Document:

FOSTER
      WHEELER LTD. OMNIBUS INCENTIVE PLAN

     

    Notice
      of Employee Nonqualified Stock Option Grant

     

    Participant
      Information

     

    Pursuant
      to the attached Employee Nonqualified Stock Option Agreement, you, Raymond
      J.
      Milchovich, have been granted a nonqualified stock option to purchase shares
      of
      common stock, $.01 par value per share (a “Share”), of Foster Wheeler Ltd., a
      Bermuda company (the “Company”) as follows:

     

    
      	
              Board
                Approval Date: 

            	
              August
                11, 2006

               

            
	
              Date
                of Grant:

            	
              August
                11, 2006

               

            
	
              Exercise
                Price Per Share:

            	
              $43.47
                per Common Share

               

            
	
              Total
                Number of Shares Subject to this Option:

            	
               

              280,040 shares
                of common stock

               

            
	
              Total
                Exercise Price:

            	
              $12,173,339

               

            
	
              Type
                of Option:

            	
              Nonqualified
                Stock Option

               

            
	
              Expiration
                Date:

            	
              August
                11, 2016

               

            
	
              Vesting
                Commencement Date: 

            	
              August
                11, 2006

               

            
	
              Vesting/Exercise
                Schedule:

            	
              So
                long as you are continuously employed by the Company or any Affiliate,
                and
                except as otherwise set forth in Section 5 of the Option Agreement,
                the
                Shares underlying this Option shall vest and become exercisable in
                accordance with the following schedule:

              ·  One-third
                of the Shares subject to the Option shall vest and become exercisable
                on
                August 11, 2007; 

               

              ·  Another
                one-third of the Shares subject to the Option shall vest and become
                exercisable on August 11, 2008; and

               

              ·  The
                remaining one-third of the Shares subject to the Option shall vest
                and
                become exercisable on August 11, 2009.

               

            
	
              Termination
                Period:

            	
              Following
                your termination of employment with the Company and all its Affiliates,
                the Option may be exercised, but only as to Shares that were vested
                on the
                date of such termination, through the Expiration Date set forth above.
                The
                Option may terminate as of an earlier
                date in connection with certain events as set forth in the Plan and
                in
                Section 5 of the Option Agreement.

               

              You
                are responsible for keeping track of the periods during which the
                Option
                may be exercised, including those periods that apply following your
                termination of employment with the Company and all its Affiliates
                for any
                reason. The Company will not provide further notice of such exercise
                periods.

               

            
	
              Transferability:

            	
              Unless
                otherwise provided in the Option Agreement or the Plan, this Option
                may
                not be transferred.

               

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    By
      your
      signature
      and the signature of the Company’s representative below, you and the Company
      agree that this Option is granted under and governed by the terms and conditions
      of the Foster Wheeler Ltd. Omnibus Incentive Plan and the Employee Nonqualified
      Stock Option Agreement, both of which are attached and made a part of this
      document.

    

    In
      addition, you agree and acknowledge that your rights to any Shares underlying
      the Option vest only as you provide services to the Company or its Affiliates
      over time, that the grant of the Option is not as consideration for services
      you
      rendered to the Company or its Affiliates prior to your Vesting Commencement
      Date, and that nothing in this Notice or the attached documents confers upon
      you
      any right to continue your employment relationship with the Company or its
      Affiliates for any period of time, nor does it interfere in any way with your
      right or the Company’s (or its Affiliates’) right to terminate that relationship
      at any time, for any reason, with or without cause.

     

    
      	
               

               

               

               

              __________________________________

              Raymond
                J. Milchovich

            	
               

              FOSTER
                WHEELER LTD.

               

               

              _______________________________

              By:
                Joseph J. Melone

              Its: 
                Deputy Chairman

               

            

    

    

     

    
 

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    FOSTER
      WHEELER LTD. OMNIBUS INCENTIVE PLAN

     

    Employee
      Nonqualified Stock Option Agreement

     

    1.  Grant
      of Option.
      Foster
      Wheeler Ltd., a Bermuda company (the “Company”),
      hereby grants to Raymond J. Milchovich (“Optionee”),
      an
      option (the “Option”)
      to
      purchase the total number of shares of common stock (the “Shares”)
      subject to the Option, set forth in the Notice of Stock Option Grant (the
“Notice”),
      at
      the exercise price per Share set forth in the Notice (the “Exercise
      Price”),
      subject to the terms, definitions and provisions of the Foster Wheeler Ltd.
      Omnibus Incentive Plan (the “Plan”) adopted by the Company, which is
      incorporated in this Agreement by reference. Unless otherwise defined in this
      Agreement, the terms used in this Agreement shall have the meanings defined
      in
      the Plan; provided,
      however,
      that the
      term “Shares” as defined above shall be interpreted to refer to the specific
      number of shares set forth in the Notice but shall otherwise have the meaning
      set forth in Section 2(ww) of the Plan. This Employee Nonqualified Stock Option
      Agreement shall be deemed executed by the Company and Optionee upon execution
      by
      such parties of the Notice.

     

    2.  Designation
      of Option.
      This
      Option is intended to be a Nonqualified Stock Option (as defined in Section
      2(bb) of the Plan).

     

    3.  Exercise
      of Option.
      This
      Option shall be exercisable during its term in accordance with the
      Vesting/Exercise Schedule set out in the Notice and with the provisions of
      Section 5 of the Plan as follows:

     

    (a)  Right
      to Exercise.

     

    (i)  This
      Option may not be exercised for a fraction of a share of common
      stock.

     

    (ii)  In
      the
      event of Optionee’s death, Disability (as defined in Section 4.2 and Section 4.3
      of his Employment Agreement with the Company, dated August 11, 2006), Retirement
      (as defined in Section 2(vv) of the Plan), or other termination of employment,
      the exercisability of the Option is governed by Section 5 below, subject to
      the
      limitations contained in this Section 3.

     

    (iii)  In
      no
      event may this Option be exercised after the Expiration Date of the Option
      as
      set forth in the Notice.

     

    (b)  Method
      of Exercise.

     

    (i)  This
      Option shall be exercisable by delivering to the Company a written Notice of
      Exercise (containing the information described in Exhibit
      A
      hereto,
      in the form attached as Exhibit
      A,
      or in
      any other form acceptable to the Committee) which shall state Optionee’s
      election to exercise the Option, the number of Shares in respect of which the
      Option is being exercised, and such other representations and agreements as
      to
      the holder’s investment intent with respect to such Shares as may be required by
      the Company pursuant to the provisions of the Plan. Such written notice shall
      be
      signed by Optionee and shall be delivered to the Company by such means as are
      determined by the Committee in its discretion to constitute adequate delivery.
      The written notice shall be accompanied by payment of the Exercise Price. This
      Option shall be deemed to be exercised upon receipt by the Company of such
      written notice accompanied by payment of the Exercise Price.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (ii)  As
      a
      condition to the exercise of this Option and as further set forth in Article
      20
      of the Plan, Optionee agrees to make adequate provision for federal, state
      or
      other tax withholding obligations, if any, which arise upon the vesting or
      exercise of the Option, or disposition of Shares, whether by withholding, direct
      payment to the Company, or otherwise. If Optionee fails to satisfy such
      obligations in this regard, the Company may require that the Shares otherwise
      scheduled to become vested on any given date be forfeited. 

     

    (iii)  The
      Company is not obligated, and will have no liability for failure, to issue
      or
      deliver or repurchase any Shares upon exercise of the Option unless such
      issuance or delivery or repurchase would comply with the Applicable Laws (as
      defined in Section 2(c) of the Plan), with such compliance determined by the
      Company in consultation with its legal counsel. This Option may not be exercised
      if the issuance of such Shares upon such exercise or the method of payment
      of
      consideration for such shares would constitute a violation of any applicable
      federal or state securities or other law or regulation, including any rule
      under
      Part 221 of Title 12 of the Code of Federal Regulations as promulgated by the
      Federal Reserve Board, or other Applicable Laws. As a condition to the exercise
      of this Option, the Company may require Optionee to make any representation
      and
      warranty to the Company as may be required by the Applicable Laws. Assuming
      such
      compliance, for income tax purposes the Shares shall be considered transferred
      to Optionee on the date on which the Option is exercised with respect to such
      Shares. The Company may postpone issuing and delivering any Shares for so long
      as the Company reasonably determines to be necessary to satisfy the following:
      

     

     

    (A) its
      completing or amending any securities registration or qualification of the
      Shares or its or the Optionee’s satisfying any exemption from registration under
      any federal or state law, rule, or regulation; 

     

     

    (B) its
      receiving proof it considers satisfactory that a person seeking to exercise
      the
      Option after the Optionee’s death is entitled to do so; 

     

     

    (C) the
      Optionee complying with any requests for representations under the Plan;

     

     

    (D) the
      Optionee complying with any federal, state, or local tax withholding
      obligations; and

     

     

    (E) its
      compliance with the restrictions of Code Section 409A to the extent applicable,
      including any final regulations issued pursuant thereto, including the
      Committee’s right to amend any provision of this Option Agreement, to the extent
      necessary to comply with Code Section 409A.

     

    

    4.  Method
      of Payment.
      Payment
      of the Exercise Price (in US dollars) shall be by any of the following, or
      a
      combination of the following, at the election of Optionee:

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (a)  cash
      or
      check; or

     

    (b)  be
      tendering (either by actual delivery or attestation) to the Company for
      repurchase previously acquired Shares having an aggregate Fair Market Value
      (as
      defined in Section 2(u) of the Plan) at the time of exercise equal to the
      Exercise Price together with an assignment of the proceeds of the Share
      repurchase to pay the Exercise Price (provided, however, that such Shares
      tendered must have been held by the Optionee for at least six (6) months prior
      to their tender if acquired under this Plan or any other compensation plan
      maintained by the Company or such Shares must have been purchased on the open
      market and further provided that any repurchase of Shares shall be subject
      to
      the Companies Act of 1981 of Bermuda) prior to their tender; 

     

    (c)  through
      a
      same-day sale/cashless brokered exercise program, delivery of a properly
      executed exercise notice together with irrevocable instructions to a broker
      acceptable to the Company to execute such instructions, in such form and manner
      as the Company may from time to time require; or 

     

    (d)  a
      combination of paragraphs (a), (b) and (c) immediately above.

     

    5.  Termination
      of Relationship; Vesting Acceleration on Certain Events.
      Following
      the date of the Optionee’s termination of employment for any reason (the
“Termination Date”), Optionee may exercise the Option only as set forth in the
      Notice and this Section 5. If Optionee does not exercise this Option as to
      vested Shares prior to the Expiration Date of the Option as set forth in the
      Notice, the Option shall terminate in its entirety. In no event, may the Option
      be exercised as to any Shares after the Expiration Date of the Option as set
      forth in the Notice.

     

    (a)  Termination
      as a Result of Death or Disability.
      In
      the
      event of the Optionee’s termination of employment for death or Disability (as
      defined in Section 4.2 and Section 4.3 of his Employment Agreement with the
      Company, dated August 11, 2006), any unvested Shares under the Option shall
      immediately become fully vested and exercisable and all remaining Shares subject
      to the Option shall remain exercisable until the earlier of:

    

    (i)  the
      Expiration Date; or 

     

    (ii)  the
      two
      (2) year anniversary of the day the Optionee terminates employment or service
      due to death or Disability.

     

    In
      the
      event of the Optionee’s death, the Optionee’s beneficiary or estate may exercise
      the vested Shares under the Option. 

    

    (b)  Termination
      as a Result of Involuntary Termination or Voluntary Termination for Good
      Reason.
      In
      the
      event of the Optionee’s termination of employment as a result of his Involuntary
      Termination (as defined in Section 2(aa) of the Plan) or his voluntary
      termination for Good Reason (as defined in Section 4.5 of his Employment
      Agreement with the Company, dated August 11, 2006), any unvested Shares under
      the Option shall immediately become fully vested and exercisable and all
      remaining Shares subject to the Option shall remain exercisable until the
      earlier of:

    

    (i)  the
      Expiration Date; or 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (ii)  the
      two
      (2) year anniversary of the day the Optionee terminates employment or service
      due to Involuntary Termination or voluntary termination for Good
      Reason.

     

    (c)  Termination
      as a Result of Retirement.
      In
      the
      event of the Optionee’s termination of employment as a result of his Retirement
      (as defined in Section 2(vv) of the Plan), the vesting of the Option shall
      accelerate such that Optionee shall be vested in and able to exercise the Option
      as of the Termination Date as to that number of Shares subject to the Option
      that equals the product of:

     

    (i)  the
      total
      number of Shares subject to the Option, times
      

     

    (ii)  a
      ratio,
      the numerator of which is the total number of months of employment from the
      date
      the Option was granted to the end of the month in which the Termination Date
      occurs, and the denominator of which is the total number of months in the
      vesting schedule as set forth in the Notice of Grant. 

     

    All
      vested Shares subject to the Option (including those Shares under the Option
      which become immediately vested and exercisable pursuant to this paragraph
      (c))
      shall remain exercisable until the earlier of:

    

    (A)  the
      Expiration Date; or 

    

    (B)  the
      thirty-sixth (36) month anniversary of the day the Optionee terminates
      employment due to Retirement.

    

    The
      unvested portion of the Option shall be immediately forfeited. 

    

    (d)  Termination
      for Cause.
      In
      the
      event the Optionee’s employment is terminated for Cause (as defined in Section
      4.4 of his Employment Agreement with the Company, dated August 11,
      2006):

     

    (i)  any
      unvested Shares under the Option shall expire immediately, be forfeited and
      considered null and void; and 

     

    (ii)  any
      vested Shares under the Option shall remain exercisable until the earlier
      of:

     

    (A) the
      Expiration Date; or 

     

    (B) the
      date
      which is ninety (90) days following such date of termination for
      Cause.

     

    (e)  Termination
      -- General.
      In
      the
      event of the Optionee’s termination of employment other than as a result of his
      death, Disability (as defined in Section 4.2 and Section 4.3 of his Employment
      Agreement with the Company, dated August 11, 2006), Involuntary Termination
      (as
      defined in Section 2(aa) of the Plan), voluntary termination for Good Reason
      (as
      defined in Section 4.5 of his Employment Agreement with the Company, dated
      August 11, 2006), Retirement (as defined in Section 2(vv) of the Plan) or Cause
      (as defined in Section 4.4 of his Employment Agreement with the Company, dated
      August 11, 2006), Optionee may, to the extent he is otherwise vested in the
      Option at the Termination Date, exercise such Options and such Options shall
      remain exercisable until the earlier of:

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (i)  the
      Expiration Date; or 

     

    (ii)  the
      date
      which is ninety (90) days following such Termination Date.

     

    The
      unvested portion of the Option shall be immediately forfeited. 

    

    (f)  Change
      in Control Acceleration.
      In
      the
      event of a Change in Control (as defined in Section 4.6.2 of his Employment
      Agreement with the Company, dated August 11, 2006) which closes on a date prior
      to the Optionee’s termination of employment, any unvested Shares under the
      Option shall immediately become fully vested and exercisable and all remaining
      Shares subject to the Option shall remain exercisable through their Expiration
      Date, effective as of immediately prior to consummation of the Change in
      Control. 

     

    6.  Non-Transferability
      of Option.
      This
      Option may not be transferred in any manner otherwise than by will or by the
      laws of descent or distribution and may be exercised during the lifetime of
      Optionee only by him. The terms of this Option shall be binding upon the
      executors, administrators, heirs, successors and assigns of
      Optionee.

     

    7.  Changes
      in Company’s Capital Structure.
      Subject
      to any required action by the Company’s Board and stockholders, as may be
      determined to be appropriate and equitable by the Committee, to prevent dilution
      or enlargement of rights, the Committee may:

     

    (a)  adjust
      proportionately the number of Shares covered by the Option and the Exercise
      Price for any increase or decrease in the number of issued and outstanding
      shares of common stock resulting from a subdivision or combination of such
      shares or the payment of a stock dividend or any other increase or decrease
      in
      the number of such outstanding shares of common stock of the Company effected
      without the receipt of consideration by the Company; and 

     

    (b)  if
      the
      Company is a participating corporation in any merger or consolidation and
      provided the Option is not terminated upon consummation of such merger or
      consolidation, modify such Option to pertain to and apply to the securities
      or
      other property to which a holder of the number of shares subject to the
      unexercised portion of this Option would have been entitled upon such
      consummation. 

     

    Notwithstanding
      anything to the contrary, such adjustments by the Committee shall be final,
      binding and conclusive.  

     

    8.  Tax
      Consequences.
      Below
      is
      a brief summary as of the date of this Option of certain United States federal
      tax consequences of exercise of this nonstatutory stock option and disposition
      of the Shares under the laws in effect as of the Date of Grant. THIS
      SUMMARY IS INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
      OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
      OF THE SHARES. There
      may
      be a regular federal (and state) income tax liability upon your exercise the
      Option. You will be treated as having received compensation income (taxable
      at
      ordinary income tax rates) equal to the excess, if any, of the Fair Market
      Value
      of the Shares on the date of exercise over the Exercise Price. If you are an
      Employee (as defined in Section 2(s) of the Plan), the Company will be required
      to withhold from your compensation or collect from you and pay to the applicable
      taxing authorities an amount of income and employment taxes equal to a
      percentage of this compensation income at the time of exercise. If Shares issued
      upon exercise of this Option are held for at least one year, any gain realized
      on disposition of those Shares will be treated as long-term capital gain for
      federal income tax purposes. You are obligated as a condition of exercise of
      this Option to satisfy any applicable withholding obligations that apply
      thereto.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    9.  Effect
      of Agreement.
      Optionee
      acknowledges receipt of a copy of the Plan and represents that he or she is
      familiar with the terms and provisions thereof (and has had an opportunity
      to
      consult counsel regarding the Option terms), and hereby accepts this Option
      and
      agrees to be bound by its contractual terms as set forth herein and in the
      Plan.
      Optionee hereby agrees to accept as binding, conclusive and final all decisions
      and interpretations of the Committee (as defined in Section 2(s) of the Plan)
      regarding any questions relating to the Option. In the event of a conflict
      between the terms and provisions of the Plan and the terms and provisions of
      the
      Notice and this Agreement, the Plan terms and provisions shall prevail;
      provided, however, in accordance with Section 3.3.2 of your Employment Agreement
      with the Company, dated August 11, 2006, in the event of any inconsistency
      between this Agreement, the Plan and the terms of your Employment Agreement
      with
      the Company, dated August 11, 2006, your Employment Agreement with the Company,
      dated August 11, 2006, shall govern and control. 

     

    10.  Governing
      Law.
      The
      laws
      of the state of New Jersey, without giving effect to principles of conflicts
      of
      law, will apply to the Plan, to the Option and the Option Agreement (including
      the Notice). The Company agrees, and Optionee agrees as a condition to
      acceptance of the Option, to submit to the jurisdiction of the courts located
      in
      the jurisdiction in which the Optionee is employed, or was most recently
      employed, by the Company.

     

    11.  Severability.
      In the
      event that any provision of this Option Agreement shall be held illegal or
      invalid for any reason, the illegality or invalidity shall not affect the
      remaining parts of this Option Agreement, and this Option Agreement shall be
      construed and enforced as if the illegal or invalid provision had not been
      included.

     

    12.  Waiver;
      Cumulative Rights.
      The
      failure or delay of either party to require performance by the other party
      of
      any provision hereof shall not affect its right to require performance of such
      provision unless and until such performance has been waived in writing. Each
      and
      every right hereunder is cumulative and may be exercised in part or in whole
      from time to time.

     

    13.  Representations.
      As
      a
      condition to your receipt of this Option, you represent and warrant the
      following: 

     

    (a)  You
      are
      aware of the Company’s business affairs and financial condition and have
      acquired sufficient information about the Company to reach an informed and
      knowledgeable decision to accept this Option; 

     

    (b)  You
      are
      acquiring the Option and the Shares subject thereto for investment only for
      your
      own account, and not with a view, or for resale in connection with, any
“distribution” thereof under Applicable Law (as defined in Section 2(c) of the
      Plan); 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (c)  You
      understand that neither Option nor the Shares have been registered in all State
      jurisdictions within the United States, and that the exemption(s) from
      registration relied upon may depend upon your investment intent as set forth
      above; 

     

    (d)  You
      further understand that prior to any resale by you of the Shares acquired upon
      exercise of this Option without registration of such resale in relevant State
      jurisdictions, the Company may require you to furnish the Company with an
      opinion of counsel acceptable to the Company that you may sell or transfer
      such
      Shares pursuant to an available exemption under Applicable Law; 

     

    (e)  You
      understand that the Company is under no obligation to assist you in this process
      by registering the Shares in any jurisdiction or by ensuring that an exemption
      from registration is available; and 

     

    (f)  You
      further agree that as a condition to exercise of this Option, the Company may
      require you to furnish contemporaneously dated representations similar to those
      set forth in this Section 13.

     

    

    
      
        
        

      

      
        9

        
          

        

      

       

    

    EXHIBIT
      A

     

    FOSTER
      WHEELER LTD. OMNIBUS INCENTIVE PLAN

     

    Employee’s
      Notice of Exercise

     

    
      	
              To:

              Attn:

              Subject:

            	 	
              Foster
                Wheeler Ltd.

              Stock Option
                Administrator

              Notice of Intention to
                Exercise Stock
                Option

            

    

      

    This
      is
      official notice that the undersigned (“Optionee”) intends to exercise Optionee’s
      option to purchase _________ Common Shares of Foster Wheeler Ltd., under and
      pursuant to the Company’s Omnibus Incentive Plan and the Option Agreement dated
      _____________________:

     

    
      	
              Date
                of Purchase: 

               

            	 
	
              Number
                of Shares: 

               

            	 
	
              Exercise
                Price:

               

            	 
	
              Method
                of Payment of Purchase Price:

               

            	 
	
              Social
                Security Number:

               

            	 

    

     

    The
      Shares should be issued as follows:

     

    
      	
              Name:

               

            	 
	
              Address:

               

            	 
	
              Signed:
                

               

            	 
	
              Date:

               

            	 

    

    

    
      
        
        

      

      
        10Exhibit
      10.16

    

    PURCHASE
      AND SALE AGREEMENT

    

    BETWEEN
      

    CAPCO
      OFFSHORE, INC.

    As
      Seller

    AND
      

    HOACTZIN
      PARTNERS, L.P.

    As
      Buyer

    May
      4, 2005

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    
      	
              ARTICLE
                1.

            	 	
              DEFINITIONS

            	 	
               

            
	
              1.01

            	 	
              Additional
                Instruments

            	 	
               

            
	
              1.02

            	 	
              Ad
                Valorem Taxes

            	 	
               

            
	
              1.03

            	 	
              Allocation

            	 	
               

            
	
              1.04

            	 	
              Associated
                Parties

            	 	
               

            
	
              1.05

            	 	
              Base
                Purchase Price

            	 	
               

            
	
              1.06

            	 	
              Brazos
                Interest or Brazos Interests

            	 	
               

            
	
              1.07

            	 	
              Business
                Day

            	 	
               

            
	
              1.08

            	 	
              Chandeleur
                Interest or Chandeleur Interests

            	 	
               

            
	
              1.09

            	 	
              Claim
                or Claims

            	 	
               

            
	
              1.10

            	 	
              Closing

            	 	
               

            
	
              1.11

            	 	
              Closing
                Date

            	 	
               

            
	
              1.12

            	 	
              Condition

            	 	
               

            
	
              1.13

            	 	
              Disputed
                Claim

            	 	
               

            
	
              1.14

            	 	
              Effective
                Time. 7 a.m. local time where the Interests are located, as follows
                for
                the respective Interests:

            	 	
               

            
	
              1.15

            	 	
              Environmental
                Laws

            	 	
               

            
	
              1.16

            	 	
              Execution
                Date

            	 	
               

            
	
              1.17

            	 	
              Galveston
                Interest or Galveston Interests

            	 	
               

            
	
              1.18

            	 	
              High
                Island Interest or High Island Interests

            	 	
               

            
	
              1.19

            	 	
              Interest
                or Interests

            	 	
               

            
	
              1.20

            	 	
              Liability
                or Liabilities

            	 	
               

            
	
              1.21

            	 	
              Manager

            	 	
               

            
	
              1.22

            	 	
              NORM

            	 	
               

            
	
              1.23

            	 	
              Oil

            	 	
               

            
	
              1.24

            	 	
              Operator.
                The person, company, or other entity recognized as operator of an
                Interest
                by the applicable regulatory agency

            	 	
               

            
	
              1.25

            	 	
              Permitted
                Encumbrances

            	 	
               

            
	
              1.26

            	 	
              Property
                or Properties

            	 	
               

            
	
              1.27

            	 	
              Related
                Agreements

            	 	
               

            
	
              1.28

            	 	
              Strict
                Liability

            	 	
               

            
	
              1.29

            	 	
              Well
                or Wells

            	 	
               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              ARTICLE
                2.

            	 	
              PURCHASE
                AND SALE

            	 	
               

            
	
              2.01

            	
               

            	
              Sale
                of the Interests

            	 	
               

            
	
              2.02

            	 	
              Option
                Well

            	 	
               

            
	
              2.03

            	 	
              Subsequent
                Interests

            	 	
               

            
	
              ARTICLE
                3.

            	 	
              PURCHASE
                PRICE

            	 	
               

            
	
              3.01

            	 	
              Base
                Purchase Prices

            	 	
               

            
	
              3.02

            	 	
              Allocation
                of Base Purchase Price

            	 	
               

            
	
              3.03

            	 	
              Adjustments
                to Base Purchase Price.

            	 	
               

            
	
              3.04

            	 	
              Closing
                Settlement Statement - Chandeleur Interests

            	 	
               

            
	
              3.05

            	 	
              Closing
                Settlement Statement - Brazos, Galveston and High Island
                Interests

            	 	
               

            
	
              3.06

            	 	
              Final
                Settlement

            	 	
               

            
	
              ARTICLE
                4.

