notice including the Environmental
                Defect Value, in which case Seller shall have ten (10) days after
                the date
                of such agreement within which to elect in writing to Remediate the
                Environmental Defect pursuant to Section 11.13(a) above or to adjust
                the Purchase Price downward by the Environmental Defect Value, subject
                to
                the limitations set forth below. If Buyer and Seller cannot agree
                on
                either options (i) or (ii) in the preceding sentence, the dispute
                shall be
                submitted to arbitration in accordance with the procedures set forth
                in
                Section 12.15. In such case, Seller shall have five (5) Business
                Days
                following the final decision of the arbitration panel to notify Buyer
                in
                writing of its election to Remediate the Environmental Defect or
                to adjust
                the Purchase Price.

            

    

     

    
      	 	
              (c)

            	
              If
                a contested Environmental Defect cannot be resolved prior to Closing,
                Seller shall retain the affected Asset and the Purchase Price shall
                be
                reduced by the Allocated Value thereof. After the Closing, if Buyer
                and
                Seller agree on the Environmental Defect Value of the affected Asset,
                or
                if the Environmental Defect Value is subsequently determined by final
                decision of the arbitration panel as provided above, then Buyer shall
                purchase the affected Asset for the Allocated Value less the agreed
                or
                determined Environmental Defect Value (unless Seller elects to Remediate
                the Environmental Defect, in which case Buyer shall purchase the
                affected
                Asset for the full Allocated Value thereof, and Seller shall Remediate
                the
                Environmental Defect in accordance with Section 11.13(a) above),
                and the
                closing of such transaction shall take place on a date designated
                by
                Seller not more than one hundred eighty (180) days after the Closing
                Date.

            

    

     

    
      
        
        

      

      
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              (d)

            	
              If
                the Purchase Price is adjusted pursuant to this Section 11.13, or
                if Buyer
                waives an Environmental Defect pursuant to this section or otherwise,
                Buyer shall assume all losses associated with its respective interest
                in
                the Assets relating to such Environmental
                Defect(s).

            

    

     

    11.14. Limitation.  Notwithstanding
      the provisions of Sections 11.12 and 11.13, no adjustment to the Purchase Price
      for Environmental Defect Values shall be made unless and until the aggregate
      value of all Environmental Defect Values (the “Aggregate
      Environmental Defect Value”)
      exceeds a deductible (not a threshold)
      equal to Five Hundred Thousand Dollars ($500,000.00).
      If the
      Environmental Defect Value with respect to any single Environmental Defect
      is
      less than One Hundred Thousand Dollars ($100,000.00) ("De
      Minimis
      Environmental Defect Cost"), such cost shall not be considered in calculating
      the Aggregate Environmental Defect Value. If the sum of (i) the Aggregate Title
      Defect Value (including any unresolved disputed Title Defects and any uncured
      Title Defects, whether or not Seller has elected to attempt to cure), plus
      (ii)
      the Aggregate Environmental Defect Value (including any unresolved disputed
      Environmental Defects and any uncured Environmental Defects, whether or not
      Seller has elected to attempt to cure), plus (iii) the aggregate value of Assets
      requiring consent to assign for which a consent has not been obtained by the
      Closing Date, plus (iv) in connection only with Buyer’s election to terminate,
      the aggregate value of Assets subject to preferential purchase rights that
      have
      not been waived by the Closing Date, plus (v) in connection only with Buyer’s
      election to terminate, the aggregate costs to repair or replace any portion
      of
      the Assets subject to a Casualty Loss that occurs after the date of this
      Agreement and prior to the Closing and any other Damages related thereto,
      exceeds twenty percent (20%) of the unadjusted Purchase Price, either Buyer
      or
      Seller may terminate this Agreement upon written notice to the other, and
      neither party shall thereafter have any further rights or obligations hereunder;
      provided, however, that the amounts covered by clause (iv) of this sentence
      shall not be taken into account for purposes of determining if Seller has a
      right to terminate this Agreement.

     

    11.15. Exclusive
      Remedies.  The
      rights and remedies granted each party in this Agreement are the exclusive
      rights and remedies against the other party related to any Environmental
      Condition, or losses related thereto. EACH
      PARTY EXPRESSLY WAIVES ANY AND ALL OTHER RIGHTS AND REMEDIES WHICH IT MAY HAVE
      UNDER ENVIRONMENTAL LAWS AGAINST THE OTHER PARTY REGARDING ENVIRONMENTAL
      CONDITIONS, WHETHER FOR CONTRIBUTION, INDEMNITY OR OTHERWISE, REGARDLESS OF
      THE
      FAULT OR NEGLIGENCE OF THE CLAIMING PARTY, INCLUDING STRICT OR STATUTORY
      LIABILITY OF THAT PARTY UNDER ANY APPLICABLE LAW.