            	 	
              SELLER’S
                REPRESENTATIONS AND WARRANTIES

            	 	
               

            
	
              4.01

            	 	
              Representations
                and Warranties Not Exclusive

            	 	
               

            
	
              4.02

            	 	
              Organization;
                Name; Organizational Identification Number

            	 	
               

            
	
              4.03

            	 	
              Power
                and Authority; Authorizations; Enforceability; No
                Conflicts

            	 	
               

            
	
              ARTICLE
                5.

            	 	
              COVENANTS
                OF SELLER

            	 	
               

            
	
              5.01

            	 	
              Designation
                of Manager

            	 	
               

            
	
              5.02

            	 	
              Management
                of the Interests; Payment of Costs

            	 	
               

            
	
              5.03

            	 	
              Remedies
                Upon Default

            	 	
               

            
	
              5.04

            	 	
              Seller
                Reacquisition of the Interests

            	 	
               

            
	
              5.05

            	 	
              Seller
                Operation of the Interests

            	 	
               

            
	
              5.06

            	 	
              Preservation
                of Existence

            	 	
               

            
	
              ARTICLE
                6.

            	 	
              TITLE
                AND TITLE DEFECTS

            	 	
               

            
	
              6.01

            	 	
              Title

            	 	
               

            
	
              6.02

            	 	
              Related
                Agreements

            	 	
               

            
	
              ARTICLE
                7.

            	 	
              PRE-CLOSING
                OBLIGATIONS

            	 	
               

            
	
              7.01

            	 	
              Preferential
                Rights

            	 	
               

            
	
              7.02

            	 	
              Third-Party
                Notifications and Approvals

            	 	
               

            
	
              ARTICLE
                8.

            	 	
              CLOSING

            	 	
               

            
	
              8.01

            	 	
              Closing
                Date

            	 	
               

            
	
              8.02

            	 	
              Buyer’s
                Right to Delay Closing

            	 	
               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    
      	
              8.03

            	
               

            	
              Closing
                Obligations

            	 	
               

            
	
              8.04

            	
               

            	
              Condition
                Precedent

            	 	
               

            
	
              8.05

            	
               

            	
              Seller’s
                Representation by Closing

            	 	
               

            
	
              ARTICLE
                9.

            	 	
              POST-CLOSING
                OBLIGATIONS

            	 	
               

            
	
              9.01

            	 	
              Filing
                and Recording

            	 	
               

            
	
              9.02

            	 	
              Further
                Assurances

            	 	
               

            
	
              9.03

            	 	
              Reassignment

            	 	
               

            
	
              9.04

            	 	
              Compliance

            	 	
               

            
	
              9.05

            	 	
              Plugging
                and Abandoning Wells; Remediation

            	 	
               

            
	
              9.06

            	 	
              Surrender
                or Abandonment of Interests

            	 	
               

            
	
              ARTICLE
                10.

            	 	
              TAXES

            	 	
               

            
	
              10.01

            	 	
              Taxes
                - Chandeleur Interests

            	 	
               

            
	
              10.02

            	 	
              Taxes
                - Brazos, Galveston and High Island Interests

            	 	
               

            
	
              ARTICLE
                11.

            	 	
              OIL
                IN STORAGE, PROCEEDS, COSTS, EXPENSES, CLAIMS, AND
                DISBURSEMENTS

            	 	
               

            
	
              11.01

            	 	
              Oil
                in Storage

            	 	
               

            
	
              11.02

            	 	
              Proceeds,
                Costs, and Expenses

            	 	
               

            
	
              11.03

            	 	
              Notice
                to Remitters of Proceeds

            	 	
               

            
	
              ARTICLE
                12.

            	 	
              OPERATION
                OF THE INTERESTS

            	 	
               

            
	
              12.01

            	 	
              Operation
                by Seller

            	 	
               

            
	
              12.02

            	 	
              Risk
                of Loss

            	 	
               

            
	
              ARTICLE
                13.

            	 	
              BOND
                IN FAVOR OF EXXONMOBIL

            	 	
               

            
	
              13.01

            	 	
              Bond
                in Favor of ExxonMobil

            	 	
               

            
	
              13.02

            	 	
              Financing
                Statement

            	 	
               

            
	
              ARTICLE
                14.

            	 	
              PREFERENTIAL
                RIGHT TO PURCHASE OIL

            	 	
               

            
	
               

            	 	
              Seller
                will not reserve any preferential right to purchase oil produced
                from the
                Interests. Buyer acknowledges the first right of refusal to purchase
                production from the Chandeleur Interests which is retained by Manti
                pursuant to Section 6.03 of the Manti Agreement.

            	 	
               

            
	
              ARTICLE
                15.

            	
               

            	
              PREFERENTIAL
                RIGHT TO PURCHASE GAS

            	 	
               

            
	
               

            	 	
              Seller
                will not reserve any preferential right to purchase gas produced
                from the
                Interests. Buyer acknowledges the first right of refusal to purchase
                production from the Chandeleur Interests which is retained by Manti
                pursuant to Section 6.03 of the Manti Agreement.

            	 	
               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              ARTICLE
                16.

            	 	
              SELLER'S
                RELEASE, DISCHARGE, AND COVENANT NOT TO SUE; SELLER'S OBLIGATIONS
                TO
                INDEMNIFY, DEFEND, AND HOLD HARMLESS; DISPUTE RESOLUTION

            	 	
               

            
	
              16.01

            	 	
              Seller's
                Release and Discharge of Buyer and its Associated Parties

            	 	
               

            
	
              16.02

            	 	
              Seller’s
                Covenant Not to Sue Buyer or its Associated Parties

            	 	
               

            
	
              16.03

            	 	
              Seller's
                Obligations to Indemnify, Defend, and Hold Buyer and its Associated
                Parties Harmless

            	 	
               

            
	
              16.04

            	 	
              Seller's
                Obligations

            	 	
               

            
	
              16.05

            	 	
              Seller’s
                Duty to Defend

            	 	
               

            
	
              16.06

            	 	
              Alternate
                Dispute Resolution and Arbitration

            	 	
               

            
	
              16.07

            	 	
              Retroactive
                Effect

            	 	
               

            
	
              16.08

            	 	
              Inducement
                to Buyer

            	 	
               

            
	
              ARTICLE
                17.

            	 	
              ENVIRONMENTAL
                MATTERS

            	 	
               

            
	
              17.01

            	 	
              Acknowledgment
                Concerning Possible Contamination of the Interests and
                Property

            	 	
               

            
	
              17.02

            	 	
              Seller
                Assumption of Environmental Liabilities

            	 	
               

            
	
              ARTICLE
                18.

            	 	
              BUYER'S
                REPRESENTATIONS AND COVENANTS

            	 	
               

            
	
              18.01

            	 	
              Organization

            	 	
               

            
	
              18.02

            	 	
              Power
                and Authority; Authorization; Enforceability; No Conflicts;
                Etc

            	 	
               

            
	
              18.03

            	 	
              Securities
                Laws

            	 	
               

            
	
              18.04

            	 	
              Seller
                Qualification

            	 	
               

            
	
              ARTICLE
                19.

            	 	
              GAS
                IMBALANCES

            	 	
               

            
	
              19.01

            	 	
              Seller's
                and Buyer's Respective Obligations

            	 	
               

            
	
              ARTICLE
                20.

            	 	
              FINAL
                SETTLEMENT STATEMENT

            	 	
               

            
	
              20.01

            	 	
              Preparation

            	 	
               

            
	
              20.02

            	 	
              Final
                Settlement

            	 	
               

            
	
              ARTICLE
                21.

            	 	
              BROKER'S
                AND FINDER'S FEES

            	 	
               

            
	
              ARTICLE
                22.

            	 	
              COMMUNICATIONS

            	 	
               

            
	
              ARTICLE
                23.

            	 	
              SELLER’S
                DEFAULT

            	 	
               

            
	
              ARTICLE
                24.

            	 	
              HART-SCOTT-RODINO
                ANTITRUST IMPROVEMENTS ACT OF 1976

            	 	
               

            
	
              ARTICLE
                25.

            	 	
              MISCELLANEOUS

            	 	
               

            
	
              25.01

            	 	
              Entire
                Agreement

            	 	
               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    
      	
              25.02

            	 	
              Successors
                and Assigns; Amendment; Survival

            	 	
               

            
	
              25.03

            	
               

            	
              Choice
                of Law

            	 	
               

            
	
              25.04

            	 	
              Assignment

            	 	
               

            
	
              25.05

            	 	
              No
                Admissions

            	 	
               

            
	
              25.06

            	 	
              No
                Third-Party Beneficiaries

            	 	
               

            
	
              25.07

            	 	
              Public
                Communications

            	 	
               

            
	
              25.08

            	 	
              Headings
                and Titles

            	 	
               

            
	
              25.09

            	 	
              Exhibits

            	 	
               

            
	
              25.10

            	 	
              Includes

            	 	
               

            
	
              25.11

            	 	
              Severability

            	 	
               

            
	
              25.12

            	 	
              Counterparts

            	 	
               

            
	
              25.13

            	 	
              Conflicts

            	 	
               

            
	
              25.14

            	 	
              Not
                to Be Construed against the Drafter

            	 	
               

            
	
              25.15

            	 	
              No
                Waiver

            	 	
               

            
	
              25.16

            	 	
              Conspicuousness

            	 	
               

            
	
              25.17

            	 	
              Execution
                by the Parties

            	 	
               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    PURCHASE
      AND SALE AGREEMENT

    

    This
      Purchase and Sale Agreement ("Agreement") is between Capco Offshore, Inc.,
      a
      Texas corporation with an address of 5555 San Felipe, Suite 725, Houston, Texas
      77056 (“Seller"), as seller, and Hoactzin Partners, L.P., a Delaware limited
      partnership with an address of 87 South Saxon Avenue, Bay Shore, New York,
      New
      York 11706 (“Buyer”), as buyer, effective on the Execution Date.

    

    WHEREAS,
      Seller owns the Brazos Interests and the Galveston Interests (as each is
      hereinafter defined);

    

    WHEREAS,
      Seller has acquired the Chandeleur Interests (as hereinafter defined) pursuant
      to that certain Asset Purchase Agreement between Manti Resources, et al
      (“Manti”) and Seller, executed March 11, 2005 with an effective time of January
      1, 2005 (the “Manti Agreement”);

    

    WHEREAS,
      Seller has acquired the High Island Interests (as hereinafter defined) from
      Exxon Mobil Corporation (“ExxonMobil”) pursuant to that certain Purchase and
      Sale Agreement between ExxonMobil and Seller, executed December 1 and 2, 2004
      and with an effective time of November 1, 2004 (the “ExxonMobil
      Agreement”);

    

    WHEREAS,
      Buyer desires to purchase from Seller, and Seller desires to sell to Buyer,
      all
      of the Chandeleur Interests, all of the High Island Interests, undivided
      portions of the Brazos Interests, undivided portions of the Galveston Interests,
      and an option to acquire an undivided portion of additional Brazos
      Interests;

    

    WHEREAS,
      an affiliate of Buyer has advanced to the parent entity of Seller $6,435,960.85
      pursuant to that certain Amended and Restated Note Purchase Agreement between
      Dolphin Direct Equity Partners, L.P. and Capco Energy, Inc., et al dated
      February 7, 2004, as evidenced by that certain Amended and Restated Secured
      Promissory Note of same date (the “Bridge Note”);

    

    WHEREAS,
      Buyer desires for Seller to operate and manage the Interests in Buyer’s place
      and stead, and the parties wish to provide for future funding of capital
      requirements with respect to the Interests; and

    

    WHEREAS,
      Seller and Buyer desire, after the occurrence of certain events, that Seller
      reacquire the Interests.

     

    NOW,
      THEREFORE, in consideration of their mutual promises under this Agreement,
      the
      benefits to be derived by each party, and other good and valuable consideration,
      Buyer and Seller agree as follows:

    

    ARTICLE
      1.  DEFINITIONS

     

    The
      following terms, when used in this Agreement, will have the following
      definitions:

    

    Additional
      Instruments.The
      instruments executed by Buyer before and at Closing and delivered to Seller
      in
      connection with this transaction. 

     

    Ad
      Valorem Taxes.
      Defined
      in Section 10.01.

     

    Allocation.
      The
      amount allocated to each individual part of the Interests, in the case of the
      Chandeleur Interests by Buyer pursuant to the Manti Agreement and in the case
      of
      the Brazos Interests, the Galveston Interests, and the High Island Interests
      by
      Seller.

     

    Associated
      Parties.
      Successors, assigns, directors, officers, employees, agents, contractors,
      subcontractors, and affiliates.

     

    Base
      Purchase Price.
      The
      respective amounts set forth in Section 3.01 for the Brazos Interests, the
      Chandeleur Interests, the Galveston Interests, and the High Island Interests,
      respectively.

     

    Brazos
      Interest
      or
Brazos
      Interests.
      Seller's interest in the oil and gas leasehold estates or other interests set
      forth on Exhibit
      A-1,
      together with Seller's interest in the following:

     

    each
      Well
      located on the leases and land described on Exhibit
      A-1.

     

    the
      easements, permits, licenses, surface and subsurface leases, rights-of-way,
      servitudes, and other surface and subsurface rights affecting the land and
      leases described on Exhibit
      A-1.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    material,
      equipment, and facilities in and on the land and used solely in connection
      with
      the use or operation of the leasehold estates and other interests described
      on
Exhibit
      A-1
      for Oil
      or gas purposes.

     

    the
      facilities and pipelines located pursuant to the rights described in (b) above
      and necessary to market the production from the Brazos Interests.

     

    contracts
      affecting the Brazos Interests, including agreements for sale or purchase of
      oil, gas, and other hydrocarbons; processing agreements; division orders; unit
      agreements; operating agreements; and other contracts and agreements arising
      out
      of, connected with, or attributable to production from the Brazos
      Interests.

     

    The
      Brazos Interests do not include the reservations, exceptions, and exclusions
      listed on Exhibit
      A-1
      or the
      following:

    

    
      	
            	(A)	
              pipelines,
                fixtures, equipment, and interests in land owned by third parties
                such as
                lessors, purchasers, or transporters of Oil or
                gas;

            

    

    

    
      	
            	(B)	
              personal
                property, fixtures, equipment, pipelines, facilities, and buildings
                located on the Property, but currently in use in connection with
                the
                ownership or operation of other property not included in the Brazos
                Interests; and

            

    

     

    
      
        	
              	(C)	
                Seller's
                  gas-production-imbalance accounts for the Brazos Interests.
                  

              

      

    

    

    Business
      Day.
      Any day
      that the headquarters offices of ExxonMobil Production Company, in Houston,
      Texas, are scheduled to be and are open for business. 

     

    Chandeleur
      Interest
      or
Chandeleur
      Interests.
      Seller's interest in the oil and gas leasehold estates or other interests set
      forth on Exhibit
      A-2,
      together with Seller's interest in the following:

     

    each
      Well
      located on the leases and land described on Exhibit
      A-2.

     

    the
      easements, permits, licenses, surface and subsurface leases, rights-of-way,
      servitudes, and other surface and subsurface rights affecting the land and
      leases described on Exhibit
      A-2.

     

    material,
      equipment, and facilities in and on the land and used solely in connection
      with
      the use or operation of the leasehold estates and other interests described
      on
Exhibit
      A-2
      for Oil
      or gas purposes.

     

    the
      facilities and pipelines located pursuant to the rights described in (b) above
      and necessary to market the production from the Chandeleur
      Interests.

     

    contracts
      affecting the Chandeleur Interests, including agreements for sale or purchase
      of
      oil, gas, and other hydrocarbons; processing agreements; division orders; unit
      agreements; operating agreements; and other contracts and agreements arising
      out
      of, connected with, or attributable to production from the Chandeleur
      Interests.

     

    The
      Chandeleur Interests do not include the reservations, exceptions, and exclusions
      listed on Exhibit
      A-2
      or the
      following:

    

    
      	
            	(A)	
              pipelines,
                fixtures, equipment, and interests in land owned by third parties
                such as
                lessors, purchasers, or transporters of Oil or
                gas;

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
            	(B)	
              personal
                property, fixtures, equipment, pipelines, facilities, and buildings
                located on the Property, but currently in use in connection with
                the
                ownership or operation of other property not included in the Chandeleur
                Interests; and

            

    

    

    
      	
            	(C)	
              Seller's
                gas-production-imbalance accounts for the Chandeleur Interests.
                

            

    

    

    Claim
      or
Claims.
      Collectively, claims, demands, causes of action, and lawsuits asserted or filed
      by any person, including an artificial or natural person; a local, state, or
      federal governmental entity; a person holding rights under any Related
      Agreement; an Associated Party of Buyer or Seller; or a third
      party.

     

    Closing.
      The
      delivery of the conveyancing instruments and funds by the parties to close
      the
      purchase and sale of the Interests.

     

    Closing
      Date.
      The
      date on which Closing is scheduled to and does occur.

     

    Condition.
      Defined
      in Section 17.02 of the Exxon Mobil Agreemeent.

     

    Disputed
      Claim.
      Defined
      in Section 16.06.

     

    Effective
      Time.
      7 a.m.
      local time where the Interests are located, as follows for the respective
      Interests:

     

    Brazos
      Interests:          February
      1, 2005;

    Chandeleur
      Interests:  January
      1, 2005;

    Galveston
      Interests:    December
      30, 2004; and

    High
      Island Interests: November
      1, 2004.

    

    Environmental
      Laws.
      Applicable federal, state, and local laws, including statutes, regulations,
      orders and ordinances, previously or currently enacted or enacted in the future,
      and common law, relating to protection of public health, welfare, and the
      environment, including those laws relating to storage, handling, and use of
      chemicals and other hazardous materials; those relating to the generation,
      processing, treatment, storage, transport, disposal, cleanup, remediation,
      or
      other management of waste materials or hazardous substances of any kind; and
      those relating to the protection of environmentally sensitive or protected
      areas. "Environmental Laws" includes the Comprehensive Environmental Response,
      Compensation and Liability Act of 1980, the Resource Conservation and Recovery
      Act of 1976, the Clean Water Act, the Safe Drinking Water Act, the Hazardous
      Materials Transportation Act, the Toxic Substance Control Act, and the Clean
      Air
      Act, as each is amended from time to time.

     

    Execution
      Date.
      The
      date on which the last of the parties executes this Agreement.

     

    Galveston
      Interest
      or
Galveston
      Interests.
      Seller's interest in the oil and gas leasehold estates or other interests set
      forth on Exhibit
      A-3,
      together with Seller's interest in the following:

     

    each
      Well
      located on the leases and land described on Exhibit
      A-3.

     

    the
      easements, permits, licenses, surface and subsurface leases, rights-of-way,
      servitudes, and other surface and subsurface rights affecting the land and
      leases described on Exhibit
      A-3.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    material,
      equipment, and facilities in and on the land and used solely in connection
      with
      the use or operation of the leasehold estates and other interests described
      on
Exhibit
      A-3
      for Oil
      or gas purposes.

     

    the
      facilities and pipelines located pursuant to the rights described in (b) above
      and necessary to market the production from the Galveston
      Interests.

     

    contracts
      affecting the Galveston Interests, including agreements for sale or purchase
      of
      oil, gas, and other hydrocarbons; processing agreements; division orders; unit
      agreements; operating agreements; and other contracts and agreements arising
      out
      of, connected with, or attributable to production from the Galveston
      Interests.

     

    The
      Galveston Interests do not include the reservations, exceptions, and exclusions
      listed on Exhibit
      A-3
      or the
      following:

    

    
      	
            	(A)	
              pipelines,
                fixtures, equipment, and interests in land owned by third parties
                such as
                lessors, purchasers, or transporters of Oil or
                gas;

            

    

    

    
      	
            	(B)	
              personal
                property, fixtures, equipment, pipelines, facilities, and buildings
                located on the Property, but currently in use in connection with
                the
                ownership or operation of other property not included in the Galveston
                Interests; and

            

    

    
       

      
        	
              	(C)	
                Seller's
                  gas-production-imbalance accounts for the Galveston Interests.
                  

              

      

    

    

    High
      Island Interest
      or
High
      Island Interests.
      Seller's interest in the oil and gas leasehold estates or other interests set
      forth on Exhibit
      A-4,
      together with Seller's interest in the following:

     

    each
      Well
      located on the leases and land described on Exhibit
      A-4.

     

    the
      easements, permits, licenses, surface and subsurface leases, rights-of-way,
      servitudes, and other surface and subsurface rights affecting the land and
      leases described on Exhibit
      A-4.

     

    material,
      equipment, and facilities in and on the land and used solely in connection
      with
      the use or operation of the leasehold estates and other interests described
      on
Exhibit
      A-4
      for Oil
      or gas purposes.

     

    the
      facilities and pipelines located pursuant to the rights described in (b) above
      and necessary to market the production from the High Island
      Interests.

     

    contracts
      affecting the High Island Interests, including agreements for sale or purchase
      of oil, gas, and other hydrocarbons; processing agreements; division orders;
      unit agreements; operating agreements; and other contracts and agreements
      arising out of, connected with, or attributable to production from the High
      Island Interests.

     

    The
      High
      Island Interests do not include the reservations, exceptions, and exclusions
      listed on Exhibit
      A-4
      or the
      following:

    

    
      	
            	(A)	
              pipelines,
                fixtures, equipment, and interests in land owned by third parties
                such as
                lessors, purchasers, or transporters of Oil or
                gas;

            

    

    

    
      	
            	(B)	
              personal
                property, fixtures, equipment, pipelines, facilities, and buildings
                located on the Property, but currently in use in connection with
                the
                ownership or operation of other property not included in the High
                Island
                Interests; and

            

    

    

    
      
        	
              	(E)	
                Seller's
                  gas-production-imbalance accounts for the High Island Interests.
                  

              

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Interest
      or
Interests.
      Collectively, the Brazos Interests, the Chandeleur Interests, the Galveston
      Interests, and the High Island Interests.

     

    Liability
      or
Liabilities.
      Collectively, all damages (including consequential and punitive damages),
      including those for personal injury, death, or damage to personal or real
      property (both surface and subsurface) and costs for remediation, restoration,
      or clean up of contamination, whether the injury, death, or damage occurred
      or
      occurs on or off the Property by migration, disposal, or otherwise; losses;
      fines; penalties, expenses; costs to remove or modify facilities on or under
      the
      Property; plugging liabilities for all Wells; attorneys' fees; court and
      other
      costs incurred in defending a Claim; liens; and judgments; in each instance,
      whether these damages and other costs are foreseeable or
      unforeseeable.

     

    Manager.
      Defined
      in Section 5.01.

     

    NORM.
      Naturally occurring radioactive material.

     

    Oil.
      Crude
      oil, distillate, drip gasoline, condensate, and other liquid
      hydrocarbons.

     

    Operator.
      The
      person, company, or other entity recognized as operator of an Interest by the
      applicable regulatory agency.

     

    Permitted
      Encumbrances.
      (i) royalties,
      overriding royalties, reversionary interests, production payments and similar
      burdens which are in existence on the date hereof; (ii) sales contracts or
      other
      arrangements for the sale of production hydrocarbons which would not (when
      considered cumulatively with the matters discussed in clause (i) above) deprive
      the Buyer of any material right in respect of the Interests and Property (except
      for rights customarily granted with respect to such contracts and arrangements);
      (iii) statutory liens for taxes or other assessments that are not yet delinquent
      (or that, if delinquent, are being contested in good faith by appropriate
      proceedings, levy and execution thereon having been stayed and continue to
      be
      stayed; (iv) easements, rights of way, servitudes, permits, surface leases
      and
      other rights in respect to surface operations, pipelines, grazing, logging,
      canals, ditches, reservoirs or the like, conditions, covenants and other
      restrictions, and easements of streets, alleys, highways, pipelines, telephone
      lines, power lines, railways and other easements and rights of way on, over
      or
      in respect of the Interests and Property and that do not individually or in
      the
      aggregate, cause a material adverse effect upon the operations or value of
      Interests and Property; and (v) rights reserved to or vested in any
      municipality, governmental, statutory or other public authority to control
      or
      regulate the Interests and Property in any manner, and all applicable laws,
      rules and orders from any governmental authority.

     

    Property
      or
Properties.
      The
      real property in which and on which the respective Interests exist or are
      located, whether in whole or in part. 

     

    Related
      Agreements.
      Defined
      in Section 6.02.

     

    Strict
      Liability.
      Includes strict statutory liability and strict products liability.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Well
      or
Wells.
      All
      wellbores, both abandoned and unabandoned, including oil wells, gas wells,
      injection wells, disposal wells, and water wells.

     

    ARTICLE
      2. PURCHASE
      AND SALE

     

    Sale
      of the Interests.
      Pursuant to Seller’s offer, Seller agrees to sell the Interests to Buyer, and
      Buyer agrees to purchase them from Seller, for the consideration recited in
      and
      subject to the terms of this Agreement, as follows:

     

    All
      of
      Seller’s right, title and interest in and to the Chandeleur Interests and the
      High Island Interests;

     

    An
      undivided 30% of 8/8ths working interest out of Seller’s right, title and
      interest in and to the Brazos Interests identified on Exhibit
      A-1
      as (i)
      Brazos 440L/441L/406L/407L, limited, however, to the wellbore of the Brazos
      440I-L Well, (ii) Brazos 478L/479L, limited, however, to the wellbore of the
      Brazos 478 L-2 Well, and (iii) Brazos 440L, limited, however, to the wellbore
      of
      the Brazos 4012 Well; and, in each case of a wellbore limitation, Buyer’s
      interest shall be limited to the oil, gas and mineral leases described in
Exhibit
      A-1
      with
      respect to each Well as to all lands and depths described in such Leases to
      the
      extent and only to the extent such Leases are necessary to produce oil and/or
      gas from the wellbore of the Wells described hereinabove (or the applicable
      part
      or portion thereof if specifically limited in depth and/or areal extent on
      Exhibit
      A-1);

     

    An
      undivided 30% of 8/8ths interest out of Seller’s right, title and interest in
      and to the Galveston Interests identified on Exhibit
      A-3
      as
      Galveston Block 297, limited, however, to the wellbore of the GA 297 Well before
      Payout, which interest shall be reduced to an undivided 25.5% after Payout;
      for
      purposes of this paragraph only, the term “Payout” shall have the same meaning
      as in that certain Offshore Participation Agreement dated December 30, 2004,
      between Seller and Fidelity Exploration and Production Company, Inc.; and,
      Buyer’s interest shall be limited to the oil, gas and mineral leases described
      in Exhibit
      A-3
      with
      respect to each Well as to all lands and depths described in such Leases to
      the
      extent and only to the extent such Leases are necessary to produce oil and/or
      gas from the wellbore of the GA 297 Well (or the applicable part or portion
      thereof if specifically limited in depth and/or areal extent on Exhibit
      A-3).
      Buyer’s obligation to pay the costs of the GA 297 Well shall not arise until
      after Seller has provided to Buyer the logs of the GA 297 Well and indicated
      that it elects to complete the Well for the production of Oil and gas.
      Thereafter, Buyer shall pay its proportional share of the costs to complete
      the
      Well; however, in no event shall Buyer be obligated to pay the costs of drilling
      the Well or, if not completed, to pay any costs of plugging and
      abandonment.

     

    Option
      Well.
      Seller
      hereby grants to Buyer the right and option to acquire an undivided 30% of
      8/8ths working interest out of Seller’s right, title and interest in and to the
      Brazos Interests identified on Exhibit
      A-1
      as
      Brazos 440L/441L/406L/407L, limited, however, to the wellbore of the Brazos
      440
      A-1 Well (“Option Well”) upon payment of $200,000.00 to Seller. In each case of
      a wellbore limitation, Buyer’s interest shall be limited to the oil, gas and
      mineral leases described in Exhibit
      A-1
      with
      respect to each Well as to all lands and depths described in such Leases to
      the
      extent and only to the extent such Leases are necessary to produce oil and/or
      gas from the wellbore of the Wells described hereinabove (or the applicable
      part
      or portion thereof if specifically limited in depth and/or areal extent on
      Exhibit
      A-1).
      Seller
      shall provide written notice to Buyer not less than 30 days prior to the date
      operations are to commence upon the Option Well of its right to exercise the
      Option Well option. Buyer shall provide written notice of its election to
      exercise said option not more than 10 days after delivery of Buyer’s notice,
      after which time said option shall expire. If Buyer elects to exercise said
      option, the parties shall effect conveyance, management, operation, and
      reacquisition of the interest acquired by Buyer in the Option Well in the same
      manner as the remaining Interests are treated in this Agreement, the Management
      Agreement, and the Operating Agreements.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Subsequent
      Interests.
      The
      parties agree that, should Seller on one or more occasions in the future
      identify additional interests, whether owned by Seller or potentially to be
      acquired by Seller (“Subsequent Interests”), which it desires to offer for sale
      to Buyer, and should Buyer desire to acquire said Subsequent Interests, the
      parties shall enter into an addendum to this Agreement (an “Addendum Agreement”)
      by which such Subsequent Interests shall become subject to the terms and
      provisions of this Agreement, the Management Agreement, and an Operating
      Agreement (to extent the particular Subsequent Interest is or would be operated
      by Seller) as if said Subsequent Interest were identified herein upon execution
      hereof. Said Addendum Agreement shall identify the Subsequent Interest(s)
      subject thereto, and shall amend any such terms of this Agreement to adapt
      same
      to the specific Subsequent Interest(s) subject thereto, including but not
      limited to the related closing date.

     

    ARTICLE
      3. PURCHASE
      PRICE

     

    Base
      Purchase Prices.
      The
      Base Purchase Price for the Interests is as follows:

     

    Brazos
      Interests and Galveston Interests: $1,500,000.00;

     

    Chandeleur
      Interests: $12,000,000.00; and

     

    High
      Island Interests: $4,000,000.

     

    Each
      of
      the Brazos Interests, the Chandeleur Interests, the Galveston Interests, and
      the
      High Island Interests is subject to adjustment only as provided in this
      Agreement.

     

    Allocation
      of Base Purchase Price.
      As to
      the Chandeleur Interests, Seller has delivered to Buyer or will, not less than
      three (3) days before Closing, deliver to Buyer the Allocation provided for
      by
      Section 2.02 of the Manti Agreement. As to the Brazos Interests, the Galveston
      Interests, and the High Island Interests, Buyer has delivered or will deliver
      prior to the Closing to Seller an Allocation of the Base Purchase Price to
      each
      individual part of such Interests, respectively (including an Allocation for
      non-investment account balances such as gas-production-imbalance accounts,
      as
      required for compliance with applicable law, for equipment or other items,
      and
      including an Allocation for the option on the Option Well). Buyer will make
      reasonable allocations, in good faith, and Seller may rely on the Allocations
      for all purposes. The Allocations will be used (a) to notify holders of
      preferential rights of this transaction; (b) to collect taxes, to the
      extent required by law and as provided in Article 10; (c) as a basis for
      adjustments to the Base Purchase Price for the Interests; and (d) as otherwise
      provided in this Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Adjustments
      to Base Purchase Price..
      The
      Base Purchase Price for the Interests shall be adjusted in the following
      manner:

     

    As
      to the
      Chandeleur Interests, in the same manner and in the same amounts, dollar for
      dollar, as the purchase price adjustments provided for by the closing settlement
      statement provided for by Section 2.05 of the Manti Agreement; and

     

    As
      to the
      Brazos Interests, the Galveston Interests, and the High Island Interests,
      respectively, the Base Purchase Price shall be, without
      duplication:

     

    Increased
      by the following amounts:

     

    The
      aggregate amount of all non-reimbursed amounts attributable to the operation
      and
      ownership of the Interests incurred and paid in the ordinary course of business
      during the period from the respective Effective Time to the Closing
      Date;

     

    An
      amount
      equal to the agreed value of all Oil and gas in storage above the pipeline
      connection or delivery point, as the case may be;

     

    The
      amount of any upward adjustment pursuant to Article 6; and

     

    Any
      other
      upward adjustment mutually agreed upon by the parties;

     

    Decreased
      by the following amounts:

     

    The
      aggregate amount of proceeds received by Seller from the sale of Oil and gas
      produced from and attributable to the Interests between the Effective Time
      and
      the Closing Date;

     

    The
      amount of any downward adjustment relating to Title Defects pursuant to Article
      6;

     

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

     

    The
      amount of any downward adjustment mutually agreed upon by the
      parties.

     

    Closing
      Settlement Statement - Chandeleur Interests.
      As to
      the Chandeleur Interests, Seller shall, promptly upon receipt of Manti’s closing
      settlement statement, deliver a copy of same to Buyer (the “Chandeleur Closing
      Settlement Statement”). Buyer shall promptly thereafter notify Seller of its
      comments on, and any desired adjustments to, the Chandeleur Closing Settlement
      Statement. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Closing
      Settlement Statement - Brazos, Galveston and High Island
      Interests.
      As to
      the Brazos Interests, the Galveston Interests, and the High Island Interests
      respectively, Seller shall provide to Buyer a closing settlement statement
      (the
“Brazos, et al Closing Settlement Statement”) prior to Closing presenting
      adjustments to the Base Purchase Price for the respective Interests that are
      subject to this Section 3.05, which Brazos, et al Closing Settlement Statement
      shall set out separately the adjustments applicable to the respective Interests.
      Prior to Closing, Buyer and Seller shall agree upon the Brazos, et al Closing
      Settlement Statement which shall include adjustments, known as of the Closing
      Date, pursuant to Section 3.03 hereof.
      Seller
      shall exclude from the Brazos, et al Closing Settlement Statement and the Final
      Settlement Statement the final adjustments that occurred pursuant to the
      ExxonMobil Agreement.

     

    Final
      Settlement.
      As to
      the Chandeleur Interests, final settlement under this Agreement shall occur
      in
      accordance with the provisions of Section 2.05(c) of the Manti Agreement for
      the
      account of Buyer. Final settlement with respect to the Brazos Interests, the
      Galveston Interests, and the High Island Interests shall occur as provided
      by
      Article 20 of this Agreement.

     

    ARTICLE
      4. SELLER’S
      REPRESENTATIONS AND WARRANTIES

     

    Representations
      and Warranties Not Exclusive.
      Seller’s representations under this article are in addition to its other
      representations and warranties under this Agreement and the Additional
      Instruments.

     

    Organization;
      Name; Organizational Identification Number.
      Seller
      represents and warrants that it is duly organized, validly existing and in
      good
      standing under the laws of its jurisdiction of organization. Seller is qualified
      or licensed to conduct its business and is in good standing in each jurisdiction
      where the nature of its activities or the character of the properties utilized
      in its business make such qualification or licensing necessary. Seller’s correct
      legal name is set forth above Seller’s signature hereto. The location of
      Seller’s chief executive office is the address listed in the introductory
      paragraph of this Agreement .

     

    Power
      and Authority; Authorizations; Enforceability; No Conflicts.
      Seller
      represents and warrants that:

     

    
      	 	 	
              (a)

            	
              Seller
                has full corporate power and authority to own its assets and to carry
                on
                its business as it is now being conducted and to execute and deliver
                this
                Agreement and each of the Additional Instruments and to perform its
                obligations hereunder and thereunder and to consummate the transactions
                contemplated hereby and thereby.

            

    

    
      	 	 	 	 

      	 	 	
              (b)

            	
              The
                execution, delivery and performance by Seller of this Agreement and
                the
                Additional Instruments to which Seller is a party and the consummation
                by
                Seller of the transactions contemplated hereby and thereby have been
                duly
                authorized by all requisite action of
                Seller.

            

      	 	 	 	 

    

    
      	 	 	
              (c)

            	
              This
                Agreement and the Additional Instruments to which Seller is a party
                have
                been duly and validly executed and delivered by Seller and constitute
                the
                legal, valid and binding obligations of Seller, enforceable against
                it in
                accordance with their respective
                terms.

            

    

    
    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	
              (d)

            	
              The
                execution and delivery by Seller of this Agreement and each of the
                Additional Instruments to which it is a party, the performance by
                Seller
                of its obligations hereunder and thereunder and the consummation
                by Seller
                of the transactions contemplated hereby and thereby do
                not:

            

      	 	 	 	 

    

    (i) violate
      any provision of the certificate of incorporation or bylaws (or comparable
      organizational documents) of Seller;

     

    (ii) result
      in
      a violation or breach of, or constitute (with or without due notice or lapse
      of
      time or both) a default (or give rise to any right of termination, amendment,
      cancellation or acceleration) under any of the terms, conditions or provisions
      of any oral or written agreement, instrument, contract, undertaking, mortgage,
      indenture, lease, license or other understanding to which Seller is a party
      or
      by which any of the properties or assets of Seller may be bound or otherwise
      subject; or

     

    (iii) contravene
      or violate any law, rule, regulation, or order applicable to Seller, Seller’s
      Associated Parties, or any of their respective properties or
      assets.

     

    
      	 	 	
              (e)

            	
              Except
                as provided by Sections 9.01 and 18.04, no consent of any governmental
                body or other person is required to be made or obtained by Seller
                in
                connection with the execution, delivery and performance by Seller
                of this
                Agreement or any other Additional Instruments to which Seller is
                a party
                or the consummation by Seller of the transactions contemplated hereby
                and
                thereby.

            

    

     

    Seller’s
      Review - Chandeleur Interests.
      With
      respect to the Chandeleur Interests, Seller represents and warrants that:

     

    
      	 	 	
              (a)

            	
              It
                has performed, as a prudent operator of offshore oil and gas properties,
                the buyer’s review of the Chandeleur Interests and Property provided for
                by Article 11 of the Manti Agreement, including availing itself of
                the
                opportunity to inspect and inventory the Chandeleur Interests and
                Property
                and making all appropriate inquiry to satisfy itself of the condition
                of
                the Chandeleur Interests and Property; and

            

    

    
      	 	 	 	 

      	 	 	
              (b)

            	
              Data
                and data files related to the Chandeleur Interests are materially
                complete
                and are maintained in accordance with generally accepted standards
                in the
                industry; 

            

      	 	 	 	 

    

    
      	 	 	
              (c)

            	
              Seller
                has identified no instance of material non-compliance by Manti and/or
                its
                Associated Parties with rules, regulations, statutes, and laws, including
                Environmental Laws, applicable to Manti’s ownership or operation of the
                Chandeleur Interests or Property and with all Related Agreements;
                

            

    

    
      	 	 	 	 

      	 	 	
              (d)

            	
              Seller
                has identified (i) no environmental Condition, nor (ii) nor any violation
                of environmental laws pursuant to Section 11.05 of the Manti Agreement
                which would reasonably be expected to materially adversely affect
                the
                ownership, operation, and maintenance of the Chandeleur Interests
                or the
                Property; 

            

      	 	 	 	 

    

    
      	
            	(e)	
              No
                Title Defect exists with respect to the Chandeleur Interests and
                the
                Property.

            

    

    
      	 	 	 

      	 	
              (f)

            	
              No
                suit, action, claim, or other proceeding is now pending or, to Seller’s
                knowledge, threatened before any court or governmental agency against
                the
                Chandeleur Interests, and Seller shall promptly notify Buyer in writing
                of
                any such proceeding which arises or is threatened prior to the
                Closing.

            

      	 	 	 

    

    
      	 	
              (g)

            	
              To
                Seller’s knowledge, the Chandeleur Interests and Related Agreements are
                in
                full force and effect and are valid and subsisting documents covering
                the
                entire estates which they purport to cover; and all royalties, rentals
                and
                other payments due under the Chandeleur Interests and Related Agreements
                have been fully, properly and timely paid. Seller will use its
                commercially reasonable efforts to take all actions to keep, the
                Chandeleur Interests and Related Agreements in force and effect until
                the
                Closing.

            

      	 	 	 

    

    
      	 	
              (h)

            	
              All
                due and payable ad valorem, property, production, severance and similar
                taxes and assessments based on or measured by the ownership of property
                of
                the production of Oil and gas or the receipt of proceeds therefrom
                on the
                Chandeleur Interests, which become due prior to the Closing Date
                for any
                periods prior to the Effective Date, have been properly
                paid.

            

    

    
    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      	 	
              (i)

            	
              Seller
                is not obligated, by virtue of a production payment, prepayment
                arrangement under any contract for the sale of Oil and gas and containing
                a “take or pay,” advanced payment or similar provision, gas balancing
                agreement or any other arrangement to deliver Oil and/or gas produced
                from
                the Chandeleur Interests at any time after the Effective Date without
                then
                or thereafter receiving full payment
                therefor.

            

      	 	 	 

    

    
      	 	
              (j)

            	
              No
                existing agreements, options, or commitments with, of or to any person
                to
                acquire the Chandeleur Interests are in
                effect.

            

    

     

    Seller’s
      Representations and Warranties - Brazos, Galveston and High Island
      Interests.
      With
      respect to the Brazos Interests, the Galveston Interests, and the High Island
      Interests, Seller represents and warrants that:

     

    
      	 	
              (a)

            	
              Agreements.
                To Seller's knowledge, Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Related Agreements associated therewith, are in full
                force
                and effect and are valid and subsisting documents covering the entire
                estates which they purport to cover; and all royalties, rentals and
                other
                payments due under the Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Related Agreements associated therewith have been
                fully,
                properly and timely paid. Seller will use its commercially reasonable
                efforts to take all action necessary to keep the Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Related Agreements associated therewith, in force
                and
                effect until the Closing.

            

    

    
      	 	 	 

      	 	
              (b)

            	
              Prepayments
                and Wellhead Imbalances.
                Seller is not obligated, by virtue of a production payment, prepayment
                arrangement under any contract for the sale of hydrocarbons and containing
                a "take or pay", advance payment or similar provision, gas balancing
                agreement or any other arrangement to deliver hydrocarbons produced
                from
                the Brazos
                Interests, the Galveston Interests, and the High Island
                Interests
                at
                any time after the Effective Time without then or thereafter receiving
                full payment therefor.

            

      	 	 	 

    

    
      	 	
              (c)

            	
              Taxes.
                All due and payable ad valorem, property, production, severance and
                similar taxes and assessments based on or measured by the ownership
                of
                property or the production of hydrocarbons or the receipt of proceeds
                therefrom on the Brazos
                Interests, the Galveston Interests, and the High Island Interests
                which
                become due prior to the Closing Date for any periods prior to the
                Effective Time, have been properly
                paid.

            

    

    
      	 	 	 

      	 	
              (d)

            	
              Maintenance
                of Interests.
                Seller has maintained and will continue from date of this Agreement
                until
                the Closing, to maintain and operate the Brazos
                Interests, the Galveston Interests, and the High Island Interests
                in
                a reasonable and prudent manner, in full compliance with applicable
                law
                and orders of any governmental authority, to maintain insurance and
                bonds
                now in force with respect to the Brazos
                Interests, the Galveston Interests, and the High Island Interests
                to
                pay when due all costs and expenses coming due and payable in connection
                with the Brazos
                Interests, the Galveston Interests, and the High Island
                Interests,
                and to perform all of the covenants and conditions contained in the
                Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Related Agreements associated
                therewith.

            

      	 	 	 

    

    
      	 	
              (e)

            	
              Suits
                and Claims.
                No suit, action, claim, or other proceeding is now pending or, to
                Seller's
                best knowledge, threatened before any court or governmental agency
                against
                the Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Property associated therewith, and Seller shall promptly
                notify Buyer in writing of any such proceeding which arises or is
                threatened prior to the Closing.

            

    

    
      	 	 	 

      	 	
              (f)

            	
              Access.
                To the same extent Seller has such right, at all times prior to the
                Closing, Buyer and the employees and agents of Buyer shall have access
                to
                the Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Property associated therewith at Buyer's sole risk,
                cost
                and expense at all reasonable times, and shall have the right to
                conduct
                equipment inspections, environmental audits, and any other investigation
                of the Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Property associated therewith on one day’s prior notice to
                Seller and upon agreement with Seller as to time and place of such
                actions.

            

    

    
    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      	 	
              (g)

            	
              Environmental
                Matters.
                To Seller’s knowledge, Seller is not in material violation of any
                Environmental Laws applicable to the Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Property associated therewith, or any material limitations,
                restrictions, conditions, standards, obligations or timetables contained
                in any Environmental Laws. No notice or action alleging such violation
                is
                pending or, to Seller’s best knowledge, threatened against the
                Brazos
                Interests, the Galveston Interests, and the High Island Interests,
                and
                the respective Property associated
                therewith.

            

    

    
      	 	 	 

      	 	
              (h)

            	
              No
                Third Party Options.
                No existing agreements, options, or commitments with, of or to any
                person
                to acquire the Interests are in effect.

            

      	 	 	 

    

    (i) Existing
      Condition.
      Except
      with respect to the Chandeleur Interests, Seller has and will continue to
      operate the Interests and the respective Property associated therewith in the
      ordinary course of business and in substantially the same manner as it was
      operated prior to the Effective Date. No material adverse changes in the
      condition of the Interests and respective Property associated therewith, from
      the Effective Time to the Closing Date, have occurred.

     

    Title
      to the Interests.
      Seller
      will convey to Buyer Defensible title to the Interests on the Closing
      Date.

     

    ARTICLE
      5. COVENANTS
      OF SELLER

     

    Designation
      of Manager.
      Buyer
      hereby designates Seller as manager of the Interests (“Manager”) pursuant to the
      terms and provisions of the Management Agreement attached hereto as Exhibit
      C.
      Should
      Buyer elect to exercise the option as to the Option Well, the Option Well shall
      become subject to the Management Agreement.

     

    Management
      of the Interests; Payment of Costs.

     

    
      	
            	(a)	
              So
                long as Seller shall remain Manager of the Interests, Seller
                shall:

            

    

     

    (i) Cause
      the
      Interests to be maintained and operated for the production of Oil and gas in
      a
      good and workmanlike manner, as would a prudent operator (and without regard
      to
      the existence of the covenant to reacquire the Interests), all in accordance
      with generally accepted standards, the Management Agreement, and all applicable
      federal, state and local laws, rules and regulations.

     

    (ii) Cause
      the
      Interests to be operated and maintained in compliance with all applicable laws,
      rules and regulations (including Environmental Laws) and in compliance with
      the
      Related Agreements governing the same. 

     

    
      	 	 	
              (b)

            	
              At
                all times prior to the Termination Date (as such term is defined
                in the
                Management Agreement), Seller
                shall:

            

    

     

    (i) Pay
      or
      cause to be paid on behalf of Buyer, promptly as and when due and payable,
      all
      rentals and royalties payable with respect to the production of Oil and gas
      from
      the Interests and all costs incurred in or arising from the operation of the
      Interests or the production, treating, gathering, marketing or transporting
      of
      Oil and gas from the Interests.

     

    (ii) Pay
      or
      cause to be paid all capital costs which the parties agree upon pursuant to
      the
      Management Agreement and all other costs that are required for the prudent
      and
      reasonable maintenance and operation of the Interests in accordance with the
      Operating Agreement.

     

    (iii) Maintain
      true and correct books and records sufficient to determine the amounts payable
      under the Management Agreement. Such books and records shall be open for
      inspection by Buyer upon reasonable notice at Seller's office during normal
      business hours. Within thirty (30) days following March 31, June 30, September
      30 and December 31 of each year during the term of the Management Agreement,
      Seller shall deliver to Buyer a statement showing in reasonable detail for
      the
      immediately preceding three (3) month time period (a) the computation of Net
      Operating Cash Flow; and (b) the volumes of Oil and gas produced and sold from
      the Interests. Additionally, Seller agrees to furnish Buyer with copies of
      any
      reserve reports prepared or obtained by Seller with respect to the Interests
      during the term of the Management Agreement; provided, that Seller shall not
      be
      required to furnish Buyer with more than one reserve report for the Interests
      in
      any one calendar year and Seller shall have no obligation to engage a third
      party engineer to prepare reserve reports for the Interests.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iv) Maintain
      at all times financial security required by governmental bodies with
      jurisdiction over Seller or the Interests.

     

    (v) Maintain
      at all times financial security for plugging and abandonment of Wells and
      remediation of the Interests and Property pursuant to the provisions of Section
      9.08 of the ExxonMobil Agreement.

     

    (vi) Maintain
      at all times at its sole cost and expense insurance policies sufficient to
      maintain general liability coverage of at least $5,000,000 in form and substance
      satisfactory to Buyer in which Buyer and its permitted assigns are named as
      additional insured parties and such policies are designated as primary and
      non-contributory. At the time of Closing and thereafter as may be requested
      from
      time to time, Seller shall furnish Buyer a certificate or certificates of
      insurance in form reasonably satisfactory to Buyer evidencing Seller’s
      compliance with the provisions of this subparagraph and which contain the
      unequivocal agreement on the part of the insurer to notify Buyer of the
      cancellation or any material changes of such coverage at least thirty (30)
      days
      before the effective date of such cancellation of change. 

     

    Remedies
      Upon Default.
      If,
      prior to the Termination Date, Seller shall fail to perform or observe any
      of
      the covenants, agreements or obligations herein provided to be performed or
      observed by Seller, Buyer, in addition to Buyer’s right to recover damages and
      all other remedies available to Buyer hereunder or at law or in equity, may,
      if
      such failure shall continue unremedied after ten (10) days from delivery to
      Seller of written notice thereof (unless within such ten (10) days, Seller
      has
      begun to cure such noncompliance in a manner satisfactory to Buyer and Seller
      continues to diligently pursue such curative actions until such failure is
      remedied to the satisfaction of Buyer), perform or cause to be performed such
      act at Seller's expense, in which event Buyer may expend funds for such purpose,
      and Buyer, upon written notice to Seller, shall be entitled to receive all
      proceeds payable to Seller pursuant to the Management Agreement to reimburse
      Buyer for any amounts so expended plus interest on any such amounts at the
      rate
      of twelve percent (12%) per annum from the dates such amounts were advanced
      by
      Buyer until the dates on which Buyer recovers said amounts from Seller.
      Additionally, Buyer shall be entitled to offset and reduce (i) any payments
      otherwise due and owing Seller under the Management Agreement, (ii) any amounts
      otherwise due and owing to Seller under the Bridge Note, and (iii) any amounts
      otherwise due and owing to Seller, under the provisions of this Agreement or
      the
      Management Agreement, to recover any amounts so advanced by Buyer plus interest
      thereon at the rate herein above stated. To secure all of the obligations owed
      by Seller to Buyer under the terms of this Agreement and the Management
      Agreement, Seller hereby grants, bargains, sells and assigns to Buyer a first
      and prior lien and security interest (a) upon Seller's option to reacquire
      the
      Interests pursuant to the Management Agreement, and (b) upon the Management
      Agreement (including, without limitation, oil and gas production attributable
      to
      the Interests pursuant to the Management Agreement, the proceeds from the sale
      of oil or gas at the wellhead, and all accounts relating thereto). To perfect
      the lien and security interest provided herein, Seller agrees to execute and
      acknowledge a recording supplement and/or financing statement prepared and
      submitted by Buyer in connection herewith or at any time following execution
      hereof. Further, Seller hereby authorizes Buyer to file this Agreement or any
      recording supplement executed in connection herewith as a lien or mortgage
      in
      the applicable real estate records and as a financing statement with the proper
      officer under the Uniform Commercial Code in the state in which the Interests
      are located in order to perfect the security interests granted herein. Upon
      default by Seller with respect to any of its obligations hereunder and Seller's
      failure to remedy such default within ten (10) days of receipt of notice thereof
      as hereinabove provided, Buyer shall have the right, without prejudice to other
      rights or remedies, to suspend the Management Agreement, take possession and
      control of the Interests (to the exclusion of Seller) and to collect from the
      purchaser(s) of production from the Interests proceeds otherwise payable to
      Seller until the amount owed by Seller to Buyer plus interest at the rate
      hereinabove stated shall have been paid in full. Each purchaser shall be
      entitled to rely upon Buyer's written statement concerning the amount of any
      default.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Seller
      Reacquisition of the Interests.
      Seller
      shall reacquire the Interests pursuant to the provisions of the Management
      Agreement. 

     

    Seller
      Operation of the Interests.
      Upon
      Closing, Seller shall operate the Interests which are not operated by a third
      party as of the Effective Time pursuant to the Operating Agreement attached
      as
Exhibit
      A
      to the
      Management Agreement. 