     

    
      
        
        

      

      
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    11.16. Casualty
      Loss and Condemnation. 

     

    
      	 	
              (a)

            	
              If
                after the date of execution of this Agreement and prior to the Closing
                any
                part of the Assets suffers a Casualty Loss or if any part of the
                Assets is
                taken in condemnation or under the right of eminent domain or if
                proceedings for such purposes are pending or Threatened, Seller shall
                promptly give Buyer written notice of such occurrence, including
                reasonable particulars with respect thereto, and this Agreement shall
                remain in full force and effect notwithstanding any such destruction,
                taking, proceeding, or threat, subject to Sections 11.08 and
                11.14.

            

    

     

    
      	 	
              (b)

            	
              With
                regard to a Casualty Loss or condemnation occurring after the date
                of
                execution of this Agreement, without Buyer’s prior consent, no insurance
                or condemnation proceeds shall be committed or applied by Seller
                to
                repair, restore, or replace a lost, damaged, destroyed or taken portion
                of
                the Assets if the cost to repair, restore, or replace a lost, damaged,
                destroyed or taken portion of the Assets is projected to exceed $50,000.
                To the extent such proceeds are not committed or applied by Seller
                prior
                to the Closing Date in accordance with this Section 11.16(b), Seller
                shall
                at the Closing pay to Buyer all sums paid to Seller by reason of
                such
                loss, damage, destruction or taking, less any reasonable costs and
                expenses incurred by Seller in collecting such proceeds. In addition
                and
                to the extent such proceeds have not been committed or applied by
                Seller
                in accordance with this Section 11.16(b), in such repair, restoration,
                or
                replacement, Seller shall transfer to Buyer, at Closing, without
                recourse
                against Seller, all of the right, title, and interest of Seller in
                and to
                any unpaid insurance or condemnation proceeds arising out of such
                loss,
                damage, destruction or taking, less any reasonable costs and expenses
                incurred by Seller in collecting such proceeds. Any such funds which
                have
                been committed by Seller for repair, restoration, or replacement
                as
                aforesaid shall be paid by Seller for such purposes or, at Seller’s
                option, delivered to Buyer upon Seller’s receipt from Buyer of adequate
                assurance and indemnity that Seller shall incur no liability or expense
                as
                a result of such commitment.

            

    

     

    
      
        
        

      

      
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              (c)

            	
              If
                and to the extent any portion of the loss attributable to a Casualty
                Loss
                occurring after the date of execution of this Agreement and before
                Closing
                is not covered by insurance (such uncovered portion of the Casualty
                Loss
                being referred to in this Section as an "uninsured loss"), Buyer
                and
                Seller shall attempt to agree on the value of the uninsured Casualty
                Loss
                on or before the date five (5) days after Buyer receives written
                notice of
                the Casualty Loss. If the parties are not able to agree on such value
                within such 5-day period, the value shall be determined by an independent
                casualty adjuster, experienced in determining casualty losses in
                matters
                similar to the disputed Casualty Loss, who shall be selected by Seller
                from a list of three (3) such independent casualty adjusters that
                is
                provided to Seller by Buyer. Said independent casualty adjuster shall
                be
                selected by Seller within five (5) days of the written receipt by
                Seller
                of Buyer’s written listing of independent casualty adjusters and shall
                provide both Seller and Buyer with a complete and documented report
                as to
                his findings within ten (10) Business Days after being selected by
                Seller.

            

    

     

    For
      purposes of this Section, the value of the uninsured Casualty Loss shall be
      equal to the lesser of (i) the aggregate reduction in Allocated Value of the
      affected Assets resulting from the uninsured Casualty Loss, if such affected
      Assets are not repaired, or (ii) the amount required to repair the affected
      portion of the Assets to its condition immediately preceding the occurrence
      of
      the Casualty Loss plus any other Damages which may be suffered on account of
      such Casualty Loss. The Purchase Price shall be reduced by the amount of the
      value of such an uninsured Casualty Loss as finally determined pursuant to
      this
      Section, and if such final determination is not available on the scheduled
      Closing Date, Closing shall not be delayed, but rather, the amount paid at
      Closing shall be reduced by the value of the uninsured Casualty Loss estimated
      in good faith by Buyer, and the difference between such good faith estimate
      and
      the value finally determined pursuant hereto shall be included as part of the
      final adjustments to be made after Closing as contemplated by Section
      2.05.