     

    Preservation
      of Existence.
      Seller
      will preserve and maintain its existence in its jurisdiction of organization
      and
      will also preserve and maintain its existence and good standing in each other
      state where it conducts business. Seller will not change its name or do business
      under any other name without, in each case, giving Buyer at least 30 days prior
      written notice thereof.

     

    ARTICLE
      6. TITLE
      AND TITLE DEFECTS

     

    Title.
      Seller
      shall transfer title of the Interests to Buyer at Closing pursuant to an
      assignment substantially in the form of the Assignment attached hereto as
Exhibit
      B,
      and
      said Assignment shall be adapted to the particular interest to be assigned
      and
      to conform to the provisions of Article 2 hereof. Seller will convey to Buyer
      Defensible title to the Interests on the Closing Date. Seller shall execute
      as
      many Assignments as are necessary to file for record Assignments in each
      jurisdiction and with each governmental authority where necessary to effect
      conveyance of the Interests and/or notice of such conveyance. Buyer shall be
      entitled to satisfy itself prior to Closing that it will be receiving conveyance
      of Defensible title to the Interests. Seller shall provide to Buyer full and
      complete access to its records and documents relating to the Interests. As
      used
      herein, the term " Defensible Title" shall mean, as to each of the Interests
      to
      be conveyed to Buyer, a net revenue interest which is not less, and a working
      interest which is not greater, than those set out in Exhibits
      A-1 and A-2
      hereto
      with respect to such Interests, and a title which is free and clear of liens,
      encumbrances, defects or environmental Conditions, other than Permitted
      Encumbrances, which materially and adversely affect the value of such Interests.
      Any matter which causes an Interest not to have Defensible Title, and any
      environmental Condition, shall be considered to be a “Title Defect”. If Buyer
      determines that any Interest is subject to any Title Defects prior to Closing,
      Buyer shall notify Seller in writing describing the Title Defects, after which
      time the parties shall meet and exercise their best efforts to determine the
      validity of the claimed Title Defect. Seller shall have until the Closing to
      cure the Title Defects to the satisfaction of the Buyer. If Seller is not able
      to cure the Title Defects to Buyer’s reasonable satisfaction prior to Closing,
      then Buyer in its sole discretion may either (a) reduce the Purchase Price
      by
      the Allocation for the Interest with a Title Defect, (b) allow Seller 90 days
      after Closing to cure the Title Defects, (c) waive the Title Defects, or (d)
      terminate this Agreement. Should
      a
      Title Defect be discovered after the Closing Date, Seller shall undertake to
      cure such Title Defect to Buyer’s reasonable satisfaction; failing cure thereof,
      Buyer shall have the right, but not the obligation, to re-assign the affected
      Interest to Seller following the provisions of Section 9.03 hereof as to the
      Interest so affected.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Related
      Agreements.
      Except
      as otherwise provided in this Agreement, the sale of the Interests will be
      subject to all oil, gas, and mineral leases, assignments, subleases, farmout
      agreements, unit agreements, joint operating agreements, pooling agreements,
      letter agreements, easements, rights-of-way, gathering and transportation
      agreements, sales agreements, and other agreements concerning or pertaining
      to
      the Interests ("Related Agreements"), to the extent that they are binding on
      Seller or its successors or assigns. Buyer will assume all of Seller's
      obligations and liabilities under the Related Agreements as of the respective
      Effective Times, insofar as the obligations or liabilities concern or pertain
      to
      the respective Interests, and the parties will execute all documents necessary
      for Buyer to assume the Related Agreements. Buyer's obligation applies to all
      Related Agreements, whether recorded or not.

     

    ARTICLE 7.
      PRE-CLOSING
      OBLIGATIONS

     

    Preferential
      Rights.
      

     

    
      	
            	(a)	
              Notice.
                Seller will notify the owners, if any, of preferential rights to
                purchase
                the Interests.

            

    

     

    
      	
            	(b)	
              Adjustment
                to Base Purchase Price.
                If a third party gives notice of its intent to exercise a preferential
                right to purchase any of the Interests, Seller shall give immediate
                notice
                thereof to Buyer; in such event, Buyer may, at its option, elect
                to either
                (a) delay Closing as to all of the Interests pending closing of the
                preferential purchase, with no charge to either party for the delay,
                (b)
                terminate this Agreement, or (c) exclude the affected Interest and
                close
                as to all other Interests as scheduled..

            

    

     

    
      	
            	(c)	
              Third-Party
                Failure to Purchase.
                If a third party gives notice of its intent to exercise a preferential
                right to purchase a preferential right property, but does not close
                the
                purchase for any reason either before or within a reasonable time
                after
                the scheduled Closing of this Agreement, Buyer may elect, in its
                sole
                discretion, to acquire the preferential right property under the
                terms of
                this Agreement. In such event, Closing as to such property will be
                scheduled to occur within forty-five days after Buyer receives Seller's
                notice that the third party has not closed. The effective time for
                the
                preferential right property will be the applicable Effective Time
                under
                this Agreement for the Interest of which the preferential right property
                is a part. 

            

    

     

    Third-Party
      Notifications and Approvals.
      The
      sale of the Interests may require the approval or consent of lessors, joint
      interest owners, farmors, sublessors, Sellers, grantors, parties to agreements,
      governmental bodies having jurisdiction, or other third parties. Seller is
      responsible for obtaining approvals from all applicable third parties and will
      furnish Buyer with proof of each consent, approval, or waiver before the Closing
      Date. Seller will make reasonable efforts to obtain waivers of
      maintenance-of-uniform interest provisions, if any, from joint-interest owners.
      If Seller does not furnish Buyer with all third-party approvals applicable
      to
      any Interest, then Seller may, at its option, elect to (a) delay Closing as
      to
      any or all of the Interests, with no charge to either party for the delay,
      or
      (b) terminate this Agreement. To the extent any consent or approval is typically
      obtained after transfer of a given Interest, Seller agrees that it will exercise
      its best efforts to obtain such consent(s) or approval(s) within 30 days
      following the Closing, and in any event will obtain such consent(s) or
      approval(s) within the shortest practicable time after Closing. Buyer shall
      provide assistance to Seller’s efforts to obtain such consent(s) or approval(s).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      8. CLOSING

     

    Closing
      Date.
      The
      Closing Date will be on or before May 4, 2005. Closing under this Agreement
      shall occur at the offices of Hughes, Hubbard & Reed, LLP, One Battery Park
      Plaza, New York, New York 10004-1482. If the parties agree, Closing may be
      handled by exchange of documents (by mail or by courier). No price adjustment
      will be made if Closing is delayed.

     

    Buyer’s
      Right to Delay Closing.
      Buyer
      may, at its sole option and for any reason, delay Closing for up to thirty
      days
      after the originally-scheduled Closing Date, upon written notice to Seller.
      

     

    Closing
      Obligations.
      

     

    Certificates
      of Authority.
      Seller
      shall deliver to Buyer, at least five days before the Closing Date, certificates
      in form and substance satisfactory to Buyer, effective as of the Closing Date
      and executed by Seller’s duly authorized officer, partner, or owner, as
      appropriate, to the effect that (1) Seller has all requisite corporate,
      partnership, or other power and authority to purchase the Interests on the
      terms
      of this Agreement and to perform its other obligations under this Agreement
      and
      the Additional Instruments and has fulfilled all corporate, partnership, or
      other prerequisites to closing this transaction, and (2) each individual
      executing the closing documents has the authority to act on behalf of
      Seller.

     

    Certificates
      of Insurance. Seller shall deliver certificates of insurance as provided by
      Section 5.02(b)(vi).

     

    Change
      of Operatorship.
      For
      Interests that will be operated by Seller in its capacity as Manager under
      the
      Management Agreement and Operator under the Operating Agreements, and except
      to
      the extent waived by Buyer, Seller will deliver to Buyer on or before the
      Closing Date evidence of the following: (1) that Seller has complied with the
      requirements of all laws and regulations relating to the transfer of
      operatorship, including those regarding the assumption of responsibility for
      the
      plugging and abandoning of each Well that is included in the applicable
      Interests or located on the Property; (2) that the appropriate bond, surety
      letter, letter of credit, or other financial security has been accepted by
      the
      relevant regulatory agency; and (3) that Seller has, to the extent possible
      under applicable regulations, obtained all necessary permits or transfers of
      permits to operate the applicable Interests and Property.

     

    Closing
      Settlement Statements.
      Seller
      will provide to Buyer (i) the Chandeleur Closing Settlement Statement, as same
      may have been revised pursuant to Section 3.04, and the Brazos, et al Closing
      Settlement Statement, each including items such as Base Purchase Price and
      adjustments to the Base Purchase Price (if any), to the extent this information
      is available at Closing. Seller will use estimates in the respective closing
      settlement statements, to the extent that estimates are necessary, and may
      correct the estimates in the final settlement statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Closing
      Documents.
      The
      parties, as indicated, will execute the following instruments to close this
      transaction:

     

    (i) An
      instrument substantially in the form of the Assignment and Bill of Sale attached
      as Exhibit
      B,
      modified to the extent necessary to conform to the terms of this Agreement.
      The
      Assignment and Bill of Sale will be effective as of the Effective Time, be
      with
      special warranty of title, and restate the indemnities, releases, and waivers
      contained in this Agreement. Buyer may require the parties to execute separate
      instruments for each state, county, or other jurisdiction in which the Interests
      are located, or with respect to state or federal governmental jurisdiction
      to
      which the Interests are subject, to facilitate timely recording.

     

    (ii) The
      Management Agreement; 

     

    (iii) The
      Operating Agreements; 

     

    (iv) Warrant
      Certificates, pursuant to the terms of the Management Agreement (the “Warrants”)
      and each such warrant certificate shall be in full force and
      effect;

     

    (v) Other
      documents reasonably required to close this transaction and implement the terms
      of this Agreement, including deeds, bills of sale, and the like and instruments
      necessary under operating agreements, plans of unitization, laws, and
      regulations affecting the Interests to transfer the Interests and related
      obligations from Seller to Buyer;

     

    (vi) Designation-of-Operator
      forms, or such other form as is required by governmental agencies with
      jurisdiction over the Interests or the Seller in its capacity as Operator for
      each Interest that Seller will operate after Closing pursuant to the Management
      Agreement, or in its capacity as Manager under the Management Agreement as
      to
      Interests operated by third parties; and

    (vii) The
      closing settlement statements.

     

    Third-Party
      Consents.
      Buyer
      will deliver proof of required third-party consents and approvals, except to
      the
      extent waived by Buyer in writing. 

     

    Payment
      to Seller.
      At
      Closing, (i) Buyer will pay to Manti and the other parties selling the
      Chandeleur Interests, for the account of Seller in its capacity as Buyer under
      the Manti Agreement, the net amount shown on the closing settlement statement
      related to the Chandeleur Interests, and (ii) as to the net amount shown on
      the
      Brazos, et al Closing Settlement Statement, in Buyer’s sole and unfettered
      discretion Buyer will either (A) offset amounts due under the Bridge Note,
      (B)
      pay Seller, or (C) any combination of the above. Cash payments hereunder shall
      be made by certified check, cashier's check, or funds transfer as that term
      is
      defined in Chapter 4 of the Texas Business and Commerce Code. The respective
      closing settlement statement amounts are subject to further adjustment after
      Closing as provided in this Agreement. 

     

    Delivery
      of Possession.
      Subject
      to the terms of applicable joint operating agreements, if any, the Related
      Agreements, and this Agreement, Seller will deliver possession of the Interests
      to Buyer as soon as practicable after the Effective Time or the Closing Date,
      whichever is later, whereupon Buyer shall deliver possession of the Interests
      to
      Seller in Seller’s capacity as Manager under the Management
      Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Condition
      Precedent.
      Seller’s performance of its obligations under this article is a condition
      precedent to Buyer’s obligation to close this transaction.

     

    Seller’s
      Representation by Closing.
      By
      closing this transaction, Seller will be deemed to represent to Buyer that
      all
      Seller’s representations and warranties under this Agreement, the Additional
      Instruments, and the Manti Agreement are true as of the Closing
      Date.

     

    ARTICLE
      9. POST-CLOSING
      OBLIGATIONS

     

    Filing
      and Recording.
      Buyer
      will file or record the conveyancing documents by which the Interests will
      be
      conveyed from Seller to Buyer in the appropriate governmental records and will
      provide either the original or photocopies of the filed or recorded document,
      including the recording data, to Seller. As to the Chandeleur Interests, Seller
      shall deliver to Buyer possession of the conveyancing documents related to
      the
      Manti Agreement, and Buyer shall promptly record same. 

     

    Further
      Assurances.
      Seller
      and Buyer each will, from time to time after Closing and upon reasonable
      request, execute, acknowledge, and deliver in proper form any conveyance,
      assignment, transfer, or other instrument reasonably necessary to accomplish
      the
      purposes of this Agreement.

     

    Reassignment.
      If an
      event occurs pursuant to which ExxonMobil exercises its right under the
      ExxonMobil Agreement to have Seller reassign all or a portion of the High Island
      Interests to ExxonMobil, then the parties shall cooperate in good faith to
      unwind this transaction, as to the High Island Interests, within a reasonable
      time following ExxonMobil’s request for reassignment. Such unwinding shall
      return the parties as nearly as possible to the respective positions they held
      prior to execution of this Agreement. For reassignment of any High Island
      Interest under this Agreement, Buyer will execute and deliver to Seller a
      reassignment, without warranty of any kind (title, fitness, condition). Seller
      shall release and discharge Buyer and its Associated Parties, covenant not
      to
      sue Buyer or its Associated Parties, and indemnify, defend, and hold Buyer
      and
      its Associated Parties harmless as to any High Island Interests that are
      reassigned, and the reassignment instrument will restate Seller’s obligations.

     

    Compliance.
      Buyer
      will comply with all rules, regulations, statutes, and laws applicable to
      Buyer's ownership of the Interests or Property and with all Related Agreements,
      insofar as they concern or pertain to the Interests. Seller will comply with
      all
      rules, regulations, statutes, and laws applicable to Seller’s management and
      operation of the Interests or Property and with all Related Agreements, insofar
      as they concern or pertain to the Interests. 

     

    Plugging
      and Abandoning Wells; Remediation.
      Seller
      recognizes, and will either perform or assure that performance is accomplished
      properly and in accordance with applicable law, the ExxonMobil Agreement, the
      Manti Agreement, and the respective Related Agreements, any and all of Buyer’s
      obligations to abandon, restore, and remediate the Interests and Property,
      whether arising before or after the Effective Time, including obligations,
      as
      applicable, to: 

     

    
      	
            	(a) 
              	
              obtain
                plugging exceptions in Operator's name for each Well with a current
                plugging exception, or permanently plug and abandon the
                Well;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) plug,
      abandon, and if necessary, reabandon each Well;

     

    (c) remove
      all equipment and facilities, including flowlines, pipelines, and
      platforms;

     

    (d) close
      all
      pits; and

     

    (e) restore
      the surface, subsurface, and offshore sites associated with the Interests or
      Property.

     

    Seller
      will pay all costs and expenses associated with the obligations assumed under
      Section 9.08 of the ExxonMobil Agreement. 

     

    Surrender
      or Abandonment of Interests.
      If
      Buyer decides to surrender or abandon any of the Interests after Closing, Buyer
      must give Seller written notice of its intent at least forty-five days before
      surrender or abandonment. 

     

    ARTICLE
      10. TAXES

     

    Taxes
      - Chandeleur Interests.
      All ad
      valorem taxes, production taxes, and other taxes, as such terms apply under
      the
      Manti Agreement, shall be apportioned as provided for by said agreement for
      the
      account of Buyer. Seller shall pay any such taxes due and payable thereunder
      on
      behalf of Buyer in its capacity as Manager under the Management Agreement.
      

     

    Taxes
      - Brazos, Galveston and High Island Interests.
      With
      respect to the Brazos Interests, the Galveston Interests, and the High Island
      Interests, any
      ad
      valorem, property, production, severance and similar taxes and assessments
      on
      said Interests shall be borne by Seller for all times prior to the Effective
      Time and by Buyer for all times after the Effective Time. 

     

    ARTICLE
      11. OIL
      IN STORAGE, PROCEEDS, COSTS, EXPENSES, 

    CLAIMS,
      AND DISBURSEMENTS

     

    Oil
      in
      Storage.
      All Oil
      in storage at the Effective Time, including working inventory, belongs to
      Seller. Title to Oil in storage both for Interests previously operated by Manti
      and Interests operated by others will transfer to Buyer as of the Effective
      Time. The term “Oil in storage” shall carry the definition set forth in Section
      11.01 of the ExxonMobil Agreement, and Oil in storage shall be measured and
      valued in the same manner as it is measured and valued in Section 11.01 of
      the
      ExxonMobil Agreement.

     

    Proceeds,
      Costs, and Expenses.
      All
      proceeds, receipts, credits, income, and charges attributable to the Interests
      and accruing after the Effective Time will be Buyer's property and
      responsibility. Seller shall fulfill, in its capacity as Manager under the
      Management Agreement, Buyer’s responsibilities for payments and disbursements
      after the Closing, including (a) any payments or disbursements made by
      ExxonMobil pursuant to Section 11.02 of the ExxonMobil Agreement, (b) any
      payments or disbursements made by Manti pursuant to Section 5.02 of the Manti
      Agreement, and (c) any charges allocated to Seller pursuant to Section 13.01
      of
      the ExxonMobil Agreement.

     

    Notice
      to Remitters of Proceeds.
      Seller
      will make reasonable efforts (a) to cause Manti to notify all remitters of
      proceeds from the sale of production from the Chandeleur Interests to advise
      them of this transaction and of the transaction contemplated by the Manti
      Agreement, and (b) to notify all remitters of proceeds from the sale of
      production from the Brazos Interests, the Galveston Interests, and the High
      Island Interests of this transaction, in each case to cause those remitters
      to
      remit proceeds to Seller as Buyer’s nominee pursuant to the Management
      Agreement. Notice to the remitters that this transaction has closed shall occur
      by letter-in-lieu-of-transfer order or other documents required by each
      remitter.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      12. OPERATION
      OF THE INTERESTS

     

    Operation
      by Seller.
      Upon
      closing, operation of the Chandeleur Interests previously operated by Manti
      will
      be turned over to, and become the responsibility of, Seller on behalf of Buyer
      in its capacity as Manager under the Management Agreement. Seller shall continue
      as Operator of the Brazos Interests, the Galveston Interests, and the High
      Island Interests and shall operate those Interests on behalf of Buyer in its
      capacity as Manager under the Management Agreement.

     

    Risk
      of Loss.
      Unless
      this Agreement is terminated as to an Interest, the risk of loss for damage
      to
      or destruction of the Interests and Property associated with the Interests
      will
      pass from Seller to Buyer as of the earlier of Closing or the Effective Time,
      INCLUDING
      DAMAGE OR DESTRUCTION RESULTING IN WHOLE OR IN PART FROM THE NEGLIGENCE OR
      STRICT LIABILITY OF SELLER
      OR ITS ASSOCIATED
      PARTIES. 
      Damage
      or destruction will not be cause for Buyer to delay Closing or terminate this
      Agreement.

     

    ARTICLE
      13. BOND
      IN FAVOR OF EXXONMOBIL

     

    Bond
      in Favor of ExxonMobil.
      Buyer
      has previously paid $2,000,000.00 the (“Bond Security”), to the indemnitor
      indemnifying the bond in favor of ExxonMobil that is provided for by the terms
      of Section 9.08 of the ExxonMobil Agreement, which bond is intended to secure
      obligations related to the High Island Interests to plug and abandon Wells,
      remove equipment and facilities, and restore the Property. Seller hereby
assigns
      and pledges to Buyer
      for
its
      benefit
      a security interest in and to all of such Debtor’s right, title and interest in
      and to the Bond Security (the “Collateral”).

     

    Financing
      Statement.
      Seller
hereby
      irrevocably authorizes Buyer
      at any
      time and from time to time to file in any filing office in any appropriate
      jurisdiction any initial financing statements, and amendments thereto, that:
      (a)
      indicate the Collateral, and (b) provide any other information required by
      part
      5 of Article 9 of the Uniform Commercial Code, or other authority, of the State,
      or such other jurisdiction, for the sufficiency or filing office acceptance
      of
      any financing statement, or amendment, including whether Buyer is an
      organization, the type of organization and any organizational identification
      number issued to Buyer.

     

    ARTICLE
      14. PREFERENTIAL
      RIGHT TO PURCHASE OIL

     

    Seller
      will not reserve any preferential right to purchase oil produced from the
      Interests. Buyer acknowledges the first right of refusal to purchase production
      from the Chandeleur Interests which is retained by Manti pursuant to Section
      6.03 of the Manti Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      15. PREFERENTIAL
      RIGHT TO PURCHASE GAS

     

    Seller
      will not reserve any preferential right to purchase gas produced from the
      Interests. Buyer acknowledges the first right of refusal to purchase production
      from the Chandeleur Interests which is retained by Manti pursuant to Section
      6.03 of the Manti Agreement.

     

    ARTICLE
      16. SELLER'S
      RELEASE, DISCHARGE, AND COVENANT NOT TO SUE; SELLER'S OBLIGATIONS TO INDEMNIFY,
      DEFEND, AND HOLD HARMLESS; DISPUTE RESOLUTION

     

    Seller's
      Release and Discharge of Buyer and its Associated Parties.
      Seller
      releases and discharges Buyer and its Associated Parties from each Claim and
      Liability relating to the Interests, Property, or this transaction, regardless
      of when or how the Claim or Liability arose or arises or whether the Claim
      or
      Liability is foreseeable or unforeseeable. SELLER'S
      RELEASE AND DISCHARGE OF BUYER
      AND ITS ASSOCIATED PARTIES INCLUDE CLAIMS
      AND LIABILITIES RESULTING IN ANY WAY
      FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR ITS
ASSOCIATED PARTIES,
      WHETHER THE
      NEGLIGENCE OR STRICT LIABILITY IS
      ACTIVE, PASSIVE, JOINT, CONCURRENT, OR
      SOLE. The
      only
      exception to Seller's release and discharge of Buyer and its Associated Parties
      is stated in 16.04(e), and the release and discharge are binding on Seller
      and
      its successors and assigns other than Buyer.

     

    Seller’s
      Covenant Not to Sue Buyer or its Associated Parties.
      Seller
      covenants not to sue Buyer or its Associated Parties with regard to any Claim
      or
      Liability relating to the Interests, Property, or this transaction, regardless
      of when or how the Claim or Liability arose or arises or whether the Claim
      or
      Liability is foreseeable or unforeseeable. SELLER'S
      COVENANT NOT TO SUE BUYER OR ITS ASSOCIATED PARTIES
      INCLUDES CLAIMS AND LIABILITIES RESULTING IN ANY WAY
      FROM THE NEGLIGENCE OR STRICT LIABILITY
      OF BUYER OR ITS ASSOCIATED PARTIES,
      WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE,
      PASSIVE, JOINT, CONCURRENT OR SOLE.  The
      only
      exception to Seller's covenant not to sue Buyer or its Associated Parties is
      stated in Section 16.04 (e), and the covenant is binding on Seller and its
      successors and assigns other than Buyer. 

     

    Seller's
      Obligations to Indemnify, Defend, and Hold Buyer and its Associated Parties
      Harmless.
      Seller
      will indemnify, defend, and hold Buyer and its Associated Parties harmless
      from
      each Claim and Liability relating to the Interests, Property, or this
      transaction, regardless of when or how the Claim or Liability arose or arises
      or
      whether the Claim or Liability is foreseeable or unforeseeable.
SELLER'S
      OBLIGATIONS TO INDEMNIFY, DEFEND, AND HOLD BUYER AND ITS
ASSOCIATED PARTIES
      HARMLESS INCLUDE
CLAIMS AND LIABILITIES RESULTING IN ANY
      WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR
      ITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE
      OR
      STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR
      SOLE. The
      only
      exception to Seller’s obligations to indemnify, defend, and hold Buyer and its
      Associated Parties harmless is stated in Section 16.04(c), and the obligations
      are binding on Seller and its successors and assigns other than
      Buyer.

     

    Seller's
      Obligations.
      

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
            	
              (a)

            	
              In
                each instance of Seller’s obligations to release, discharge, indemnify,
                defend, and hold Buyer and its Associated Parties harmless and its
                covenant not to sue Buyer or its Associated Parties, the Claims and
                Liabilities subject to the obligations include the
                following:

            

    

     

    (i) the
      ownership of the Interests by Buyer, their operation by Buyer or its Associated
      Parties, and the acts or omissions of Buyer or its Associated Parties in
      connection with the Interests or the Related Agreements.

     

    (ii) the
      ownership of the Interests by Buyer, their operation by Buyer or its Associated
      Parties, and the acts or omissions of Buyer or its Associated Parties in
      connection with the Interests or under this Agreement or the Related
      Agreements.

     

    (iii) the
      acts
      or omissions of third parties relating to the Interests.

     

    
      	
            	(b)	
              Seller’s
                obligations under this Agreement to release, discharge, indemnify,
                defend,
                and hold Buyer and its Associated Parties harmless and its covenant
                not to
                sue Seller or its Associated Parties include Claims and Liabilities
                arising in any manner from the
                following:

            

    

     

    (i) preferential
      and similar rights held by third parties to purchase any portion of the
      Interests.

     

    (ii) the
      review, inspection, and assessment of the Interests and Property by Seller
      and
      its Associated Parties.

     

    (iii) an
      error
      in describing the Interests or an error in the conveyancing
      instruments.

     

    (iv) rights
      and obligations of the parties or third parties under the Related
      Agreements.

     

    (v) closing
      without a third-party consent or approval.

     

    (vi) failure
      by third parties to approve or consent to any aspect of this transaction after
      Closing.

     

    (vii) obligations
      to plug and abandon Wells and remediate the Interests and Property.

     

    (viii) payment
      of Real Property Taxes or other taxes applicable to the Interests and
      Property.

     

    (ix) payments
      or disbursements paid or payable by Buyer or Seller to third
      parties.

     

    (x) a
      physical or environmental condition relating to the Interests and Property,
      including Claims and Liabilities under the Environmental Laws, or failure to
      comply with the Environmental Laws.