     

    
      
        
        

      

      
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    ARTICLE
      12 

     

    GENERAL
      PROVISIONS

     

    12.01. Records.
      Buyer
      shall be entitled to all original records and documents relating to the Assets,
      including but not limited to land and lease files, division of interest computer
      printouts, contract files, well files, and copies of well logs; excluding,
      however, those records that Seller is prohibited by law or contract from
      disclosing to Buyer. Seller, at Seller’s expense, shall deliver such records to
      Buyer (FOB Seller’s office) within thirty (30) days after Closing. Buyer shall
      retain such records for at least seven (7) years beyond the Closing Date.
      Seller, at Seller’s expense, shall be entitled to retain copies of such records
      as Seller may desire, provided that Seller shall maintain such records in
      confidence in accordance with Section 12.18 for as long as they retain copies
      of
      such records. After Closing, Seller, at Seller’s expense, shall be entitled to
      obtain from Buyer, at reasonable business hours and upon prior notice to Buyer,
      copies of such records, as reasonable and necessary for tax purposes or in
      connection with any Proceeding or threatened Proceeding against
      Seller.

     

    12.02. Expenses.
      Except
      as
      otherwise expressly provided in this Agreement each party to this Agreement
      shall bear its respective expenses incurred in connection with the preparation,
      execution, and performance of this Agreement and the Contemplated Transactions,
      including all fees and expenses of agents, representatives, counsel, and
      accountants.

     

    12.03. Notices.
      All
      notices, consents, waivers, and other communications under this Agreement must
      be in writing and shall be deemed to have been duly given when (a) delivered
      by
      hand (with written confirmation of receipt), (b) sent by fax (with written
      confirmation of receipt), provided that a copy is mailed by registered mail,
      return receipt requested, (c) sent by electronic mail with receipt acknowledged,
      or (d) when received by the addressee, if sent by a nationally recognized
      overnight delivery service (receipt requested), in each case to the appropriate
      addresses and fax numbers set forth below (or to such other addresses and fax
      numbers as a party may designate by notice to the other party):

    
       

      
        	 	
                Buyer:

              	 	 	
                Energy
                  XXI GOM, LLC

              

      

      1021
        Main, Suite 2626

      Houston,
        Texas 77002

      Fax:
        713-351-3300

      Phone:
        713-351-3034

      Attention:
        J. Granger Anderson III 

      E-mail:  ganderson@energyxxi.com

    

     

    
      
        
        

      

      
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              Seller:

            	
               

            	 	
              Pogo
                Producing Company

            

    

    
      	 	 	 	 	
              Five
                Greenway Plaza, Suite 2700

            

    

    
      	 	 	 	 	
              Houston,
                Texas 77046

            

    

    Fax:  713.297.5100

    Phone:
       713.297.5000

    Attention: Michael
      J. Killelea, General Counsel

    E-mail: killelea@pogoproducing.com

     

    with
      a
      copy to:

    

    Thompson
      & Knight LLP

    333
      Clay,
      Suite 3300

    Houston,
      Texas 77002

    Fax:
        832.397.8157

    Phone:  713.653.8724

    Attention: Michael
      J. Byrd

    E-mail:
       michael.byrd@tklaw.com

     

    12.04. Jurisdiction;
      Service of Process. WITHOUT
      LIMITING THE PARTIES AGREEMENT TO ARBITRATE IN SECTION 12.15, ANY ACTION OR
      PROCEEDING SEEKING A TEMPORARY OR PRELIMINARY INJUNCTION TO ENFORCE ANY
      PROVISION OF, OR BASED ON ANY RIGHT ARISING OUT OF, THIS AGREEMENT OR THE
      CONTEMPLATED TRANSACTIONS MUST BE BROUGHT AGAINST ANY OF THE PARTIES IN THE
      COURTS OF THE STATE OF TEXAS, COUNTY OF HARRIS, OR, IF IT HAS OR CAN ACQUIRE
      JURISDICTION, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
      OF
      TEXAS (HOUSTON DIVISION), AND EACH OF THE PARTIES CONSENTS TO THE JURISDICTION
      OF SUCH COURTS (AND OF THE APPROPRIATE APPELLATE COURTS) FOR SUCH LIMITED
      PURPOSE IN ANY SUCH ACTION OR PROCEEDING AND WAIVES ANY OBJECTION TO VENUE
      LAID
      THEREIN FOR SUCH LIMITED PURPOSE. PROCESS IN ANY ACTION OR PROCEEDING REFERRED
      TO IN THE PRECEDING SENTENCE MAY BE SERVED ON ANY PARTY ANYWHERE IN THE
      WORLD.