     

    (xi) remediation
      activities, including damages incurred by Buyer or its Associated Parties during
      or arising from remediation activities.

     

    (xii) lawsuits
      filed before the Effective Time, but amended after the Effective Time to include
      the Interests or Property or Seller's ownership of or activities regarding
      the
      Interests or Property.

     

    
      	
            	(c)	
              Seller’s
                obligations to indemnify, defend, and hold Buyer and its Associated
                Parties harmless do not apply, however, to Claims or Liabilities
                that
                result from a judgment rendered or settlement reached in a lawsuit
                filed
                before the Effective Time, but only to the extent that acts or omissions
                that gave rise to the cause of action are attributable to the conduct
                or
                operation or ownership of Seller or its Associated Parties before
                the
                Effective Time. 

            

    

     

    
      	
            	(d)	
              The
                parties recognize that certain lawsuits may have been filed before
                the
                Effective Time, but concern activities continuing after the Effective
                Time, so that after Closing Buyer may be a proper party to the lawsuit.
                For these lawsuits, Seller’s obligations to indemnify, defend, and hold
                Buyer and its Associated Parties harmless will apply to activities
                occurring before the Effective Time.

            

    

     

    
      	
            	(e)	
              Seller’s
                release and discharge of Buyer and its Associated Parties and its
                obligation to indemnify, defend and hold Buyer harmless under this
                Agreement does not include Claims that Buyer breached this Agreement.
                Any
                such Claims will be resolved in accordance with Article
                16.06.

            

    

     

    Seller’s
      Duty to Defend.
      Seller
      acknowledges that its obligations to indemnify, defend, and hold Buyer and
      its
      Associated Parties harmless under this Agreement include obligations to pay
      the
      attorneys' fees and court and other costs incurred by Buyer and its Associated
      parties in defending all Claims. As to each Claim and Liability, Buyer, at
      its
      sole option, may elect to (a) manage its own defense, in which event Seller
      will
      reimburse Buyer and its Associated Parties for all reasonable attorneys' fees
      and court and other costs reasonably incurred in defending a claim, upon
      delivery to Seller of invoices for these fees and costs, provided that Buyer’s
      selection of counsel is acceptable to Seller; or (b) tender its defense as
      to
      any Claim to Seller, in which event Seller will be responsible for all aspects
      of defending the Claim at issue and resulting Liabilities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Alternate
      Dispute Resolution and Arbitration.
      This
      section applies to any dispute between the parties, arising at any time, that
      is
      not subject to Seller’s release and discharge of Buyer and its Associated
      Parties or Seller’s covenant not to sue Seller or its Associated Parties or is
      not specifically excluded under this section. Whether a dispute is subject
      to
      Seller’s release, discharge, or covenant not to sue or to this section (or is
      excluded from this section by its terms), and whether there is a contract
      between the parties, are issues that will be resolved under the alternate
      dispute resolution and arbitration provisions of this section.

     

    As
      to the
      disputes subject to this section, any Claim or controversy of whatever nature,
      including an action in tort or contract or a statutory action ("Disputed
      Claim"), or the arbitrability of a Disputed Claim, will be resolved in
      arbitration under the rules of the American Arbitration Association and will
      be
      binding on both parties and their respective successors and assigns. Neither
      party may prosecute or commence any suit or action against the other party
      relating to any matters that are subject to this section.

     

    Buyer
      will determine, at its sole option, whether a Claim filed by a third party
      against Buyer or Seller will be subject to this section. If Seller has notified
      Buyer before Closing of a Disputed Claim by Seller before Closing and the
      Disputed Claim is not resolved before Closing, the Disputed Claim will not
      be
      subject to this section unless agreed by the parties.

     

    Retroactive
      Effect.
      Seller
      acknowledges that its obligations to release, discharge, defend, and hold Buyer
      and its Associated Parties harmless and its covenant not to sue Buyer or its
      Associated Parties apply to matters occurring or arising before the Execution
      Date to the extent provided in this Agreement.

    
      

        INDUCEMENT
TO
BUYER.SELLER
          ACKNOWLEDGES THAT IT
          EVALUATED ITS OBLIGATIONS UNDER THIS ARTICLE BEFORE IT OFFERED TO SELL
          THE INTERESTS AND THAT ITS ASSUMPTION OF THESE OBLIGATIONS,
          ALONG WITH
SELLER’S REPRESENTATIONS AND WARRANTIES IN ARTICLE 4, ARE A MATERIAL
          INDUCEMENT TO BUYER TO ENTER INTO THIS
AGREEMENT WITH, AND CLOSE THE PURCHASE FROM, SELLER.

      

    

     

    ARTICLE
      17. ENVIRONMENTAL
      MATTERS

     

    Acknowledgment
      Concerning Possible Contamination of the Interests and Property.
      Buyer
      and Seller are aware that the Interests and Property have been used for
      exploration, development, and production of oil and gas and that there may
      be
      petroleum, produced water, wastes, or other materials located on or under the
      Property or associated with the Interests. Equipment and sites included in
      the
      Interests or Property may contain asbestos, hazardous substances, or NORM.
      NORM
      may affix or attach itself to the inside of Wells, materials, and equipment
      as
      scale, or in other forms; the Wells, materials, and equipment located on the
      Property or included in the Interests may contain NORM and other wastes or
      hazardous substances; and NORM-containing material and other wastes or hazardous
      substances may have been buried, come in contact with the soil, or otherwise
      been disposed of on the Property. Special procedures may be required for the
      remediation, removal, transportation, or disposal of wastes, asbestos, hazardous
      substances, and NORM from the Interests and the Property.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Seller
      Assumption of Environmental Liabilities.
      SELLER
      WILL ASSUME ALL LIABILITY FOR THE ASSESSMENT, REMEDIATION, REMOVAL,
      TRANSPORTATION, AND DISPOSAL OF WASTES, ASBESTOS, HAZARDOUS SUBSTANCES, AND
      NORM
      FROM THE INTERESTS AND PROPERTY AND
      ASSOCIATED ACTIVITIES AND WILL CONDUCT THESE ACTIVITIES IN ACCORDANCE WITH
      ALL
      APPLICABLE LAWS AND REGULATIONS, INCLUDING THE ENVIRONMENTAL
LAWS.

     

    ARTICLE
      18. BUYER'S
      REPRESENTATIONS AND COVENANTS

     

    Buyer
      represents and warrants to Seller that as the date hereof:

     

    Organization.
      Buyer
      is duly organized, validly existing and in good standing under the laws of
      its
      own jurisdiction of organization. 

     

    Power
      and Authority; Authorization; Enforceability; No Conflicts; Etc. 

     

    
      	
            	(a)	
              Buyer
                has all requisite power and authority to execute and deliver this
                Agreement and the Additional Instruments to which it is a party and
                to
                perform its obligations hereunder and thereunder and to consummate
                the
                transactions contemplated hereby and
                thereby.

            

    

     

    
      	
            	(b)	
              The
                execution, delivery and performance by Buyer of this Agreement and
                the
                Additional Instruments to which it is a party and the consummation
                by
                Buyer of the transactions contemplated hereby and thereby have been
                duly
                authorized by all requisite action of
                Buyer.

            

    

     

    
      	 	 	
              (c)

            	
              The
                Agreement has been, and the other Additional Instruments to which
                Buyer is
                a party have been duly and validly executed and delivered by Buyer
                and
                constitutes the legal, valid and binding obligations of Buyer, enforceable
                against it in accordance with their respective
                terms.

            

    

    
      	 	 	 	 

      	 	 	
              (d)

            	
              The
                execution and delivery by Buyer of this Agreement and of each of
                the
                Additional Instruments to which it is a party, the performance by
                it of
                its obligations hereunder and thereunder and the consummation by
                it of the
                transactions contemplated hereby and thereby do
                not:

            

    

     

    (i) violate
      any provisions of the limited partnership agreement of Buyer;

     

    (ii) result
      in
      a violation or breach of, or constitute (with or without due notice or lapse
      of
      time or both) a default (or give rise to any right of termination, amendment,
      cancellation or acceleration) under any of the terms, conditions or provisions
      of any agreement to which Buyer is a party or by which the properties or assets
      of Buyer may be bound or otherwise subject; or

     

    (iii) contravene
      or violate any laws applicable to Buyer.

     

    
      	 	 	
              (e)

            	
              No
                prior or subsequent filing or registration with, notification to,
                or
                authorization, consent or approval of, any governmental or regulatory
                agency is required to be made or obtained by Buyer in connection
                with the
                execution, delivery and performance of this Agreement by Buyer or
                any of
                the other Additional Instruments to which Buyer is a party or the
                consummation by Buyer of the transactions contemplated hereby and
                thereby.

            

    

     

    Securities
      Laws.
      

     

    
      	
            	(a)	
              Buyer
                acknowledges that the solicitation of an offer for and the sale of
                Interests by Seller has not been registered under any securities
                laws.

            

    

     

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

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

            

    

     

    Seller
      Qualification.
      Seller
      shall, prior to Closing, obtain such governmental qualifications as are
      necessary to own and receive an assignment of the Interests.

     

    ARTICLE
      19. GAS
      IMBALANCES

     

    Seller's
      and Buyer's Respective Obligations.
      For
      those Interests with cumulative gas-production-imbalance accounts among working
      interest owners, Buyer acknowledges that the amounts are derived from either
      Seller’s or Operator's statements based upon current production, prior sales
      history, and contract information; were provided to Buyer before the Execution
      Date; and were taken into consideration in Buyer's calculation of the Base
      Purchase Price and the Allocations. After the Effective Time, all benefits,
      obligations, and liabilities associated with these gas-production-imbalance
      accounts and related agreements will accrue to and become Buyer's
      responsibility. Buyer will assume Seller's overproduced or underproduced
      position as of the Effective Time and subject to the other provisions of this
      Agreement, unless the operating agreement, plan of unitization, or gas balancing
      agreement for an Interest provides for the cash settlement of
      gas-production-imbalance accounts when the Interest is assigned, in which event
      Seller reserves the gas-production-imbalance account and the right to the cash
      settlement.

     

    Settlement
      of gas imbalances shall be treated in the same manner as in Article 19 of the
      ExxonMobil Agreement, and Seller shall act in that regard on behalf of Buyer
      in
      its capacity as Manager under the Management Agreement. 

     

    ARTICLE
      20. FINAL
      SETTLEMENT STATEMENT

     

    Preparation.
      Seller
      will prepare a final settlement statement relating to the Interests and submit
      it to Buyer within 150 days after the Closing Date. The final settlement
      statement will deduct royalties, operating expenses, taxes, overhead, and other
      amounts due to Seller from amounts due to Buyer as provided in this Agreement,
      with adjustments as necessary for items identified after Closing. 

     

    Final
      Settlement.
      Buyer
      must respond in writing with objections and proposed corrections within thirty
      days of receiving the final settlement statement relating to the Interests.
      If
      the parties cannot resolve their differences within ninety days of Seller's
      receipt of Buyer's objections, then the alternate-dispute-resolution and
      arbitration procedures of this Agreement will be triggered. If Buyer does not
      respond to the final settlement statement by signing or objecting in writing
      within the thirty-day period, the statement will be deemed approved by Buyer.
      After approval of said final settlement statement, Seller will send a check
      or
      invoice to Buyer for the net amount. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      21. BROKER'S
      AND FINDER'S FEES

     

    Seller
      and Buyer each represents and warrants to the other that it has incurred no
      liability, contingent or otherwise, for broker's or finder's fees in connection
      with this Agreement or the transaction contemplated by it for which the other
      party will have any responsibility. 

     

    ARTICLE
      22. COMMUNICATIONS

     

    Unless
      otherwise provided in this Agreement, communications (including notices) under
      this Agreement that must be in writing and delivered by a specified date will
      be
      deemed to have been made when received at the following addresses by registered
      or certified mail, postage prepaid, or by messenger:

     

    
      	
              Seller:

            	
              Buyer:

            
	 	 
	
              Capco
                Offshore, Inc.

              5555
                San Felipe, Suite 725

              Houston,
                Texas 77056

              Attention:
                Mike Myers

            	
              Hoactzin
                Partners, L.P.

              87
                South Saxon Avenue

              Bay
                Shore, New York 11706

              Attention:
                Peter Salas

            

    

    

    ARTICLE
      23. SELLER’S
      DEFAULT

     

    If
      Seller
      defaults under this Agreement in a material way, including Seller's failure
      to
      perform its obligations to close this transaction, Buyer may, at its sole
      option, terminate this Agreement in addition to all of its other rights at
      law
      or in equity. 

    

    ARTICLE
      24. HART-SCOTT-RODINO
      ANTITRUST IMPROVEMENTS 

    ACT
      OF 1976

     

    The
      parties have determined that the Hart-Scott-Rodino Antitrust Improvements Act
      of
      1976 does not apply to this transaction. 

    

    ARTICLE
      25. MISCELLANEOUS

     

    Entire
      Agreement.
      This
      Agreement and the Additional Instruments constitute the entire agreement between
      the parties as to the transaction described in this Agreement. All previous
      negotiations and communications between the parties as to these matters are
      merged into this Agreement and the Additional Instruments.

     

    Successors
      and Assigns; Amendment; Survival.
      This
      Agreement is binding on and inures to the benefit of the parties and their
      respective successors, heirs, representatives, and assigns and may be
      supplemented, altered, amended, modified, or revoked only in writing signed
      by
      both parties. Neither the assignment of this Agreement nor of the Interests
      or
      any part of them will relieve Seller of its obligations under this Agreement
      unless and to the extent Buyer consents in writing to release Seller, which
      consent may be withheld for any reason. 

     

    All
      provisions of this Agreement and the Additional Instruments that cannot be
      performed before Closing or the earlier termination of this Agreement and all
      representations, promises, releases, and indemnities under this Agreement and
      the Additional Instruments will survive Closing or the earlier termination
      of
      this Agreement. 

     

    Choice
      of Law.
      This
      Agreement and its performance will be construed in accordance with, and enforced
      under, the internal laws of the State of Texas, without regard to choice of
      law
      rules of any jurisdiction, including Texas.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Assignment.
      Neither
      this Agreement nor the rights and obligations under it may be assigned or
      delegated by either party without the other party’s prior written consent, which
      consent may be withheld for any reason, and an attempted assignment or
      delegation in the absence of such consent is void.

     

    No
      Admissions.
      Neither
      this Agreement, nor any part of it, nor any performance under this Agreement,
      nor any payment of any amount under this Agreement will constitute or may be
      construed as a finding, evidence of, or an admission or acknowledgment of any
      liability, fault, past or present wrongdoing, or violation of law, rule,
      regulation, or policy, by either Seller or Buyer or their respective Associated
      Parties.

     

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

     

    Public
      Communications.
      Unless
      provided otherwise in this Agreement, neither party will make any press release
      or public communication concerning this transaction without the other party’s
      prior written consent, which consent may be withheld for any
      reason.

     

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

     

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

     

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

     

    Severability.
      If any
      provision of this Agreement is found to be illegal or unenforceable, the other
      terms of this Agreement shall remain in effect, and this Agreement shall be
      construed as if the illegal or unenforceable provision had not been
      included.

     

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

     

    Conflicts.
      If the
      text of this Agreement conflicts with the terms of any exhibit to this
      Agreement, then the text of this Agreement will control. Further, in the event
      of a conflict between the terms of the Management Agreement and the terms of
      the
      Operating Agreement, the terms of the Management Agreement shall
      control.

     

    Not
      to
      Be Construed against the Drafter.
      Seller
      acknowledges that it has read this Agreement, has had opportunity to review
      it
      with an attorney of its choice, and has agreed to all of its terms. Under these
      circumstances, the parties agree that the rule of construction that a contract
      be construed against the drafter may not be applied in interpreting this
      Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

    
      

        CONSPICUOUSNESS. 
          THE
          PARTIES ACKNOWLEDGE THAT THE PROVISIONS OF THIS AGREEMENT
          THAT ARE PRINTED IN THE SAME MANNER AS THIS SECTION ARE
          CONSPICUOUS.

      

    

     

    Execution
      by the Parties.
      Neither
      the submission of this instrument for Seller’s examination, nor discussions or
      negotiations between the parties, constitutes an offer to purchase the Interests
      or Property, and this instrument and the underlying transaction will become
      enforceable and binding between the parties only upon execution and delivery
      of
      this instrument by both Seller and Buyer.

     

    The
      parties have executed this Agreement on the date below their signatures, to
      be
      enforceable and binding as of the Execution Date.

    
      	 	 	 
	CAPCO
              OFFSHORE, INC.	
              HOACTZIN
                PARTNERS, L.P.

            
	 
 	 
 	 
 
	By:	By:  	Dolphin
              Advisors, LLC
	
              
                
Mike
                Myers, President

            	
            	Its General Partner
	 	By: 	Dolphin
              Management, Inc.
	Date:	
            	Its Managing Member
	
              
                
 

            	
            	 
	 	By:	 
	 	
            	
              

              Peter Salas, President
	 	 	 
	 	Date:  	 
	 	 	
              
 

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A-1 

    

    Attached
      to and made a part of the

    

    PURCHASE
      AND SALE AGREEMENT

    Between

    CAPCO
      ENERGY, INC. AND --CAPCO OFFSHORE, INC.

    As
      Seller

    And

    HOACTZIN
      PARTNERS, LP

    As
      Buyer

    

    DESCRIPTION
      OF THE BRAZOS INTERESTS

    

    30%
      OF 8/8THS WORKING INTEREST, AND A PROPORTIONATE NET REVENUE INTEREST, AS OF
      THE
      EFFECTIVE TIME, IN AND TO THE FOLLOWING LEASES, INSOFAR ONLY AS SAID LEASES
      COVER AND INCLUDE THE WELLBORES OF THE WELLS LISTED BELOW AND ONLY TO THE EXTENT
      THAT SUCH LEASS ARE NECESSARY TO PRODUCE OIL AND/OR GAS FROM THE WELLBORES
      OF
      SAID WELLS, TOGETHER WITH A LIKE INTEREST IN THE EASEMENTS DESCRIBED
      BELOW:

     

    BRAZOS
      440L/441L/406L/407L

     

    State
      Lease 57646,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SE/4 of State
      Tract 441L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 581.

     

    State
      Lease 57645,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering NE/4 of State
      Tract 441L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 577.

     

    State
      Lease 57644,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SW/4 of State
      Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 573.

     

    State
      Lease 57642,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering NW/4 of State
      Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 569.

     

    State
      Lease 57641,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering NE/4 of State
      Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 565.

     

    State
      Lease 60732,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective April 4, 1967, and covering SE/4 of State
      Tract 406L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 453
      at
      Page 245.

     

    State
      Lease 57633,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SE/4 of State
      Tract 407L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 544.

     

    State
      Lease 57634,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SW/4 of State
      Tract 407L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 565.

     

    INSOFAR
      AND ONLY INSOFAR as the above leases are included within the 440L Unit more
      fully described as the following:

     

    5,850.00
      acres of land out of Tracts 407L, 406L, 441L, and 440L as shown on the Texas
      Gulf Coast Map, Sheet 3, from the Sabine River to the Rio Grande River as
      subdivided for Mineral Development by the General Land Office, dated January
      1967, and the 5,850.00 acres of land being more particularly described as
      follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1350
      acres out of State Tract 407L, being all of the south half (S 1/2) of the
      southeast quarter (SE 1/4) of Tract 407L, all of the southeast one-quarter
      (SE
      1/4) of the southwest one-quarter (SW 1/4) of Tract 407L, all of the south
      one-half (S 1/2) of the southwest one-quarter (SW 1/4) of the southwest
      one-quarter (SW 1/4) of State Tract 407L, and all of the northeast one-quarter
      (NE 1/4) of the southwest one-quarter (SW 1/4) of the southwest one-quarter
      (SW
      1/4) of State Tract 407L.

     

    90
      acres
      out of State Tract 406L, and being all of the southeast one-quarter (SE/4)
      of
      the southeast one-quarter (SE/4) of the southeast one-quarter (SE/4) of State
      Tract 406L.

     

    1620
      acres out of State Tract 441L, and being all of the north one-half (N 1/2)
      of
      the southeast one-quarter (SE 1/4) of State Tract 441L, all of the south
      one-quarter (S 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L,
      all the northeast one-quarter (NE1/4) of southwest one-quarter (SW 1/4) of
      the
      northeast one-quarter (NE 1/4) of State Tract 441L, all of the north one-half
      (N
      1/2) of the southeast one-quarter (SE 1/4) of the northeast one-quarter (NE
      1/4)
      of State Tract 441L, all of the south one-half (S 1/2) of the northeast
      one-quarter (NE 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L,
      and all of the northeast one-quarter (NE 1/4) of the northeast one-quarter
      (NE1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L.

     

    2790.00
      acres out of State Tract 440L, and being all of the north one-quarter (N 1/4)
      of
      State Tract 440L, all of the south one-half (S 1/2) of the northwest one-quarter
      (NW 1/4) of State Tract 440L, all the north one-half (N 1/2) of the southwest
      one-quarter (SW 1/4) of the northeast one-quarter (NE 1/4) of State Tract 440L,
      all of the northwest one-quarter (NW 1/4) of the southeast one-quarter (SE
      1/4)
      of the northeast one-quarter (NE 1/4) of State Tract 440L, all of the southwest
      one-quarter (SW 1/4) of the southwest one-quarter (SW 1/4) of the northeast
      one-quarter (NE 1/4) of State Tract 440L, all of the north one-half (N 1/2)
      of
      the northwest one-quarter (NW 1/4) of the southwest one-quarter (SW 1/4) of
      State Tract 440L, and all of the southwest one-quarter (SW 1/4) of the northwest
      one-quarter (NW 1/4) of the southwest one-quarter (SW 1/4) of State Tract 440L.
      

    

    The
      above
      described unit is limited to all gas sands encountered in the interval between
      6,580 feet and 7,860 feet, as shown on the induction-electrical log run in
      the
      Shell Oil Company’s well No. 2 located in the northwest one-quarter (NW 1/4) of
      State Tract 440L.

    

      WELLS

       

    

    
      	
              Well
                Name

            	 	 	 	
              CAPCO
                

              Working
                Interest

            	 	
              CAPCO

              Net
                Revenue Interest

            
	
              Brazos
                440L

            	 	
              I-1

            	 	
              65.00%

            	 	
              53.51666%

            
	
              Brazos
                440L

            	 	
              4012

            	 	
              65.00%

            	 	
              53.51666%

            
	 	 	 	 	 	 	 
	
              OPTION
                WELL

            	 	 	 	 	 	 
	
              Brazos
                440L

            	 	
              A-1

            	 	
              65.00%

            	 	
              53.51666%

            

    

    

    State
      Easement ME 85-234,
      granted
      by the State of Texas, General Land Office, unto Conquest Exploration Company
      to
      construct a 3 1⁄2 inch pipeline.

     

    State
      Easement ME 85-233,
      granted
      by the State of Texas, General Land Office, unto Conquest Exploration Company
      to
      construct a 4 1⁄2 inch pipeline.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    State
      Easement ME 85-169,
      granted
      by the State of Texas, General Land Office, unto Conquest Exploration Company
      to
      construct a 12.75” pipeline.

     

    BRAZOS
      478L/479L

     

    State
      Lease 96177,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and
      American Exploration Company, as Lessee, effective October 4, 1994, and covering
      north of the three marine league line within State Tract 478L, Gulf of Mexico,
      Matagorda County, Texas recorded in Volume 950452 at Page 400941.

     

    State
      Lease 97270,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and
      American Exploration Company, as Lessee, effective April 2, 1996, and covering
      S/2 of NE/4 of State Tract 479L, Gulf of Mexico, Matagorda County, Texas
      recorded in Volume 963560 at Page 442494. 

     

    WELLS

     

    
      	
              Name

            	 	
              CAPCO

              Working
                Interest

            	 	
              CAPCO\

              Net
                Revenue Interest

            
	
              Brazos
                478L #2

            	 	
              65.00%

            	 	
              49.725%

            

    

     

    State
      Easement ME 970029,
      granted
      by the State of Texas, General Land Office, unto American Exploration Company
      for a 30’ wide easement.

     

    State
      Easement ME 970031, granted
      by the State of Texas, General Land Office, for the 478L #2 well.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A-2

    

    Attached
      to and made a part of the

    

    PURCHASE
      AND SALE AGREEMENT

    Between

    CAPCO
      OFFSHORE, INC.

    As
      Seller

    And

    HOACTZIN
      PARTNERS, LP

    As
      Buyer

     

    DESCRIPTION
      OF THE CHANDELEUR INTERESTS

    

    Schedule
      of Wells

    
      	
              Well
                Name

            	 	
              API

            	 	
              Operator

            	 	
              Working
                Interest

            	 	
              Net
                Revenue Interest

            
	
              CA
                Blk. 30 #1 (Hustler)

            	 	
              1772840058

            	 	
              Capco

            	 	
              1.000

            	 	
              0.79833333

            
	
              CA
                Blk. 30 #3 (Seamaster)

            	 	
              1772840060

            	 	
              Capco

            	 	
              1.000

            	 	
              0.79833333

            
	
              CA
                Blk. 27 #2 (Fireball)

            	 	
              1772840062

            	 	
              Capco

            	 	
              1.000

            	 	
              0.77892924

            
	
              Biloxi
                Marsh LC #1-2

            	 	
              1708720315

            	 	
              MERIDIAN

            	 	
              0.145357

            	 	
              0.106111

            
	
              PXP
                SL 17656 #2 (Fiesta)

            	 	
              1708720327

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.328125

            
	
              PXP
                CA 30 #2 (Hustler West)

            	 	
              1772840059

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.3764583

            
	
              PXP
                SL 17812 #1 (Avenger)

            	 	
              1773020034

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.328125

            
	
              PXP
                SL 17389 #1 (Prowler)

            	 	
              1773020036

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            
	
              PXP
                SL 17388#1 (Catalina)

            	 	
              1773020035

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            
	
              PXP
                SL 17387#1 (Skyraider Dp.)

            	 	
              1773020038

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            
	
              PXP
                SL 17390#1 (Twin Otter)

            	 	
              1772720532

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
      of Leases

    LEASES

    
      	
              LESSOR

            	 	
              LESSEE

            	 	
              DATE

            	 	
              RECORDING
                INFO.