     

    
      
        
        

      

      
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    12.05. Further
      Assurances.
      The
      parties agree (a) to furnish upon request to each other such further
      information, (b) to execute, acknowledge and deliver to each other such
      other documents, and (c) to do such other acts and things, all as the other
      party may reasonably request for the purpose of carrying out the intent of
      this
      Agreement and the documents referred to in this Agreement. 

     

    12.06. Waiver.
      The
      rights and remedies of the parties to this Agreement are cumulative and not
      alternative. Neither the failure nor any delay by any party in exercising any
      right, power, or privilege under this Agreement or the documents referred to
      in
      this Agreement shall operate as a waiver of such right, power, or privilege,
      and
      no single or partial exercise of any such right, power, or privilege shall
      preclude any other or further exercise of such right, power, or privilege or
      the
      exercise of any other right, power, or privilege. To the maximum extent
      permitted by applicable law, (a) no claim or right arising out of this
      Agreement or the documents referred to in this Agreement can be discharged
      by
      one party, in whole or in part, by a waiver or renunciation of the claim or
      right unless in writing signed by the other party; (b) no waiver that may
      be given by a party shall be applicable except in the specific instance for
      which it is given; and (c) no notice to or demand on one party shall be
      deemed to be a waiver of any obligation of such party or of the right of the
      party giving such notice or demand to take further action without notice or
      demand as provided in this Agreement or the documents referred to in this
      Agreement.

     

    12.07. Entire
      Agreement and Modification.
      This
      Agreement supersedes all prior agreements between the parties with respect
      to
      its subject matter and constitutes (along with the documents referred to in
      this
      Agreement) a complete and exclusive statement of the terms of the agreement
      between the parties with respect to its subject matter. This Agreement may
      not
      be amended except by a written agreement executed by Buyer and Seller. No
      representation, promise, inducement, or statement of intention with respect
      to
      the subject matter of this Agreement has been made by any party which is not
      embodied in this Agreement together with the documents, instruments, and
      writings that are delivered pursuant hereto, and none of the parties shall
      be
      bound by or liable for any alleged representation, promise, inducement. or
      statement of intention not so set forth.

     

    12.08. Assignments,
      Successors, and No Third-Party Rights.
      Neither
      party may assign any of its rights under this Agreement without the prior
      written consent of the other party (which consent may be granted or denied
      at
      the discretion of the other party), and in the event of such consent, such
      assignment nevertheless shall not relieve such party of any of its obligations
      under this Agreement without the prior written consent of the other party.
      Subject to the preceding sentences, this Agreement shall apply to, be binding
      in
      all respects upon, and inure to the benefit of the successors and permitted
      assigns of the parties. Nothing expressed or referred to in this Agreement
      shall
      be construed to give any Person other than the parties to this Agreement or
      any
      other agreement contemplated herein (and the Buyer Group and Seller Group who
      are entitled to indemnification under Article 10), any legal or equitable right,
      remedy, or claim under or with respect to this Agreement or any provision of
      this Agreement. This Agreement, any other agreement contemplated herein, and
      all
      provisions and conditions hereof and thereof are for the sole and exclusive
      benefit of the parties to this Agreement and such other agreements (and the
      Buyer Group and Seller Group who are entitled to indemnification under Article
      10), and their respective successors and assigns. 

     

    
      
        
        

      

      
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    12.09. Severability.
      If
      any
      provision of this Agreement is held invalid or unenforceable by any court of
      competent jurisdiction, the other provisions of this Agreement shall remain
      in
      full force and effect. Any provision of this Agreement held invalid or
      unenforceable only in part or degree shall remain in full force and effect
      to
      the extent not held invalid or unenforceable.