            
	
              USA-Mineral
                Management Service-

              OCS-G
                24002***

            	 	
              Manti
                Resources, Inc.

            	 	
              5/1/2002

            	 	
              N/A

            
	
              State
                of Louisiana - No. 17365

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 339/MLB 116,Folio 6, Entry 397916, St. Bernard Parish,
                LA

            
	
              USA-Mineral
                Management Service-

              OCS-G
                24001***

            	 	
              Manti
                Resources, Inc.

            	 	
              5/1/2002

            	 	
              N/A

            
	
              Mabel
                Isabel Molero Quatroy, et al *

            	 	
              Manti
                Resources, Inc.

            	 	
              5/9/2001

            	 	
              COB
                696, Folio 731/MLB 113, Entry #384834,

              St.
                Bernard Parish, LA

            
	
              LAC
                Real Estate Holdings, L.L.C.*

            	 	
              Louisiana
                Oil and Gas, Inc.

            	 	
              5/3/2001

            	 	
              COB
                696, Folio 724/MLB 113, Entry #384833, 

              St.
                Bernard Parish, LA

            
	
              Biloxi
                Marsh Lands Corporation*

            	 	
              White
                Mountain Royalty Corporation

            	 	
              10/26/2000

            	 	
              Memo-COB
                694,MLB 112,Entry 383297, St. Bernard Parish, LA

            
	
              State
                of Louisiana - No. 17656

            	 	
              WLB
                Investments, Inc.

            	 	
              11/18/2002

            	 	
              COB
                730, Folio 182/MLB 118, Folio 98, Entry #406251, St. Bernard Parish,
                LA,
                NA
                # 03-03420, Instrument # 251353, Orleans Parish, LA.

            
	
              State
                of Louisiana - No. 17812

            	 	
              Manti
                Jamba,Ltd.,et al

            	 	
              5/19/2003

            	 	
              COB
                738, Folio 793/MLB 121, Folio 54, Entry #413799, St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17389

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 387/MLB 116, Folio 10, Entry #397920, St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17388

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 375/MLB 116, Folio 9, Entry #397919, St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17387**

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 363/MLB 116, Folio 8, Entry #397918, St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17390

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio, 399,/MLB 116, Folio 11, Entry #397921, St. Bernard Parish,
                LA

            

    

    

    *
      =
      INSOFAR AND ONLY INSOFAR as said leases fall within the confines of unit tract
      numbers 1A and 1B within the CRIS 1 RA SUC, established by Office of
      Conservation Order No. 960-A-2, effective April 9, 2002, and approved by the
      Office of Conservation on November 4, 2003.

     

    **
      = LESS
      AND EXCEPT measured depths from the surface of the earth down to the
      stratigraphic equivalent of the bottom of the producing sand found between
      the
      depths of 4,926' and 5,018' in the Manti Operating Company State Lease No.
      17387
      No. 1 Well situated thereon.

    

    ***Subject
      to a 3.5% overriding royalty interest, in favor of J. Michael Poole, Sr.,
      pursuant to Article 4.01 in that certain Exploration Joint Venture Agreement
      between Manti Resources, Inc., and Sunbelt Energy, Ltd., et al, dated May 1,
      2001. 

    

    [*]
      SAVE
      AND EXCEPT that certain royalty interest purchased from Biloxi Marsh Lands
      Corporation in favor of Manti Operating Company, effective May 24, 2001,
      recorded in COB 696, MLB 113, Entry No. 384864, in the official records of
      St.
      Bernard Parish, Louisiana.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Rights
      of Ways/Easements

     

    
      	
              PIPELINE
                SEGMENT NO.

            	 	
              SIZE

              (IN.)

            	 	
              LENGTH
                (FT.)

            	 	
              FROM

            	 	
              TO

            
	 	 	 	 	 	 	 	 	 
	
              14390

            	 	
              4

            	 	
              385

            	 	
              Well
                #2, Chandeleur Area, 

              Blk.
                30 -OCS-G 24002

            	 	
              6-inch
                SSTI, Chandeleur 

              Area,
                Blk. 30 - OCS-G 24002

            
	
              14391

            	 	
              4

            	 	
              529

            	 	
              Well
                #3, Chandeleur Area, 

              Blk.
                30 -OCS-G 24002

            	 	
              6-inch
                SSTI, Chandeleur 

              Area,
                Blk. 30 - OCS-G 24002

            
	
              14519

            	 	
              4

            	 	
              8,501

            	 	
              Caisson
                No. 3, Chandeleur Area, Blk.27 - OCS-G 24001

            	 	
              Caisson
                No. 2, Chandeleur 

              Area,
                Blk. 27 - OCS-G 24001

            
	
              14388
                - ROW No. G25321

            	 	
              6

            	 	
              18,225

            	 	
              Caisson
                #1, Chandeleur Area, 

              Blk.
                30 - OCS-G 24002

            	 	
              Platform
                A, Chandeleur Area, 

              Blk.
                29 - OCS-G 05740

            
	
              14529
                - ROW No. G25347

            	 	
              6.6

            	 	
              10,748

            	 	
              Chandeleur
                Blk. 27 Caisson 

              No.
                2 - OCS-G 24001 

            	 	
              Chandeleur
                Blk. 29 Platform 

              "B"
                - OCS-G 05740

            
	
              14530
                - ROW No. G25348

            	 	
              4

            	 	
              10,788

            	 	
              Caisson
                #2, Chandeleur Area, 

              Blk.
                27 - OCS-G 24001

            	 	
              Platform
                B, Chandeleur Area, 

              Blk.
                29 - OCS-G 05740

            

    

     

    
      ALL
        OF
        THE ABOVE PIPELINE SEGMENTS AND RIGHT-OF-WAYS ARE TAKEN FROM THE UNITED
STATES
        OF
        AMERICA MINERAL MANAGEMENT SERVICE.

       

    

    
      	
              LEASE
                DATE

            	 	
              LESSOR

            	 	
              LESSEE

            	 	
              PARISH

            	 	
              ENTRY

            	 	
              BOOK

            	 	
              PAGE

            
	
              12/19/03

            	 	
              State
                of Louisiana ROW 4428

            	 	
              PXP
                Gulf Coast Inc

            	 	
              St.
                Bernard

            	 	
              422745

            	 	
              751

            	 	
              404

            
	
              01/09/04

            	 	
              State
                of Louisiana ROW 4444

            	 	
              PXP
                Gulf Coast Inc

            	 	
              St.
                Bernard

            	 	
              424062

            	 	
              753

            	
               

            	
              55

            
	
              04/27/04

            	 	
              State
                of Louisiana ROW 4469

            	 	
              PXP
                Gulf Coast Inc

            	 	
              St.
                Bernard

            	 	
              427803

            	 	
              758

            	 	
              39

            
	
              6/22/2004

            	 	
              State
                of Louisiana ROW 4509

            	 	
              PXP
                Gulf Coast Inc

            	 	
              St.
                Bernard

            	 	
              429903

            	 	
              760

            	 	
              519

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A-3

    

    Attached
      to and made a part of the

    

    PURCHASE
      AND SALE AGREEMENT

    Between

    CAPCO
      OFFSHORE, INC.

    As
      Seller

    And

    HOACTZIN
      PARTNERS, LP

    As
      Buyer

    

    DESCRIPTION
      OF THE GALVESTON INTERESTS

    

      
        	
                LEASES

              	 	 	 	 
	
                A.
                  

              	 	
                Serial
                  No.:

              	 	
                OCS-G
                  21324

              
	
                 

              	 	
                Date:

              	 	
                December
                  1, 1999

              
	 	 	
                Lessee:

              	 	
                Union
                  Oil of California

              
	 	 	
                Land
                  Covered:

              	 	
                Galveston
                  Area Block 297, OCS Leasing Map, Texas Map No. 6, containing approximately
                  5760 acres.

              
	 	 	 	 	 
	
                B.

              	 	
                Serial
                  No.:

              	 	
                OGS-G
                  25534

              
	 	 	
                Date:

              	 	
                November
                  1, 2003

              
	 	 	
                Lessee:

              	 	
                Fidelity
                  Exploration & Production Company, et al.

              
	 	 	
                Land
                  Covered:

              	 	
                Galveston
                  Area Block 287, OCS Leasing Map, Texas Map No. 6, containing approximately
                  5760 acres.

              
	 	 	 	 	 
	
                C.

              	 	
                Serial
                  No.:

              	 	
                OCS-G
                  25536

              
	 	 	
                Date:

              	 	
                October
                  1, 2003

              
	 	 	
                Lessee:

              	 	
                Gryphon
                  Exploration Company

              
	 	 	
                Land
                  Covered:

              	 	
                Insofar
                  only as to the E/2 NE/4 Galveston Area Block 298, OCS Leasing Map,
                  Texas
                  Map No. 6,

              
	 	 	 	 	
                containing
                  approximately 720 acres.

              

      

    

     

    *Prospect
      Payout is defined in that certain Offshore Prospect Participation Agreement
      dated August 18, 1999, as amended December 30, 2004, between Capco Offshore,
      Inc., and Fidelity Exploration, et al.

     

    Wells

    

      
        	 	 	
                Buyer’s

              	 	
                Buyer’s

              
	
                Name

              	 	
                Working
                  Interest

              	 	
                Net
                  Revenue Interest

              
	
                GA
                  297 #1

              	 	
                30.00%
                  WI - BPO

              	 	
                30%
                  x 5/6 NRI - BPO*

              
	 	 	
                25.50%
                  WI - APO

              	 	
                25.5%
                  x 5/6 NRI - APO*

              

      

    

    
      

      *Subject
        to and bearing its proportionate part of all existing overriding royalties,
        carried interests, and other burdens on production reflected of record or
        disclosed in that certain Offshore Prospect Participation Agreement dated
        December 30, 2004, Between Capco Offshore, Inc. and Fidelity Exploration
        Company, Inc., et al. 

    

     

    SUBJECT
      TO THE FOLLOWING PRIOR AGREEMENT

     

    That
      certain Offshore Prospect Participation Agreement dated August 18, 1999, by
      and
      between Capco Offshore, Inc., Fidelity Exploration & Production Company,
      Reef Partners, L.L.C., and Blue Dolphin Exploration Company, as amended Dec.
      30,
      2004, covering all of Galveston Area Blocks 287, 297, and the E/2NE of Galveston
      Area Block 298.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SUBJECT
      TO THE FOLLOWING BURDENS

     

    
      	 	
              1.

            	
              Overriding
                Royalty Interest in favor of Gryphon Exploration Company as set forth
                in
                that certain Letter Agreement dated October 1, 2004, by and between
                Fidelity Exploration & Production Company and Gryphon Exploration
                Company equal to 3.0% of 6/6th
                covering the NW/4 of Galveston Area Block 297 and the E/2NE of Galveston
                Area Block 298.

            

    

    
      	 	 	 

      	 	
              2.

            	
              After
                Prospect Payout Overriding Royalty Interest in favor of Blue Dolphin
                Petroleum Company as set forth in that certain Offshore Prospect
                Participation Agreement dated December 30, 2004, by and between Capco
                Offshore, Inc., Fidelity Exploration & Production Company, Reef
                Partners, L.L.C., and Blue Dolphin Exploration Company equal to 2.0%
                of
                6/6th
                covering all of Galveston Area Block 287, and 2.5% of 6/6ths covering
                all
                of Galveston Area Block 297.

            

      	 	 	 

    

    
      	 	
              3.

            	
              After
                Prospect Payout Reversionary Interest in favor of Fidelity Exploration
                & Production Company and Blue Dolphin Petroleum Company as set forth
                in that certain Offshore Prospect Participation Agreement dated December
                30, 2004, by and between Capco Offshore, Inc., Fidelity Exploration
&
                Production Company, Reef Partners, L.L.C., and Blue Dolphin Exploration
                Company equal to 7.50% of 6/6th
                each, covering all of Galveston Area Blocks 287, 297 and E/2NE of
                Galveston Area Block 298.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A-4

    

    Attached
      to and made a part of the

    

    PURCHASE
      AND SALE AGREEMENT

    Between

    CAPCO
      OFFSHORE, INC.

    As
      Seller

    And

    HOACTZIN
      PARTNERS, LP

    As
      Buyer

    

    DESCRIPTION
      OF THE HIGH ISLAND INTERESTS

    

    B.
      HIGH ISLAND INTERESTS

    

      
        	
                Lease
                  No.:

              	 	
                OCS-G
                  06168

              
	
                Lessor: 

              	 	
                The
                  United States of America

              
	
                Lessee:

              	 	
                Exxon
                  Corporation

              
	
                Effective
                  Date:

              	 	
                October
                  1, 1983

              
	
                Lands
                  Covered:

              	 	
                All
                  of Block 196, High Island Area, OCS Leasing Map, Texas Map No.
                  7,
                  LESS
                  AND EXCEPT in the N/2, SW/4, and W/2SE/4 the Operating Rights in
                  all
                  depths below the base of the stratigraphic equivalent of the MM5
                  sand
                  found at 12,430' MD and 9,484 TVD in the OCS-G 06168, No. B-2 Well,
                  (API
                  427084034900), and LESS AND EXCEPT in the E/2SE/4 the Operating
                  Rights as
                  to all depths.

              
	
                Interest:

              	 	
                Record
                  Title Interest 100.00%,

              
	 	 	
                Net
                  Revenue Interest BPO 78.33333%; APO 83.33333%

              
	 	 	
                The
                  Before Payout (“BPO”) net revenue interest shown above reflects a 5.0% of
                  8/8ths overriding royalty retained by ExxonMobil as to which payout
                  occurs
                  once an aggregate $1,500,000 has been paid; thus, the After Payout
                  (“APO”)
                  net revenue interest is stated.

                 

                This
                  Interest also is subject to the Retained Revenue Interest, in favor
                  of
                  ExxonMobil, provided for by Section 3.04(b) of the ExxonMobil
                  Agreement.

              

      

    

     

    
      
        	
                PIPELINE
                  RIGHT-OF-WAY

              
	 	 	 	 	 
	 	 	
                Right-of-way
                  No.:

              	 	
                1027360
                  - OCS-G 21466

              
	 	 	
                Grantor: 

              	 	
                The
                  United States of America

              
	 	 	
                Grantee:

              	 	
                Exxon
                  Mobil Corporation

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      
        	 	 	
                Effective
                  Date:

              	 	
                February
                  22, 2001

              
	 	 	
                Right-of-way
                  Description:

              	 	
                OCS-G
                  21466, Segment No. 12379 Pipeline Right-of-way for 10-3/4 inch
                  pipeline
                  from HI 176 "B" Platform to a side tap SSTI on Williams Field Services
                  -
                  Offshore Gathering Company's Existing 12 inch Pipeline (OCS-G 12370
                  -
                  Segment 13143, formerly 9208) in Block 177.

              
	 	 	 	 	 
	 	 	
                Interest:

              	 	
                100.00%

              

      

       

      
        	
                RIGHT-OF-USE
                  AND EASEMENT PLATFORM "B" HIGH ISLAND BLOCK
                  176

              
	 	 	 	 	 
	 	 	
                Right-of-use
                  and easement No.:

              	 	
                Formerly
                  1029764 - OCS-G 23586 - to be determined after Closing

              
	 	 	
                Grantor:

              	 	
                The
                  United States of America

              
	 	 	
                Grantee:

              	 	
                Formerly
                  Exxon Mobil Corporation - to be Capco Offshore after
                  Closing

              
	 	 	
                Effective
                  Date:

              	 	
                Formerly
                  March 10, 2003 - to be determined after Closing

              
	 	 	
                Right-of-use
                  and easement description:

              	 	
                OCS-G
                  23586 - Right-of-use and easement to maintain Platform B in High
                  Island,
                  Block 176, expired lease, for the purposes of producing Wells B-1,
                  B-2,
                  B-3, and B-2d (sidetrack), High Island, Block 196, OCS-G
                  06168.

              
	 	 	 	 	 
	
                2.

              	 	
                Interest:

              	 	
                100%

              

      
 

    
      	
              SUBJECT
                TO THE FOLLOWING CONTRACTS

            
	 	 	 	 	 
	
              1.

            	 	
              Contract
                No.:

            	 	
              1001917
                - Operating Agreement

            
	 	 	
              Parties: 

            	 	
              Hall-Houston
                Oil Company and Exxon Corporation

            
	 	 	
              Effective
                Date:

            	 	
              September
                1, 1988

            
	 	 	
              Lands
                Covered:

            	 	
              Covering
                High Island Block 176, Offshore Texas.

            
	 	 	 	 	 
	
              2.

            	 	
              Contract
                No.:

            	 	
              1001939
                - Farmout Agreement

            
	 	 	
              Parties: 

            	 	
              Hall-Houston
                Oil Company and Exxon Corporation

            
	 	 	
              Effective
                Date:

            	 	
              September
                1, 1988

            
	 	 	
              Lands
                Covered:

            	 	
              Covering
                High Island Block 195, Offshore Texas.

            
	 	 	 	 	 
	
              3.

            	 	
              Contract
                No.:

            	 	
              0408358-001
                - Platform and Facilities Agreement

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	
              Parties: 

            	 	
              Hall-Houston,
                Exxon Corporation et al

            
	 	 	
              Effective
                Date:

            	 	
              September
                1, 1988

            
	 	 	
              Lands
                Covered:

            	 	
              Platform
                "A" (Platform ID No. 10468-1) located on High Island Block 176, including
                but not limited to the compressors, the facilities and the 10" sales
                line
                from Platform "A", High Island Block 176 to the subsea tap valve
                located
                in High Island Block 140 on Transco's 24" pipeline.

            
	 	 	 	 	 
	
              4.

            	 	
              Contract
                No.:

            	 	
              1029891
                - Farmout Agreement

            
	 	 	
              Parties:

            	 	
              Exxon
                Mobil Corporation and Spinnaker Exploration Oil Company

            
	 	 	
              Effective
                Date:

            	 	
              May
                30, 2003

            
	 	 	
              Lands
                Covered:

            	 	
              SE/4SE/4
                High Island Block 196, OCS-G 06168

            
	 	 	 	 	 
	
              5.

            	 	
              Contract
                No.:

            	 	
              210466000
                - Lateral Line Interconnect, Platform Use and Operation
                Agreement

            
	 	 	
              Parties:

            	 	
              WFS
                - Offshore Gathering Company, Seller Production Company and Apache
                Corporation

            
	 	 	
              Effective
                Date:

            	 	
              March
                1, 2001

            
	 	 	
              Lands
                Covered:

            	 	
              The
                HI 176 B & C Gas Gathering System, being the pipeline from the base of
                the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly
                located in HI 177.

            
	 	 	 	 	 
	
              6.

            	 	
              Contract
                No.:

            	 	
              210466000-1
                - Letter Agreement - Construction and Operation of Gathering Pipeline,
                High Island Block 176 and 177

            
	 	 	
              Parties:

            	 	
              Seller
                Production Company, Apache Corporation, Forcenergy Inc. and Ridgewood
                Energy Corporation

            
	 	 	
              Effective
                Date:

            	 	
              October
                10, 2000

            
	 	 	
              Lands
                Covered:

            	 	
              The
                HI 176 B & C Gas Gathering System, being the pipeline from the base of
                the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly
                located in HI 177.

            
	 	 	 	 	 
	
              SUBJECT
                TO THE FOLLOWING PIPELINE RIGHTS-OF-WAY

            
	 	 	 	 	 
	
              1.

            	 	
              Pipelines:

            	 	
              0404358-002

            
	 	 	 	 	
              Pipeline
                Right-of-Way OCS-G 10515, Segment No. 8569

            
	 	 	 	 	 
	 	 	 	 	
              0408360-002

            
	 	 	 	 	
              Pipeline
                Right-of-Way OCS-G 11186, Segment No. 8943

            
	 	 	 	 	 
	 	 	 	 	
              0408360-003

            
	 	 	 	 	
              Pipeline
                Right-of-Way OCS-G 11156, Segment No. 8705

            
	 	 	 	 	 
	 	 	 	 	
              0408360-004

            
	 	 	 	 	
              Pipeline
                Segment No. 11303

            
	 	 	 	 	 

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

    

    Attached
      to and made a part of the

    

    PURCHASE
      AND SALE AGREEMENT

    Between

    CAPCO
      ENERGY, INC. AND CAPCO OFFSHORE, INC.

    As
      Seller

    And

    HOACTZIN
      PARTNERS, LP

    As
      Buyer

    

    FORM
      OF

    ASSIGNMENT
      AND BILL OF SALE

     

    

      
        	
                STATE
                  OF TEXAS

              	 	
                §

              
	
                COUNTIES
                  OF MATAGORDA,

              	 	
                §

              
	
                BRAZOS,
                  GALVESTON, 

              	 	
                §

              
	
                BRAZORIA,
                  CHAMBERS &

              	 	
                §

              
	
                JEFFERSON

              	 	
                §

              
	 	 	 
	
                STATE
                  OF LOUISIANA

              	 	
                §

              
	
                PARISHES
                  OF ST. BERNARD &

              	 	
                §

              
	
                ORLEANS

              	 	
                §

              

      

This
      Assignment and Bill of Sale ("Assignment") is effective as to each Property
      as
      of the Effective Time stated below ("Effective Time"), and is from CAPCO
      OFFSHORE, INC.,
      a Texas
      Corporation with an address of 5555 San Felipe, Suite 750, Houston, Texas 77056
      (“Seller”) to HOACTZIN
      PARTNERS, L.P.,
      a
      Delaware limited partnership with an address of 87 South Saxon Avenue, Bay
      Shore, New York 11706 (“Buyer”).

    I.

     

    For
      ten
      dollars and other good and valuable consideration, the receipt and sufficiency
      of which Seller acknowledges, Seller bargains, sells, assigns, and conveys
      to
      Buyer and its successors and assigns, all of Seller's right, title, and interest
      in and to the following real and personal properties (collectively,
      "Properties"), subject to the terms of this Assignment, including its exhibits,
      and all applicable instruments of record in the county or parish where the
      Properties are located:

     

    
      	 	
              1.

            	
              The
                oil and gas leasehold estates and other interests, insofar
                but only insofar
                as
                set out on Exhibit A (collectively,
                "Interests").

            

    

    
      	 	 	 

      	 	
              2.

            	
              All
                contracts affecting the Interests, to the extent each is assignable,
                including agreements for the sale or purchase of oil, gas, and other
                hydrocarbons; processing agreements; division orders; unit agreements;
                operating agreements; and other contracts and agreements arising
                out of,
                connected with, or attributable to production from the Interests,
                including the items listed on Exhibit A.

            

      	 	 	 

    

    
      	 	
              3.

            	
              All
                personal property, including material, equipment, and facilities
                situated
                in and on the Properties and used solely in connection with the use
                or
                operation of the Interests for the production, treating, storing,
                transporting, and marketing of oil, gas, and other hydrocarbons from
                the
                Interests.

            

    

    
      	 	 	 

      	 	
              4.

            	
              All
                easements, permits, licenses, surface and subsurface leases,
                rights-of-way, servitudes, and other surface and subsurface rights
                affecting the Interests, to the extent each is assignable, including
                the
                items listed on Exhibit A. 

            

      	 	 	 

    

    
      	 	
              5.

            	
              Copies
                of the data and records relating to the Properties and Interests
                that have
                been or will be delivered by Seller to Buyer
                ("Documents").

            

    

     

    Exclusions.
      The
      following are excluded from this Assignment:

     

    
      	 	
              A.

            	
              Pipelines,
                fixtures, equipment, and interests in land owned by third
                parties.

            

    

    
      	 	 	 

      	 	
              B.

            	
              Personal
                property, fixtures, equipment, pipelines, facilities and buildings
                located
                on the land associated with the Interests, but either currently in
                use in
                connection with the ownership or operation of other property owned
                by
                third parties and not included in the Interests or excluded on Exhibit
                A.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      	 	
              C.

            	
              Claims,
                rights, and causes of action of any kind concerning the Properties
                against
                royalty owners, overriding-royalty owners, working-interest owners,
                gas
                purchasers, gas transporters, and other third parties that accrued
                before
                the Effective Time, whether discovered before or after the Effective
                Time.

            

    

     

    Documents.
      If
      originals or the last-remaining copies of the Documents have been provided
      to
      Buyer, Seller may have access to them at reasonable times and upon reasonable
      notice during regular business hours for as long as any Interest is in effect
      after the Effective Time (or for twenty-one years in the case of a mineral
      fee
      or other non-leasehold interest or a longer period if required by law or
      governmental regulation). Seller may, during this period and at its expense,
      make copies of the Documents pursuant to a reasonable request. Without limiting
      the generality of the two preceding sentences, for a period as long as any
      Interest is in effect after the Effective Time (or for twenty-one years in
      the
      case of a mineral fee or other non-leasehold interest or for a longer period
      if
      required by law or governmental regulation), Buyer may not destroy or give
      up
      possession of any original or last-remaining copy of the Documents without
      first
      offering Seller the opportunity, at Seller's expense, to obtain the original
      or
      a copy. After this period expires, Buyer must offer to deliver the Documents
      (or
      copies) to Seller, at Seller's expense, before giving up possession or
      destroying them.

     

    II.

     

    Ad
      valorem taxes assessed against the Properties for the year of the Effective
      Time
      are apportioned between Seller and Buyer as of the Effective Time.

    Buyer
      will comply with all rules, regulations, statutes, and laws applicable to
      Buyer's ownership or operation of the Properties.

     

    III.

     

    Except
      to
      the extent specifically excepted or reserved by Seller, Buyer accepts this
      Assignment and assumes all Seller's obligations and liabilities under all oil,
      gas, and mineral leases, assignments, subleases, farmout agreements, unit
      agreements, joint operating agreements, pooling agreements, letter agreements,
      easements, rights-of-way, gathering and transportation agreements, sales
      agreements, and other agreements (including compliance with express and implied
      covenants and payment of costs, rentals, shut-in-payments, minimum royalties,
      and production royalties), to the extent that these obligations and liabilities
      concern or pertain to the Properties and are binding on Seller or its successors
      or assigns. Buyer's obligations under this article apply to all applicable
      instruments, whether recorded or not.