     

    12.10. Article
      and Section Headings, Construction.
      The
      headings of Sections and Articles in this Agreement are provided for convenience
      only and shall not affect its construction or interpretation. All references
      to
      "Section" or "Article" refer to the corresponding Section or Article of this
      Agreement. Unless expressly provided to the contrary, “hereunder,” “hereof,’
“herein,” and words of similar import are references to this Agreement as a
      whole and not any particular Section or other provision of this Agreement.
      Each
      definition of a defined term herein shall be equally applicable both to the
      singular and the plural forms of the term so defined. All words used in this
      Agreement shall be construed to be of such gender or number, as the
      circumstances require. Unless otherwise expressly provided, the word "including"
      does not limit the preceding words or terms. Each
      of
      Seller and Buyer has had substantial input into the drafting and preparation
      of
      this Agreement and has had the opportunity to exercise business discretion
      in
      relation to the negotiation of the details of the transactions contemplated
      hereby. This Agreement is the result of arm’s-length negotiations from equal
      bargaining positions. It is expressly agreed that this Agreement shall not
      be
      construed against any party, and no consideration shall be given or presumption
      made, on the basis of who drafted this Agreement or any particular provision
      hereof or who supplied the form of Agreement.

     

    
      
        
        

      

      
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    12.11. Time
      of Essence.
      With
      regard to all dates and time periods set forth or referred to in this Agreement,
      time is of the essence.

     

    12.12. Governing
      Law. This
      Agreement and the relationship of the parties with respect to the Contemplated
      Transactions shall be governed by the laws of the State of Texas without regard
      to conflicts of laws principles, except that the law of another jurisdiction
      shall apply to this Agreement and the Contemplated Transactions insofar as
      this
      Agreement and the Contemplated Transactions cover or relate to a part of the
      Assets for which it is mandatory that the law of another jurisdiction, wherein
      or adjacent to which such part of the Assets are located, shall
      apply.

     

    12.13. Counterparts.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed to be an original copy of this Agreement and all of which, when taken
      together, shall be deemed to constitute one and the same agreement.

     

    12.14. Waiver
      of Texas Deceptive Trade Practices - Consumer Protection
      Act.
      Buyer’s
      rights and remedies with respect to this transaction and with respect to all
      acts or practices of Seller, past, present, or future, in connection with this
      transaction shall be governed by legal principles other than the Texas Deceptive
      Trade Practices - Consumer Protection Act, V.C.T.A. BUS & COMM Ann.
§ 17.41 et seq. (the “DTPA”), or any similar statute of any jurisdiction
      that may be applicable to the transactions contemplated hereby. Buyer hereby
      unconditionally waives the applicability of the DTPA, or any similar statute,
      to
      this transaction and any and all rights, duties, or remedies that might be
      imposed by the DTPA, or any similar statute, provided, however, Buyer does
      not
      waive Section 17.555 of the DTPA. Buyer represents, warrants, and acknowledges
      that it is purchasing the Assets for commercial or business use. Buyer further
      acknowledges, represents, and warrants that Buyer has knowledge and experience
      in financial and business matters that enables it to evaluate the merits and
      the
      risks of a transaction such as this and that Buyer is not in a significantly
      disparate bargaining position with Seller. Buyer expressly acknowledges and
      recognizes that the price for which Seller has agreed to sell the Assets and
      perform its obligations under the terms of this Agreement has been predicated
      upon the inapplicability of the DTPA, or any similar statute, and this waiver
      of
      the DTPA, and any similar statute, by Buyer. BUYER
      FURTHER RECOGNIZES THAT SELLER, IN DETERMINING TO PROCEED WITH ENTERING INTO
      THIS AGREEMENT, HAS EXPRESSLY RELIED ON THE PROVISIONS OF THIS SECTION
      12.14.

     

    
      
         

      

      
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    12.15. Limited
      Arbitration.
      It
      is
      agreed, as a severable and independent arbitration agreement separately
      enforceable from the remainder of this Agreement, that all disputes under
      Sections 11.01 through 11.15 shall be finally and exclusively submitted to,
      and
      determined by, binding arbitration. Any disputes under Sections 2.05(c) and
      11.16 shall be resolved as provided in such sections. Any other disputes,
      controversies or claims that may arise among the parties arising out of or
      in
      any way relating to this Agreement shall be subject to litigation in
      any
      court of competent jurisdiction in Harris County, Texas, with such courts to
      be
      the exclusive forum for any dispute arising out of or relating to this Agreement
      that is subject to litigation. The
      arbitration proceedings shall be held in Houston, Texas. The arbitration shall
      be conducted before a single arbitrator pursuant to the
      then
      current Commercial Arbitration Rules of the American Arbitration Association
      (the “AAA”).
      The AAA
      shall appoint an independent arbitrator who does not have any financial interest
      in the dispute, controversy or claim or bear any relationship to either party
      and who maintains such independence throughout the arbitration proceedings.
      The
      arbitrator must be a licensed and practicing attorney (including any attorney
      practicing in-house for a company, with an outside law firm, as a solo
      practitioner, or as a professional arbitrator) or a retired judge of a state or
      federal court. If the arbitrator should die, withdraw or otherwise become
      incapable of serving, or refuse to serve, a successor arbitrator shall be
      selected and appointed in the same manner as the original
      arbitrator. In
      the
      event of any conflict between the Commercial Arbitration Rules of the AAA and
      the provisions of this Section 12.15, the provisions of this Section 12.15
      shall
      govern and control. The
      arbitrator shall apply the laws of the State of Texas (without regard to
      conflict of law rules) to the dispute, controversy, or claim, except that the
      law of another jurisdiction shall apply to this Agreement and the Contemplated
      Transactions insofar as this Agreement and the Contemplated Transactions cover
      or relate to a part of the Assets for which it is mandatory that the law of
      another jurisdiction, wherein or adjacent to which such part of the Assets
      are
      located, shall apply. To the extent that they are not inconsistent with the
      Commercial Arbitration Rules of the AAA, evidentiary questions shall be governed
      by the Texas Rules of Evidence. The
      arbitration shall proceed in the absence of a party who, after due notice,
      fails
      to answer or appear; provided, however, that an award shall not be made solely
      on the default of a party, but the arbitrator shall require the party who is
      present to submit such evidence as the arbitrator may determine is reasonably
      required to make an award. The arbitrator’s award shall be in writing and shall
      set forth findings and conclusions upon which the arbitrator based the award.
      The prevailing party in the arbitration shall be entitled to recover its
      reasonable attorneys’ fees, costs, and expenses incurred in connection with the
      arbitration, as determined by the arbitrator. Consequential,
      indirect, special, exemplary or punitive damages shall not be allowed except
      those payable to third parties (and permitted under Section 10.11) for which
      liability is allocated among the parties by the arbitration award. Any award
      pursuant to the arbitration shall be final and binding upon the parties and
      judgment on the award may be entered in any federal, state, or international
      court having jurisdiction, or application may be made to such court for a
      judicial confirmation of the award and an order and judgment enforcing the
      same,
      as the case may be. The provisions of this Section shall survive the termination
      of this Agreement. Notwithstanding the foregoing, this Section shall not prevent
      any party from seeking temporary or preliminary injunctive relief from a court
      of competent jurisdiction under appropriate circumstances; provided, however,
      such action shall not constitute a waiver of the provisions of this
      Section.

     

    
      
        
        

      

      
        83

        
          

        

      

      
        
        

      

    

     

    12.16. Tax
      Deferred Exchange.
      If
      Seller
      so requests, Buyer agrees to cooperate with Seller in a tax-deferred exchange
      described in Section 1031 of the Internal Revenue Code of 1986, as amended.
      Notwithstanding the foregoing, Buyer shall not be obligated to enter into any
      agreement or to consent to an assignment of Seller’s rights or obligations
      hereunder which may have the effect of (i) impairing the title to the Assets,
      (ii) increasing Buyer’s obligations or liability hereunder or resulting in any
      additional cost, expense, or liability to Buyer; or (iii) requiring Buyer to
      execute a purchase agreement for the purchase of the exchange property or to
      take record title to the exchange property. Seller hereby agrees to indemnify,
      defend, and hold Buyer harmless from and against any and all costs, expenses,
      claims, damages, losses, or liabilities (including, without limitation,
      reasonable attorney fees and costs) incurred by Buyer in connection with any
      exchange transaction or transactions or the performance by Buyer of its
      obligations pursuant to this Section.