    

    IV.

    

    Buyer
      and
      Seller acknowledge that the Interests and Properties have been used for
      exploration, development, and production of oil and gas and that there may
      be
      petroleum, produced water, wastes, or other materials located on or under the
      Properties or associated with the Interests. Equipment and sites included in
      the
      Interests or Properties may contain asbestos, hazardous substances, or naturally
      occurring radioactive material ("NORM"). NORM may affix or attach itself to
      the
      inside of wells, materials, and equipment as scale, or in other forms; the
      wells, materials, and equipment located on the Properties or included in the
      Interests may contain NORM and other wastes or hazardous substances; and
      NORM-containing material and other wastes or hazardous substances may have
      been
      buried, come in contact with the soil, or otherwise been disposed of on the
      Properties. Special procedures may be required for the remediation, removal,
      transportation, or disposal of wastes, asbestos, hazardous substances, and
      NORM
      from the Interests and Properties. 

    

    V.

    Seller
      recognizes, and will either perform or assure that performance is accomplished
      properly and in accordance with applicable law and the obligations and
      liabilities described in Article III, all obligations to abandon, restore,
      and
      remediate the Properties and the Interests, whether arising before or after
      the
      Effective Time, including obligations, as applicable, to:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (a)

            	
              obtain
                plugging exceptions in the operator's name for each well located
                on the
                Properties (abandoned and unabandoned) with a current plugging exception
                or permanently plug and abandon each
                well.

            

    

    
      	 	 	 

      	 	
              (b)

            	
              plug,
                abandon, and if necessary, reabandon each well located on the Properties
                (abandoned and unabandoned).

            

      	 	 	 

    

    
      	 	
              (c)

            	
              remove
                all equipment and facilities, including flowlines, pipelines and
                platforms.

            

    

     

    
      	
            	(d)	
              close
                all pits.

            

    

     

    
      	 	
              (e)

            	
              restore
                the surface, subsurface, and offshore sites associated with the Interests
                and Properties. 

            

    

     

    Buyer
      and
      Seller will take all necessary steps to ensure that Buyer is recognized as
      the
      owner and, if applicable, that Seller is the operator of the Properties by
      all
      appropriate parties, including any regulatory commission, body or board with
      jurisdiction. If Seller is the principal on any financial assurance (including
      a
      bond) relating to the Properties, which financial assurance is required by
      any
      law, rule, or regulation, then Seller will maintain financial assurance in
      the
      required amount and supply it to the regulatory body requiring the financial
      assurance, to the end that Buyer’s financial assurance obligations are
      fulfilled.

     

    Seller
      will pay all costs and expenses associated with the obligations assumed under
      this article. 

     

    VI.

     

    The
      terms
Claim
      or
Claims
      mean,
      collectively, claims, demands, causes of action, and lawsuits asserted or filed
      by any person, including an artificial or natural person, a local, state, or
      federal governmental entity; a person holding rights under any instrument
      described in Article III; an Associated Party of Seller or Buyer; or a third
      party. The term Liability
      or
Liabilities
      means,
      collectively, all damages (including consequential and punitive damages),
      including those for personal injury, death, or damage to personal or real
      property (both surface and subsurface) and costs for remediation, restoration,
      or clean up of contamination, whether the injury, death, or damage occurred
      or
      occurs on or off the Properties by migration, disposal, or otherwise; losses;
      fines; penalties; expenses; costs to remove or modify facilities on or under
      the
      Properties; plugging liabilities for all wells; attorneys' fees; court and
      other
      costs incurred in defending a Claim; liens; and judgments; in each instance,
      whether these damages and other costs are known or unknown, foreseeable or
      unforeseeable on the Effective Time. The term Associated
      Parties
      means
      successors, assigns, directors, officers, employees, agents, contractors,
      subcontractors, and affiliates.

     

    Seller
      releases and discharges Buyer
      and its Associated Parties from each Claim and Liability relating to the
      Properties, or this transaction, regardless of when or how the Claim or
      Liability arose or arises or whether the Claim or Liability is foreseeable
      or
      unforeseeable. SELLER'S
      RELEASE
      AND
      DISCHARGE OF BUYER
      AND
      ITS ASSOCIATED
      PARTIES
      INCLUDE CLAIMS
      AND
      LIABILITIES
      RESULTING
      IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY
      OF BUYERORITS
      ASSOCIATED
      PARTIES,
      WHETHER
      THE NEGLIGENCE OR STRICT LIABILITY IS
      ACTIVE, PASSIVE, JOINT, CONCURRENT, OR
      SOLE. The only
      exception to Seller's release and discharge of Buyer and its Associated Parties
      is stated in 16.04(e) of the Purchase and Sale Agreement (as hereinafter
      defined), and the release and discharge are binding on Seller and its successors
      and assigns other than Buyer.

     

    Seller
      covenants not to sue Buyer or its Associated Parties with regard to any Claim
      or
      Liability relating to the Properties, or this transaction, regardless of when
      or
      how the Claim or Liability arose or arises or whether the Claim or Liability
      is
      foreseeable or unforeseeable. SELLER'S
      COVENANT
      NOT TO SUE BUYER
      OR ITS ASSOCIATED
      PARTIES INCLUDES
      CLAIMS
      AND LIABILITIES
      RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER
      OR ITS ASSOCIATED
      PARTIES,
      WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT
      OR SOLE.  The
      only
      exception to Seller's covenant not to sue Buyer or its Associated Parties is
      stated in Section 16.04(e) of the Purchase and Sale Agreement, and the covenant
      is binding on Seller and its successors and assigns other than Buyer.

     

    Seller
      will indemnify, defend, and hold Buyer and its Associated Parties harmless
      from
      each Claim and Liability relating to the Interests, Property, or this
      transaction, regardless of when or how the Claim or Liability arose or arises
      or
      whether the Claim or Liability is foreseeable or unforeseeable.
SELLER'S
      OBLIGATIONS TO INDEMNIFY, DEFEND, AND HOLD BUYER AND ITS
ASSOCIATED
      PARTIES
      HARMLESS INCLUDE CLAIMS AND LIABILITIES
      RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR
      ITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE
      OR
      STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR
      SOLE. The
      only
      exception to Seller’s obligations to indemnify, defend, and hold Buyer and its
      Associated Parties harmless is stated in Section 16.04(e) of the Purchase and
      Sale Agreement, and the obligations are binding on Seller and its successors
      and
      assigns other than Buyer.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Seller’s
      duty to release, discharge, not to sue, indemnify, defend, and hold Buyer and
      its Associated Parties harmless includes Claims or Liabilities arising in any
      manner from the physical or environmental condition of the Interests and
      Properties, including Claims or Liabilities under applicable laws and
      regulations now enacted or that may be enacted in the future, including the
      Comprehensive Environmental Response, Compensation and Liability Act of 1980,
      as
      amended from time to time.

    

    VII.

     

    Buyer
      represents that it has acquired the Properties for its own benefit and account
      and has not acquired the Properties with the intent of distributing fractional
      undivided interests in them or otherwise selling them in a manner that would
      be
      subject to regulation by federal or state securities laws. If Buyer sells,
      transfers, or otherwise disposes of the Properties or fractional undivided
      interests in them in the future, it will do so in compliance with applicable
      federal and state laws.

    

    VIII.

     

    This
      Assignment is subject to the terms of that certain Purchase and Sale Agreement
      dated May 4, 2005 (the “Purchase and Sale Agreement”). The Purchase and Sale
      Agreement provides, in part, that the parties will correct errors that may
      have
      been made in the conveyancing instruments; that Seller may require that all
      or a
      part of the Properties be reassigned under certain circumstances; and that
      disputes concerning the Properties or the transaction will be resolved by
      alternate dispute resolution, to the extent, if any, that Seller has not
      released, discharged, or covenanted not to sue Buyer or its Associated Parties.
      The Management Agreement provides that Seller will manage the Interests in
      the
      place and stead of Buyer and for reacquisition of the Properties by Seller,
      among other things. 

     

    The
      provisions of this Assignment are severable. If a court of competent
      jurisdiction finds any part of this Assignment to be void, invalid, or otherwise
      unenforceable (except for the release, waiver, defense, and indemnity
      provisions), this holding will not affect other portions that can be given
      effect without the invalid or void portion.

    All
      covenants and agreements in this Assignment (except Article VIII) bind and
      inure
      to the benefit of the heirs, successors, and assigns of Seller and Buyer; are
      covenants running with the land; and are effective as stated, whether or not
      the
      covenants and agreements are memorialized in assignments and other conveyances
      executed and delivered by the parties and their respective heirs, successors,
      and assigns from time to time.

     

    Recitation
      of or reference to any agreement or other instrument in this Assignment,
      including its exhibits, does not operate to ratify, confirm, revise, or
      reinstate the agreement or instrument if it has previously lapsed or
      expired.

    

    This
      Assignment and its performance will be construed in accordance with, and
      governed by, the internal laws of the State of Texas, without regard to the
      choice of law rules of any jurisdiction, including Texas.

    

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

     

    All
      exhibits referenced in and attached to this Assignment are incorporated into
      it.

     

    This
      instrument may be executed in counterparts, all of which together will be
      considered one instrument.

     

    As
      to
      each Property, the Effective Time shall be as follows:

    

      
        	
                High
                  Island Interests:

              	 	
                November
                  1, 2004

              
	
                Brazos
                  Interests: 

              	 	
                January
                  1, 2005

              
	
                Galveston
                  Interests:

              	 	
                January
                  1, 2005

              
	
                Chandeleuer
                  Interests:

              	 	
                January
                  1, 2005

              

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    All
      as of
      7:00 a.m. local time on the respective dates.

     

    Executed
      on the dates indicated below, but effective as of the Effective
      Time.

    
      	 	 	 
	CAPCO
              OFFSHORE, INC.	
              HOACTZIN
                PARTNERS, L.P.

            
	 
 	 
 	 
 
	By:	By:  	Dolphin
              Advisors, LLC
	
              
                

              

              Mike
                Myers, President

            	
            	Its General Partner
	 	By:	Dolphin
              Management, Inc.
	Date:	 	Its Managing Member
	
              
                

              

            	 	 
	 	By:	 
	 	 	
              
Peter
              Salas, President
	 	 	 
	 	Date:  	 
	 	 	
              
 

    

     

    

      
        	
                WITNESSES:

              	 	
                WITNESSES:

              
	 	 	 
	
                ______________________________

              	 	
                ______________________________

              
	 	 	 
	
                ______________________________

              	 	
                ______________________________

              

      

    

    
       

    

    [Acknowledgments]

    

    

      
        	
                STATE
                  OF TEXAS

              	 	
                §

              
	COUNTY
                OF
                ___________ 	 	§ 

      

    

     

    This
      instrument was acknowledged before me on this    
      day
      of
      May, 2005, by Mike Myers, President of Capco Offshore, Inc., a Texas
      corporation, on behalf of said corporation.

    

      
        	 	 
	 	
                Notary
                  Public, State of Texas

              

      

    

     

    
      
        	
                STATE
                  OF TEXAS

              	 	
                §

              
	COUNTY
                OF
                _____________ 	 	§

      

    

     

    This
      instrument was acknowledged before me on this    
      day
      of
      May, 2005, by Peter Salas, President of Dolphin Management, Inc. a
      _______________________ corporation and managing member of Dolphin Advisors,
      LLC, a _________________ limited liability company and general partner of
      Hoactzin Partners, L.P., a Delaware limited partnership, on behalf of said
      limited partnership.

    

    
      	 	 
	 	
              Notary
                Public, State of Texas

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      C

    

    Attached
      to and made a part of the

    

    PURCHASE
      AND SALE AGREEMENT

    Between

    CAPCO
      ENERGY, INC. AND CAPCO OFFSHORE, INC.

    As
      Seller

    And

    HOACTZIN
      PARTNERS, LP

    As
      Buyer

    

    FORM
      OF

    MANAGEMENT
      AGREEMENT

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      D

    

    Attached
      to and made a part of the

    

    PURCHASE
      AND SALE AGREEMENT

    Between

    CAPCO
      ENERGY, INC. AND CAPCO OFFSHORE, INC.

    As
      Seller

    And

    HOACTZIN
      PARTNERS, LP

    As
      Buyer

    

    GAS-PRODUCTION-IMBALANCE
      ACCOUNTS

    

    MANAGEMENT
      AGREEMENT

     

    THIS
      MANAGEMENT AGREEMENT (“Agreement”) is made and entered into as of May 4, 2005,
      by and between Hoactzin Partners, LP and/or Assigns (“Owner”) Capco Energy, Inc.
      and Capco Offshore, Inc. (together, “Manager”).

    WITNESSETH:

     

    WHEREAS,
      Owner holds certain oil and gas interests pursuant to the terms of that certain
      Purchase and Sale Agreement between Owner and Manager (the “Purchase and Sale
      Agreement”), of even date herewith, and pursuant to assignments made
      thereunder;

     

    WHEREAS,
      Owner desires to engage Manager to manage the oil and gas interests owned by
      it;

     

    WHEREAS,
      Manager desires to manage such oil and gas interests of Owner; and

     

    WHEREAS,
      terms not otherwise defined herein shall have the meanings assigned to those
      terms in the Purchase and Sale Agreement.

     

    NOW,
      THEREFORE, in consideration of the premises and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

     

    1.  Manager
      Representations and Warranties.
      Manager
      represents and warrants to Owner that:

     

    (a) Manager
      has full corporate power and authority to own its assets and to carry on its
      business as it is now being conducted and to execute and deliver this Agreement
      and each of the Additional Instruments and to perform its obligations hereunder
      and thereunder and to consummate the transactions contemplated hereby and
      thereby.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) The
      execution, delivery and performance by Manager of this Agreement and the
      Additional Instruments to which Manager is a party and the consummation by
      Manager of the transactions contemplated hereby and thereby have been duly
      authorized by all requisite action of Manager.

    

    (c) This
      Agreement and the Additional Instruments to which Manager is a party have been
      duly and validly executed and delivered by Seller and constitute the legal,
      valid and binding obligations of Manager, enforceable against it in accordance
      with their respective terms.

    

    (d) The
      execution and delivery by Manager of this Agreement and each of the Additional
      Instruments to which it is a party, the performance by Manager of its
      obligations hereunder and thereunder and the consummation by Manager of the
      transactions contemplated hereby and thereby do not:

    

    (i) violate
      any provision of the certificate of incorporation or bylaws (or comparable
      organizational documents) of Manager;

    

    (ii) result
      in
      a violation or breach of, or constitute (with or without due notice or lapse
      of
      time or both) a default (or give rise to any right of termination, amendment,
      cancellation or acceleration) under any of the terms, conditions or provisions
      of any oral or written agreement, instrument, contract, undertaking, mortgage,
      indenture, lease, license or other understanding to which Manager is a party
      or
      by which any of the properties or assets of Manager may be bound or otherwise
      subject; or

    

    (iii) contravene
      or violate any law, rule, regulation, or order applicable to Manager, Manager’s
      Associated Parties, or any of their respective properties or
      assets.

    

    (e)  Manager
      is experienced in the operation of offshore oil and gas properties and has
      the
      requisite personnel resources, training and experience to manage and operate
      the
      Interests (as such term is hereinafter defined).

    

    2.  The
      Interests.
      Owner
      represents and acknowledges that it holds certain oil and gas leasehold
      interests, appurtenant rights, and other economic interests in the oil and
      gas
      leases and wells (the “Interests”) set forth in Exhibit A
      hereto.

     

    3.  Appointment
      of Manager.
      Manager
      is hereby designated as the manager of the Interests, and, in such capacity,
      shall be the general manager of and shall conduct, direct and have full control
      of all matters pertaining to the Interests as permitted and required by this
      Agreement, subject to
      the
      rights of Owner as owner. Manager shall be the sole manager of the Interests,
      and the enumeration of the particular or specific powers in this Agreement
      shall
      not be considered as in any way limiting or abridging the general power or
      discretion intended to be conferred on or reserved to the Manager to authorize
      it to do any and all things proper, necessary or expedient, in its discretion,
      to carry out the purposes of this Agreement.

     

    4.  Operating
      Agreement.
      The
      parties agree to enter into one (1) operating agreement for the operation of
      the
      Interests which shall be substantially in the form of the operating agreement
      attached hereto as Exhibit B
      (the
“Operating Agreement”). All Interests shall be operated under one Operating
      Agreement. Manager will cause the Interests to be managed pursuant to the terms
      of the Operating Agreement. In the event of any conflict between the terms
      of
      the Operating Agreement and this Agreement, the terms of this Agreement will
      control.

     

    5.  Duties
      of Manager.
      Manager
      shall devote sufficient time to the duties and responsibilities required for
      the
      prudent management of the Interests; and will at all times, faithfully,
      industriously, and to the best of its ability, experience and talents, perform
      all such duties and responsibilities in a good and workmanlike manner.
      Management duties shall include, without limitation, the following
      services:

     

    (a) Performing
      accounting and billing functions; receiving, distributing and reporting income
      on at least a quarterly basis.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) Performing
      the duties and obligations of Owner under the Operating Agreement.

     

    (c) Preparing
      and/or responding to authorizations for expenditure (“AFEs”) relating to the
      Interests, and preparing, reviewing and responding to correspondence relating
      to
      the Interests; provided, however, that Manager shall not approve AFEs on behalf
      of Owner in amounts greater than $50,000 to the interest of Owner.

     

    (d) Approving
      expenditures relating to the Interests, for the interest of Owner, up to the
      gross amount of $50,000 for any one-month period. Manager agrees that it will
      not approve or incur expenditures in amounts in excess of the aforesaid amount
      without the prior written approval of Owner; provided, in case of explosion,
      fire, flood, blowout or other sudden emergency, Manager may take such reasonable
      steps and incur such reasonable expenses as in its opinion are required to
      deal
      with the emergency to safeguard life and property and to comply with law and
      regulation, and shall report the emergency to Owner as promptly as possible.
      Owner agrees to respond to Manager’s proposal for expenditures in accordance
      with the time requirements of the Operating Agreement and any operating
      agreement under which Manager is not operator and that Manager shall have no
      liability for damages or losses resulting from Owner’s failure to respond timely
      so long as Manager has timely provided such proposal to Owner.

     

    (e) Overseeing
      and supervising on behalf of Owner the overall operation of the
      Interests.

     

    
      	 	
              (f)

            	
              Submitting
                to Owner as promptly as is practicable, but not more than thirty
                (30) days
                after the end of each calendar quarter, a statement setting out the
                revenues, costs and expenses incurred during such month for the Interests,
                along with payment of Net Operating Cash Flow (as such term is hereinafter
                defined) attributable to the
                Interests.

            

    

     

    (g) Marketing
      production from the Interests upon terms no less attractive than Manager obtains
      for any of its owned production from the Interests; provided that, at no time
      shall production from the Interests be sold to an affiliate of Manager or Owner,
      and Manager shall not be permitted to enter into any advance payment contracts
      or contracts providing directly or indirectly for the pre-sale of production
      from the Interests (collectively, “Advance Payment Contracts”) other than in the
      nomination and sale of natural gas for the month next following, without the
      prior written consent of Owner, which consent shall not be unreasonably withheld
      if such Advance Payment Contract will not have an adverse tax or economic impact
      upon Owner.

     

    (h) Manager
      shall complete and submit on behalf of Owner such incidental/and periodic
      reports and/or submissions as may be required by law, by regulation, or by
      order
      of local, state, and federal regulatory agencies or bodies with jurisdiction
      (a)
      over the Interests, (b) the use, ownership, operation or maintenance of the
      Interests, (c) Owner as owner of and Manager as manager of the Interests, or
      (d)
      production from the Interests.

     

    (i) In
      the
      case of Interests operated by third parties as of the Effective Time, Manager
      shall represent the interests of Owner pursuant to the terms of the operating
      agreement in effect as to said Interests and in conformance with the covenants
      hereof.

     

    6.  Management
      of the Interests; Payment of Costs.

     

    (a) At
      all
      times prior to the Termination Date (as such term is hereinafter defined),
      Manager shall:

     

    (i) Cause
      the
      Interests to be maintained and operated for the production of hydrocarbons
      in a
      good and workmanlike manner, as would a prudent operator (and without regard
      to
      the existence of the Purchase Option, as such term is hereinafter defined),
      all
      in accordance with generally accepted standards and all applicable federal,
      state and local laws, rules and regulations.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (ii) Cause
      the
      Interests to be developed, operated and maintained in compliance with all
      applicable laws, rules and regulations and in compliance with the Related
      Agreements governing the same.

     

    (iii) Pay
      or
      cause to be paid on behalf of Owner, promptly as and when due and payable,
      all
      rentals and royalties payable with respect to the production of hydrocarbons
      from the Interests (“Lease Burdens”) and all Costs (as such term is hereinafter
      defined) incurred in or arising from the operation or development of the
      Interests or the production, treating, gathering, marketing or transporting
      of
      hydrocarbons from the Interests.

     

    (iv) Pay
      or
      cause to be paid all capital costs which are agreed to in writing by Owner
      and
      Manager and are actually expended in the development and operation of the
      Interests and all other Costs required for the prudent and reasonable
      maintenance and operation of the Interests in accordance with generally accepted
      oil and gas industry standards.

     

    (b) The
      term
“Costs” shall mean, on a cash accounting basis, the sum of : 

     

    (i) The
      following costs actually paid by or on behalf of Owner during any calendar
      month
      insofar as they are attributable to the Interests, and whether capital or
      non-capital in nature: 

     

    (A) All
      costs, expenses and liabilities, including capital and non-capital costs, paid
      by or on behalf of Owner pursuant to applicable Operating Agreement covering
      the
      Interests or otherwise for and in connection with the ownership, operation
      or
      maintenance of the Interests (excluding any overhead of Manager) and the
      lifting, handling, gathering, producing, treating, storing, marketing, and
      transporting of production from the Interests and the disposal of produced
      water
      therefrom; and

     

    (B) All
      federal, state and local taxes (except mortgage and income taxes) paid by or
      for
      the account of the Interests, including without limitation production,
      occupation, excise, severance, ad valorem or other production related taxes,
      and
      any other taxes (except taxes on income) imposed on oil or natural gas,
      attributable to the Interests or the ownership or sale of production therefrom;
      

     

    (C) Capital
      costs shall be a part of Costs only if approved in accordance with Section
      5(d)
      hereof; and

     

    (ii) Excess
      Costs for the preceding month (including the Excess Costs carried forward from
      any preceding month subsequent to the Effective Time). 

     

    (d) The
      term
“Excess Costs” shall mean, for each calendar month, the excess, if any, of Costs
      (exclusive of capital costs) over revenue attributable to the sale of production
      from the Interests and actually received during any calendar month by or on
      behalf of Owner net of any Lease Burdens on production which are borne by the
      Interests and were created prior to the Effective Time for the respective
      Interests. 

     

    7.  Compensation.
      Compensation to Manager under the Operating Agreement and under this Agreement
      shall be as follows:

     

    (a)  As
      sole
      consideration for the services to be rendered by Manager under the Operating
      Agreement, Owner shall pay Manager $2,500.00 per calendar month plus $500.00
      per
      month for each well over six (6) wells with respect to which Manager serves
      as
      the operator under the Operating Agreement, which sum shall cover all non-third
      party costs of operations. 

     

    (b) As
      sole
      consideration for the services to be rendered by the Manager under this
      Agreement, and commencing with the first (if any) full fiscal quarter of Owner
      at the beginning of which (i) the Aggregate Investment Amount (as defined
      below) equals zero ($0.00) and (ii) Owner does not reasonably believe that
      it will require additional funding in order to meet its obligations under
      Section 8 of this Agreement or any other legal obligations relating to the
      Interests, the Manager shall accrue a quarterly fee (the “Management Fee”) equal
      to the excess of (X) 66.7% of the Net Operating Cash Flow attributable to
      Owner from the Interests, computed without taking into consideration the fees
      payable under this Section 7, with respect to each full fiscal quarter of
      Owner over
      (Y) all amounts owing to Owner under the Purchase and Sale Agreement and
      all operating and administrative expenses of Owner relating directly to the
      Interests (in each case to the extent not already deducted from a prior payment
      of the Management Fee or otherwise reimbursed or paid by the Manager). The
      Management Fee shall be payable with respect to each quarter within 45 days
      after the end thereof. The term “Net Operating Cash Flow” shall mean, for any
      period, the positive difference remaining after deduction of all (i) Costs
      attributable to production from the Subject Interests from (ii) revenues
      attributable to the Interests, all for such period.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Aggregate
      Investment Amount” means, at any time of calculation, the sum of (i)
      $18,457,175.88, plus (ii) Manager’s and Owner’s legal and other expenses related
      to closing the Purchase and Sale Agreement and which are funded by Owner, plus
      (iii) the aggregate amount contributed through such time in accordance with
      Section 9 of this Agreement, together with interest on such amounts
      accruing on a daily basis (in the case of (i) and (ii), from the date such
      amounts were initially made available to Manager or to third parties through
      lending arrangements or otherwise, and in the case of (iii), from the date
      of
      each contribution as applicable) at an annualized rate of 8%, less all Net
      Operating Cash Flow received by Owner through such time. 

     

    8.  Purchase
      and Sale Options.
      Manager
      shall have the right and option to acquire all, but not less than all, the
      Interests from Owner (the "Purchase Option"), and Owner shall have the right
      and
      option to sell all, but not less than all, the Interests to Manager (the “Sale
      Option”), according to the following terms and conditions:

     

    (a)
      The
      term
“Repayment Date” shall mean that date upon which the Aggregate Investment Amount
      equals zero ($0.00). Owner shall provide to Manager written notice of the
      achievement of the Repayment Date not less than 30 days after the Repayment
      Date
      occurs.

     

    (b)
      Manager
      shall be entitled to exercise the Purchase Option at any time after the one-year
      anniversary of the Repayment Date.

     

    (c)
      Owner
      shall be entitled to exercise the Sale Option at any time after the two-year
      anniversary of the Repayment Date. 