     

    12.17. Press
      Release.
      Until
      two
      (2) years after the Closing Date, neither Buyer nor Seller shall make any press
      release or other public announcement respecting this Agreement or the
      Contemplated Transactions without the consent of the other party, which shall
      not be unreasonably withheld, conditioned, or delayed, unless the party desiring
      to make the release or other announcement determines that the release or other
      announcement is appropriate to comply with any Legal Requirement or stock
      exchange rule; provided, however, that the foregoing shall not prevent Buyer
      or
      Seller from recording the Instruments of Conveyances delivered at Closing or
      from complying with any disclosure requirements of Governmental Bodies that
      are
      applicable to the transfer of the Assets from Seller to Buyer.
      In the
      event that any party wishes or is required to make a press release or other
      public announcement respecting this Agreement or the Contemplated Transactions
      that is subject to the restrictions of this Section, such party will provide
      the
      other with a draft of the press release or other public announcement for review
      at least five (5) Business Days prior to the time that such press release or
      other public announcement is to be made. The parties will attempt in good faith
      to expeditiously reach agreement on such press release or other public
      announcement and the contents thereof. Failure to provide comments back to
      the
      other party within five (5) Business Days of receipt of the draft release or
      announcement will be deemed consent to the public disclosure of such press
      release or other public announcement and the content thereof. If the proposed
      press release or other public announcement contains any information required
      to
      be kept confidential under Section 12.18, the withholding of consent by the
      other party shall not be deemed to be unreasonable. 

     

    
      
        
        

      

      
        84

        
          

        

      

      
        
        

      

    

     

    12.18. Confidentiality.
      Each
      party shall keep confidential, and cause its Affiliates and instruct its
      officers, directors, employees and advisors to keep confidential, all terms
      and
      provisions of this Agreement, except (a) as required by Legal Requirements
      or
      any standards or rules of any stock exchange to which such party or any of
      its
      Affiliates is subject, (b) for information which is available to the public
      on
      the Closing Date, or thereafter becomes available to the public other than
      as a
      result of a breach of this Section, (c) to the extent required to be disclosed
      in connection with complying with or obtaining a waiver of any Preferential
      Purchase Right or Consent, and (d) to the extent that such party must disclose
      the same in any court or arbitration proceedings brought by it to enforce its
      rights hereunder. This Section shall not prevent Buyer or Seller from recording
      the Instruments of Conveyances delivered at Closing or from complying with
      any
      disclosure requirements of Governmental Bodies that are applicable to the
      transfer of the Assets from Seller to Buyer. The covenant set forth in this
      Section shall terminate two (2) years after the Closing Date.

     

    12.19. Financial
      Information.
      Seller
      will exercise its reasonable best efforts to provide disclosures required by
      Statement of Financial Accounting Standards No. 69 - Disclosures
      about Oil and Gas Producing Activities
      for the
      twelve month periods ended December 31, 2006, 2005, and 2004 to Buyer in draft
      form on or before May 26, 2007. At Closing, Seller shall deliver to Buyer,
      in a
      form reasonably acceptable to Buyer, disclosures required by Statement of
      Financial Accounting Standards No. 69 - Disclosures
      about Oil and Gas Producing Activities
      for the
      twelve month periods ended December 31, 2006, 2005, and 2004. Seller will
      exercise its best efforts to provide Buyer with audited statements of revenue
      and direct operating expenses of the Assets for the twelve month periods ended
      December 31, 2006, 2005, and 2004, including all required disclosures necessary
      for inclusion of the financial statements in a Registration Statement, Form
      8-K,
      Form 10-K or other filings with the Commission made by the Buyer including
      disclosures required by Statement of Financial Accounting Standards No. 69
      -
 Disclosures
      about Oil and Gas Producing Activities.
      Buyer
      will retain the independent accountant to perform the audit work on the
      statements of revenue and direct operating expenses of the Assets. Buyer
      will reimburse Seller for all reasonable costs and expenses that Seller incurs
      with respect to preparing such financial information. 

    

    
      
        
        

      

      
        85

        
          

        

      

      
        
        

      

    

     

    Seller
      will assist Buyer related to any matters surrounding the inclusion of the
      audited statements of revenues and direct operating expenses of the Assets
      in a
      Registration Statement, Form 8-K, Form 10-K or other filings with the Commission
      including consents from the Sellers independent accountants related to the
      inclusion of the audited statements in any filing made by the Buyer with the
      Commission, access to the Sellers independent accountants audit work papers
      by
      the Buyers independent accountants and management representation letters
      provided by the Seller to the independent accountants. 

    

    
      
        
        

      

      
        86

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties have executed and delivered this Agreement as
      of
      the date first written above.

     

    
      	 	 	 
	 	
              SELLER:

            
	 	 
	 	
              POGO
                PRODUCING COMPANY

            
	 
 	 
 	 
 
	 	 	 
	
            	By:  	
            
	 	
               

               

              Name:

            	
              

            
	 	Title: 	
              
 
	 	 	
              
 

    

     

    
      
        	 	 	 
	 	
                
                  BUYER:

                

              
	 	 
	 	
                
                  ENERGY
                    XXI GOM, LLC

                

              
	 
 	 
 	 
 
	 	 	 
	
              	By:  	
              
	 	
                 

                 

                Name:

              	
                

              
	 	Title: 	
                
 
	 	 	
                
 

      

      

      
        
          
          

        

        
          87June
      7,
      2007

    

    [INVESTOR
      NAMES]

    

    Dear
      Investors:

    

    Reference
      is made to that certain Amended and Restated Confidential Private Placement
      Memorandum, dated June 7, 2007, in connection with the reverse merger of
      Hemcure, Inc., a publicly traded Nevada corporation (“HMCU”),
      and
      AuraSound, Inc., a California corporation (“AuraSound”)
      (the
“PPM”).
      Capitalized terms used but not defined herein shall have the meanings ascribed
      to them in the PPM.

    

    As
      an
      inducement to the investors who purchase Securities pursuant to the PPM, the
      undersigned hereby agrees that from the date hereof and continuing until the
      24
      month anniversary of the effectiveness date of the Initial Registration
      Statement (the “Lock-Up
      Period”),
      the
      undersigned will not (A) offer, sell, contract to sell, pledge, hypothecate,
      transfer or otherwise dispose of, directly or indirectly, any shares of capital
      stock or other equity securities of HMCU (including without limitation any
      shares of capital stock or other equity securities issued or issuable to the
      undersigned as the result of any stock split, stock dividend or distribution
      on
      such securities) and any options, warrants or other rights to purchase or
      acquire shares of capital stock of HMCU, in each case whether now owned or
      hereafter acquired (the “Lock-Up
      Shares”),
      (B)
      enter into any agreement or transaction that would have the same effect, (C)
      enter into any swap, hedge or other arrangement that transfers, in whole or
      in
      part, any of the economic consequences of ownership of the Lock-Up Shares,
      whether any such aforementioned transaction is to be settled by delivery of
      the
      Lock-Up Shares, in cash or otherwise, or (D) publicly disclose the intention
      to
      make any such offer, sale, pledge or disposition, without, in each case, the
      prior written consent of investors who purchased at least 60% of the Units
      issued under the PPM. 

    

    Notwithstanding
      the foregoing, the undersigned may transfer Lock-Up shares (i) as a bona
      fide
      gift or
      gifts, provided that the donee or donees thereof agree to be bound by the
      restrictions set forth herein, (ii) to any trust for the direct or indirect
      benefit of the undersigned or the immediate family of the undersigned, provided
      that the trustee of the trust agrees to be bound by the restrictions set forth
      herein, and provided further that any such transfer shall not involve a
      disposition for value, or (iii) in transactions relating to shares of common
      stock of HMCU acquired by the undersigned in open market transactions after
      the
      completion of the transactions contemplated by the PPM. For purposes of this
      Agreement, “immediate family” shall mean any relationship by blood, marriage or
      adoption, not more remote than first cousin.

     

    In
      furtherance of the foregoing, HMCU shall, and shall cause its transfer agent
      and
      registrar to, decline to make any transfer of the Lock-Up Shares if such
      transfer would constitute a violation or breach of this letter
      agreement.

    

    Each
      of
      the signatories hereto and AuraSound acknowledges that each of the investors
      who
      purchased Securities pursuant to the PPM are third party beneficiaries of this
      agreement and this agreement may not be modified or changed without the prior
      written consent of the investors who purchased at least sixty (60) percent
      of
      the Units under the PPM.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    This
      letter agreement shall be binding on the undersigned and the successors, heirs,
      personal representatives and assigns of the undersigned. This letter agreement
      or the rights hereunder may not be assigned by the investors named above, except
      to their respective partners and affiliates to which they transfer all or any
      portion of the Securities in accordance with applicable law or regulation.
      

     

    
      	 	 	 
	 	Very
              truly
              yours,
	 
 	 
 	 
 
	 	Signature:	 
	 	 

              Print
                Name:
                

            	
              
Arthur
              Liu

    

     

    ACKNOWLEDGED
      AND AGREED:

     

    
      	
              HEMCURE,
                INC. 

            	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	 	 	 	 
	Name:	
              
 	 	 	
            
	Title:

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