     

    (d)
      To
      be
      entitled to exercise its respective option, the party wishing to exercise its
      option shall give written notice to the other party of its intent to exercise
      its option (the “Option Notice”), said Option Notice to be delivered not less
      than sixty days prior to the desired date of transfer of the Interests to
      Manager (the “Option Closing Date”). The Option Notice shall (i) set forth the
      estimated Option Closing Date; (ii) state the exercising party’s valuation of
      the price at which the Interests shall be acquired by Manager (the “Option
      Price”); (iii) set forth the exercising party’s calculation of the Option Price;
      and (iv) provide reasonable data in support of that calculation.

     

    (e)
      The
      Option Price shall be calculated as follows:

     

    (i) If
      the
      Purchase Option is exercised prior to the two-year anniversary of the Repayment
      Date, the Option Price shall be two times sum of (A) the Net Operating Cash
      Flow
      accruing to Owner during the twelve-calendar-month period immediately preceding
      the month in which the Option Notice is delivered, computed without taking
      into
      consideration the fees payable under Section 7(a) hereof, and (B) the amount
      of
      any Costs during such period that are capital costs.

     

    (ii) If
      the
      Purchase Option is exercised at or after the two-year anniversary date of the
      Repayment Date, the Option Price shall be equal to the sum of (A) the Net
      Operating Cash Flow accruing to Owner during the twenty-four-calendar-month
      period immediately preceding the month in which the Option Notice is delivered,
      computed without taking into consideration the fees payable under Section 7(a)
      hereof, and (B) the amount of any Costs during such period that are capital
      costs.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii) If
      the
      Sale Option is exercised, the Option Price shall be equal to the sum of (A)
      the
      Net Operating Cash Flow accruing to Owner during the thirty-calendar-month
      period immediately preceding the month in which the Option Notice is delivered,
      computed without taking into consideration the fees payable under Section 7(a)
      hereof, and (B) the amount of any Costs during such period that are capital
      costs. 

     

    (f)
      Not
      less
      than 15 days following delivery of an Option Notice, the party receiving the
      Option Notice shall provide written acceptance of, or objection to, the Option
      Price set forth therein, and in the case of objection the writing shall (i)
      state the bases for objection, and (ii) provide the objector’s calculation of
      the Option Price which it believes should apply. 

     

    (g)
      If
      the
      non-exercising party disagrees with the exercising party’s Option Price, the
      parties shall negotiate in a good faith attempt to agree upon the Option Price.
      If no agreement is reached within 45 days after delivery of the Option Notice,
      the Option Price using the applicable valuation formula shall be determined
      in
      accordance with the terms of this Section 8 by an independent Certified Public
      Accountant with not less than ten years of oil and gas revenue accounting
      experience (the “Valuation Party”).

     

    (h)
      The
      term
“Valuation Date” shall mean the earlier to occur of (i) the non-exercising
      party’s acceptance of the exercising party’s Option Price in the Option Notice;
      (ii) the parties’ subsequent agreement upon the Option Price in the case of an
      objection, or (iii) determination of the Option Price by the Valuation Party.
      

     

    (i) If
      the
      Sale Option is exercised, Manager shall have the option to make payment, in
      lieu
      of cash consideration, by issuing or causing to be issued to Owner registered
      shares of Capco Energy, Inc. common stock at an initial value of $0.20 per
      share. Such value shall be adjusted to reflect stock splits, stock dividends,
      recapitalizations, and the like, and shall be adjusted down to the lowest price
      per share at which Capco Energy, Inc. sells any shares of its common stock
      after
      the date hereof, including any securities convertible into common stock or
      conferring the right to purchase common stock.

     

    (j)
      Upon
      a
      party’s exercise of its Option, the closing pursuant to the Option (the “Option
      Closing”) shall occur within 60 days of the Valuation Date. Each party agrees to
      execute and deliver any and all documents reasonably requested to effectuate
      the
      transfer of the Interests to Manager. Without limiting the generality of the
      foregoing, such transfer shall be effectuated on an “as-is, where-is” basis and
      without any post-transfer obligations of any kind on the part of Owner. Failure
      by a party to execute and deliver the required documentation will be deemed
      a
      breach, and the party not in breach will be authorized to seek injunctive relief
      and to pursue any and all legal remedies available to it.

     

    (k)
      Insolvency.
      The
      Purchase Option shall terminate upon any insolvency of, or commencement of
      bankruptcy proceedings by or against, Manager.

     

    (l)
      Tax
      Reporting.
      Each of
      the parties agrees, upon reasonable notice and during normal business hours,
      to
      provide the other party with access to the records in such party's possession
      or
      control as may be required to be examined or copied in connection with the
      accounting or reporting of this transaction to taxing authorities and in
      connection with responding to audits or inquiries by taxing
      authorities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    9.  Additional
      Funding; Issuance of Warrants.

     

    
      	 	
              (a)

            	
              If
                (i) the Manager and Owner mutually agree that Owner will fund additional
                working capital requirements of the Interests or (ii) Owner receives
                any
                claim, invoice or other notice from a third party alleging or otherwise
                indicating that Owner is required to make any payment or take any
                action
                in connection with the Interests, and Owner reasonably believes that
                it
                requires additional funding in order to make such payment, take such
                action or defend itself in connection with such claim, invoice or
                notice,
                Owner (A) in the case of clause (i) above, shall and (B) in the case
                of
                clause (ii) above, may contribute such funds (in debt, equity or
                any
                combination thereof at its sole discretion), to such extent, from
                time to
                time. As conditions precedent to Owner’s obligation to make any such
                contribution contemplated by clause (i) above, the Manager shall (X)
                issue or cause to be issued to Owner a warrant pursuant to
                Section 9(b) and (Y) have fully performed all obligations to be
                performed by it under the Purchase and Sale Agreement, the Operating
                Agreement, and any operating agreement in effect as to properties
                operated
                by third parties, except those obligations for which the time for
                performance has not then expired.

            

    

     

    (b) In
      the
      event of any additional funding of Owner pursuant to Section 9(a), Manager
      shall
      issue or cause to be issued to Owner a warrant (in form and substance as set
      forth on Exhibit C
      hereto,
“Warrant”) simultaneously with Owner’s funding of each such contribution, to
      purchase a number of shares of common stock of the Manager, par value $0.001
      per
      share, equal to the Market Price (as defined in the Warrant) times 33.34% of
      the
      equity or principal amount of debt of such contribution, at an exercise price
      per share of $0.1952. Any contribution made by Owner prior to the issuance
      by
      Manager of such Warrant shall not be deemed a waiver of Manager’s obligation to
      issue such Warrant.

     

    10.  Exculpation.
      Neither
      Manager nor any parent, subsidiary, affiliate, officer or employee or any of
      them shall be liable to Owner for any losses sustained or liabilities incurred
      as a result of any act or omission of Manager or any agent or employee of it
      except as may result from bad faith, negligence, willful misconduct or breach
      of
      this Agreement by such an agent or employee. Manager shall never be liable
      to
      Owner as a fiduciary and in all its dealings shall perform its obligation
      hereunder as a reasonable prudent manager.

     

    11.  Accounting
      and Disbursements.
      Manager
      will maintain general accounting records relating the operation of the Interests
      in accordance with generally accepted accounting principles. Manager shall
      collect funds generated by the Interests; shall promptly pay and discharge
      all
      costs and expenses incurred in the operation of the Interests pursuant to this
      Agreement; and shall provide quarterly reports to owner relating to the
      Interests. All records maintained by Manager pursuant to the provisions of
      this
      Section 11 shall be made available for inspection and copying by Owner,
      upon request by Owner, at Manager’s offices during normal business
      hours.

     

    12.  Term.
      The
      term of this Agreement shall commence on May 4, 2005 and shall terminate on
      the
      Termination Date. The “Termination Date” shall be the earlier of (a) that date
      on which is effective reassignment of the Interests to Manager pursuant to
      either the Purchase Option or the Sale Option, and (b) any insolvency of, or
      commencement of bankruptcy proceedings by or against, Manager. In any event
      this
      Agreement shall automatically terminate upon the Termination Date. The
      termination of this Agreement shall not affect the rights or liabilities of
      either Manager or Owner under the Operating Agreement.

     

    13.  Remedies
      Upon Default.
      If,
      prior to the Termination Date, Manager shall fail to perform or observe any
      of
      the covenants, agreements or obligations herein provided to be performed or
      observed by Manager, Owner, in addition to Owner’s right to recover damages and
      all other remedies available to Owner hereunder or at law or in equity, may,
      if
      such failure shall continue unremedied after ten (10) days from delivery to
      Manager of written notice thereof (unless within such ten (10) days, Manager
      has
      begun to cure such noncompliance in a manner satisfactory to Owner and Manager
      continues to diligently pursue such curative actions until such failure is
      remedied to the satisfaction of Owner), perform or cause to be performed such
      act at Manager's expense, in which event Owner may expend funds for such
      purpose, and Owner, upon written notice to Manager, shall be entitled to receive
      all proceeds payable to Manager pursuant to this Agreement to reimburse Owner
      for any amounts so expended plus interest on any such amounts at the rate of
      eight percent (8%) per annum from the dates such amounts were advanced by Owner
      until the dates on which Owner recovers said amounts from Manager. Additionally,
      Owner shall be entitled to offset and reduce (i) any payments otherwise due
      and
      owing Manager under this Agreement, (ii) any amounts otherwise due and owing
      to
      Manager under the Bridge Note, and (iii) any amounts otherwise due and owing
      to
      Manager, under the provisions of this Agreement or the Purchase and Sale
      Agreement, to recover any amounts so advanced by Owner plus interest thereon
      at
      the rate herein above stated. To secure all of the obligations owed by Manager
      to Owner under the terms of this Agreement and the Purchase and Sale Agreement,
      Manager hereby grants, bargains, sells and assigns to Owner a first and prior
      lien and security interest (a) upon Manager's Purchase Option, and (b) upon
      the
      oil and gas production attributable to the Interests pursuant to this Agreement,
      the proceeds from the sale of oil or gas at the wellhead, and all accounts
      relating thereto. To perfect the lien and security interest provided herein,
      Manager agrees to execute and acknowledge a recording supplement and/or
      financing statement prepared and submitted by Owner in connection herewith
      or at
      any time following execution hereof. Further, Manager hereby authorizes Owner
      to
      file this Agreement or any recording supplement executed in connection herewith
      as Manager's agent and attorney in fact as a lien or mortgage in the applicable
      real estate records and as a financing statement with the proper officer under
      the Uniform Commercial Code in the state in which the Interests are located
      in
      order to perfect the security interests granted herein. Upon material default
      by
      Manager with respect to any of its obligations hereunder and Manager's failure
      to remedy such default within sixty (60) days of receipt of notice thereof
      as
      hereinabove provided, or Manager’s failure to commence diligent efforts to cure
      such default within said sixty-day period and thereafter to proceed with
      diligence to cure, Owner shall have the right, without prejudice to other rights
      or remedies, to terminate this Agreement, take possession and control of the
      Interests (to the exclusion of Manager) and to collect from the purchaser(s)
      of
      production from the Interests proceeds otherwise payable to Manager until the
      amount owed by Manager to Owner plus interest at the rate hereinabove stated
      shall have been paid in full. Each purchaser shall be entitled to rely upon
      Manager's written statement concerning the amount of any default. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    14.  No
      Partnership.
      This
      Agreement is not intended to create, and shall not be construed to create,
      a
      relationship of partnership, mining partnership, joint venture or an association
      for profit between the parties hereto.

     

    15.  Force
      Majeure.
      If any
      party is rendered unable, wholly or in part, by force majeure to carry out
      its
      obligations under this Agreement, other than the obligation to make money
      payments, that party shall give to the other party prompt written notice of
      the
      force majeure with reasonably full particulars concerning it; thereupon, the
      obligations of the party giving the notice, so far as they are affected by
      the
      force majeure, shall be suspended during the continuance of the force majeure.
      The affected party shall use all reasonable diligence to remove the force
      majeure situation as quickly as practicable. The term “force majeure” shall mean
      act of God, strike, lockout or other industrial disturbance, act of the public
      enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion,
      governmental action, governmental delay, restraint or inaction, unavailability
      of equipment, and any other cause, whether of the kinds specifically enumerated
      above or otherwise, which is not reasonably within the control of the party
      claiming suspension. Nothing herein shall require the settlement of labor
      difficulties by any party contrary to its wishes.

     

    16.  Independent
      Contractor.
      In all
      things hereunder, Manager shall be an independent contractor not subject to
      the
      control or direction of Owner except as to the type of operations to be
      undertaken in accordance with the terms of this Agreement. Manager shall not
      be
      deemed, or hold itself out as, the agent of Owner with authority to bind it
      to
      any obligation or liability assumed or incurred by Manager as to any third
      party.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    17.  Assignment
      and Binding Effect.
      This
      Agreement shall be binding upon the parties hereto, their successors and
      assigns, except that this Agreement shall not be assigned by Manager, without
      the express written consent of Owner, but this Agreement may be assigned in
      whole or in part by Owner.

     

    18.  Notices.
      Notices
      authorized or required hereunder shall be given by governmental mail, telegram
      or other telegraphic means, postage or charges prepaid, or confirmed telecopy,
      addressed to the party to whom the notice is given at its address set out in
      the
      Purchase and Sale Agreement. All notices are deemed given when received. Each
      party may change its address by giving written notice to the other.

     

    19.  Applicable
      Law.
      This
      Agreement shall be construed under and governed by the laws of the State of
      Texas, without regard, however, to the conflicts of laws provisions
      thereof.

     

    20.  Counterparts.
      This
      Agreement may be executed in one or more counterparts, all of which shall be
      considered one and the same agreement and shall be in force when one or more
      counterparts have been signed by each of the parties.

     

    21.  Rule
      Against Perpetuities Savings.
      This
      Agreement shall be construed so as not to violate the Rule Against Perpetuities
      (“RAP”). If Sections 8(b) or 8(c) hereof should be determined to violate the
      RAP, the time for exercising the Option shall be deemed to be twenty-one (21)
      years, less one day, from the date hereof.

     

    22.  Additional
      Properties.
      From
      time to time Manager and Owner may by mutual consent agree to add properties
      to
      this Management Agreement. The addition of such properties to this Management
      Agreement shall be evidenced in writing executed by all the parties
      hereto.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

    
      	 	 	 
	 	CAPCO
              OFFSHORE, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	
              
                

              

               

              Title: 

            
	 	
              
                
 

            

    

     

    
      	 	 	 
	 	CAPCO
              ENERGY, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
Ilyas
              Chaudhary  
	 	Title:
              Chief
              Executive Officer 

    

    
      	 	 	 
	 	
              HOACTZIN
                PARTNERS, L.P.

            
	 
 	 
 	 
 
	 	By:  	
              DOLPHIN
                ADVISORS, LLC

            
	 	
            	
              

              Its
                General Partner

            
	 	
            	 
	 	By:	DOLPHIN
              MANAGEMENT INC.
	 	 	Its
              Managing Member
	 	 	 
	 	
              By:

            	 
	 	 	
              
 
	 	
              Name: 
                

            	Peter
              Salas
	 	
              Title

            	
              President

            
	 	
              Date:

            	  
	 	 	
              
 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    EXHIBIT
      “A”

    To
      Management Agreement between

    CAPCO
      OFFSHORE, INC. and HOACTZIN PARTNERS, L.P.

    

    DESCRIPTION
      OF PROPERTIES

    

    A.
      BRAZOS INTERESTS

    

    30%
      OF 8/8THS WORKING INTEREST, AND A PROPORTIONATE NET REVENUE INTEREST, AS OF
      THE
      EFFECTIVE TIME, IN AND TO THE FOLLOWING LEASES, INSOFAR ONLY AS SAID LEASES
      COVER AND INCLUDE THE WELLBORES OF THE WELLS LISTED BELOW AND ONLY TO THE EXTENT
      THAT SUCH LEASS ARE NECESSARY TO PRODUCE OIL AND/OR GAS FROM THE WELLBORES
      OF
      SAID WELLS, TOGETHER WITH A LIKE INTEREST IN THE EASEMENTS DESCRIBED
      BELOW:

    

    BRAZOS
      440L/441L/406L/407L

     

    State
      Lease 57646,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SE/4 of State
      Tract 441L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 581.

    

    State
      Lease 57645,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering NE/4 of State
      Tract 441L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 577.

    

    State
      Lease 57644,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SW/4 of State
      Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 573.

    

    State
      Lease 57642,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering NW/4 of State
      Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 569.

    

    State
      Lease 57641,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering NE/4 of State
      Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 565.

    

    State
      Lease 60732,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective April 4, 1967, and covering SE/4 of State
      Tract 406L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 453
      at
      Page 245.

    

    State
      Lease 57633,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SE/4 of State
      Tract 407L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 544.

    

    State
      Lease 57634,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell
      Oil Company, as Lessee, effective February 2, 1965, and covering SW/4 of State
      Tract 407L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430
      at
      Page 565.

    

    INSOFAR
      AND ONLY INSOFAR as the above leases are included within the 440L Unit more
      fully described as the following:

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    5,850.00
      acres of land out of Tracts 407L, 406L, 441L, and 440L as shown on the Texas
      Gulf Coast Map, Sheet 3, from the Sabine River to the Rio Grande River as
      subdivided for Mineral Development by the General Land Office, dated January
      1967, and the 5,850.00 acres of land being more particularly described as
      follows:

    

    1350
      acres out of State Tract 407L, being all of the south half (S 1/2) of the
      southeast quarter (SE 1/4) of Tract 407L, all of the southeast one-quarter
      (SE
      1/4) of the southwest one-quarter (SW 1/4) of Tract 407L, all of the south
      one-half (S 1/2) of the southwest one-quarter (SW 1/4) of the southwest
      one-quarter (SW 1/4) of State Tract 407L, and all of the northeast one-quarter
      (NE 1/4) of the southwest one-quarter (SW 1/4) of the southwest one-quarter
      (SW
      1/4) of State Tract 407L.

     

    90
      acres
      out of State Tract 406L, and being all of the southeast one-quarter (SE/4)
      of
      the southeast one-quarter (SE/4) of the southeast one-quarter (SE/4) of State
      Tract 406L.

    

    1620
      acres out of State Tract 441L, and being all of the north one-half (N 1/2)
      of
      the southeast one-quarter (SE 1/4) of State Tract 441L, all of the south
      one-quarter (S 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L,
      all the northeast one-quarter (NE1/4) of southwest one-quarter (SW 1/4) of
      the
      northeast one-quarter (NE 1/4) of State Tract 441L, all of the north one-half
      (N
      1/2) of the southeast one-quarter (SE 1/4) of the northeast one-quarter (NE
      1/4)
      of State Tract 441L, all of the south one-half (S 1/2) of the northeast
      one-quarter (NE 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L,
      and all of the northeast one-quarter (NE 1/4) of the northeast one-quarter
      (NE1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L.

    

    2790.00
      acres out of State Tract 440L, and being all of the north one-quarter (N 1/4)
      of
      State Tract 440L, all of the south one-half (S 1/2) of the northwest one-quarter
      (NW 1/4) of State Tract 440L, all the north one-half (N 1/2) of the southwest
      one-quarter (SW 1/4) of the northeast one-quarter (NE 1/4) of State Tract 440L,
      all of the northwest one-quarter (NW 1/4) of the southeast one-quarter (SE
      1/4)
      of the northeast one-quarter (NE 1/4) of State Tract 440L, all of the southwest
      one-quarter (SW 1/4) of the southwest one-quarter (SW 1/4) of the northeast
      one-quarter (NE 1/4) of State Tract 440L, all of the north one-half (N 1/2)
      of
      the northwest one-quarter (NW 1/4) of the southwest one-quarter (SW 1/4) of
      State Tract 440L, and all of the southwest one-quarter (SW 1/4) of the northwest
      one-quarter (NW 1/4) of the southwest one-quarter (SW 1/4) of State Tract 440L.
      

    

    The
      above
      described unit is limited to all gas sands encountered in the interval between
      6,580 feet and 7,860 feet, as shown on the induction-electrical log run in
      the
      Shell Oil Company’s well No. 2 located in the northwest one-quarter (NW 1/4) of
      State Tract 440L.

    

      WELLS

    

     

    
      	
              Well
                Name

            	 	 	 	
              Working
                Interest

            	 	
              Net
                Revenue Interest

            	 
	
              Brazos
                440L

            	 	 	
              I-1

            	 	 	
              30.00

            	
              %

            	 	
              24.69999

            	
              %

            
	
              Brazos
                440L

            	 	 	
              4012

            	 	 	
              30.00

            	
              %

            	 	
              24.69999

            	
              %

            

    

     

      OPTION
        WELL

    

    
      	
              Brazos
                440L

            	 	 	
              A-1

            	 	 	
              30.00

            	
              %

            	 	
              24.69999

            	
              %

            

    

    

    State
      Easement ME 85-234,
      granted
      by the State of Texas, General Land Office, unto Conquest Exploration Company
      to
      construct a 3 1⁄2 inch pipeline.

    

    State
      Easement ME 85-233,
      granted
      by the State of Texas, General Land Office, unto Conquest Exploration Company
      to
      construct a 4 1⁄2 inch pipeline.

    

    State
      Easement ME 85-169,
      granted
      by the State of Texas, General Land Office, unto Conquest Exploration Company
      to
      construct a 12.75” pipeline.

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    BRAZOS
      478L/479L

     

    State
      Lease 96177,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and
      American Exploration Company, as Lessee, effective October 4, 1994, and covering
      north of the three marine league line within State Tract 478L, Gulf of Mexico,
      Matagorda County, Texas recorded in Volume 950452 at Page 400941.

    

    State
      Lease 97270,
      Oil and
      Gas Lease between the State of Texas, General Land Office, as Lessor, and
      American Exploration Company, as Lessee, effective April 2, 1996, and covering
      S/2 of NE/4 of State Tract 479L, Gulf of Mexico, Matagorda County, Texas
      recorded in Volume 963560 at Page 442494. 

     

    WELLS

    
      	
              Name

            	 	
              Working
                Interest

            	 	
              Net
                Revenue Interest

            	 
	
              Brazos
                478L #2

            	 	 	
              30.00

            	
              %

            	 	
              22.950

            	
              %

            

    

    

    State
      Easement ME 970029,
      granted
      by the State of Texas, General Land Office, unto American Exploration Company
      for a 30’ wide easement.

    

    State
      Easement ME 970031, granted
      by the State of Texas, General Land Office, for the 478L #2 well.

    

    B.
      HIGH ISLAND INTERESTS

    

    
      	
              Seller
                Lease No.:

            	 	
              0408360-001
                - OCS-G 06168

            
	
              Lessor: 

            	 	
              The
                United States of America

            
	
              Lessee:

            	 	
              Exxon
                Corporation

            
	
              Effective
                Date:

            	 	
              October
                1, 1983

            
	
              Lands
                Covered:

            	 	
              All
                of Block 196, High Island Area, OCS Leasing Map, Texas Map No. 7,
                LESS
                AND EXCEPT in the N/2, SW/4, and W/2SE/4 the Operating Rights in
                all
                depths below the base of the stratigraphic equivalent of the MM5
                sand
                found at 12,430' MD and 9,484 TVD in the OCS-G 06168, No. B-2 Well,
                (API
                427084034900), and LESS AND EXCEPT in the E/2SE/4 the Operating Rights
                as
                to all depths.

            
	 	 	 
	
              Interest:

            	 	
              Record
                Title Interest 100.00%,

            
	 	 	
              Net
                Revenue Interest BPO 78.33333%; APO 83.33333%

            
	 	 	
              The
                Before Payout (“BPO”) net revenue interest shown above reflects a 5.0% of
                8/8ths overriding royalty retained by ExxonMobil as to which payout
                occurs
                once an aggregate $1,500,000 has been paid; thus, the After Payout
                (“APO”)
                net revenue interest is stated.

              This
                Interest also is subject to the Retained Revenue Interest, in favor
                of
                ExxonMobil, provided for by Section 3.04(b) of the ExxonMobil
                Agreement.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

     

    
      	PIPELINE
              RIGHT-OF-WAY
	 	 	 	 	 
	 	 	
              Right-of-way
                No.:

            	 	
              1027360
                - OCS-G 21466

            
	 	 	
              Grantor: 

            	 	
              The
                United States of America

            
	 	 	
              Grantee:

            	 	
              Exxon
                Mobil Corporation

            
	 	 	
              Effective
                Date:

            	 	
              February
                22, 2001

            
	 	 	
              Right-of-way
                Description:

            	 	
              OCS-G
                21466, Segment No. 12379 Pipeline Right-of-way for 10-3/4 inch pipeline
                from HI 176 "B" Platform to a side tap SSTI on Williams Field Services
                -
                Offshore Gathering Company's Existing 12 inch Pipeline (OCS-G 12370
                -
                Segment 13143, formerly 9208) in Block 177.

            
	 	 	 	 	 
	 	 	
              Interest:

            	 	
              100.00%

            
	 	 	 	 	 
	
              RIGHT-OF-USE
                AND EASEMENT PLATFORM "B" HIGH ISLAND BLOCK
                176

            
	 	 	 	 	 
	 	 	
              Right-of-use
                and easement No.:

            	 	
              Formerly
                1029764 - OCS-G 23586 - to be determined after Closing

            
	 	 	
              Grantor:

            	 	
              The
                United States of America

            
	 	 	
              Grantee:

            	 	
              Formerly
                Exxon Mobil Corporation - to be Capco Offshore after
                Closing

            
	 	 	
              Effective
                Date:

            	 	
              Formerly
                March 10, 2003 - to be determined after Closing

            
	 	 	
              Right-of-use
                and easement description:

            	 	
              OCS-G
                23586 - Right-of-use and easement to maintain Platform B in High
                Island,
                Block 176, expired lease, for the purposes of producing Wells B-1,
                B-2,
                B-3, and B-2d (sidetrack), High Island, Block 196, OCS-G
                06168.

            
	 	 	 	 	 
	
              2.

            	 	
              Interest:

            	 	
              100%

            

    

    

    
      	
              SUBJECT
                TO THE FOLLOWING CONTRACTS

            
	 	 	 	 	 
	
              1.

            	 	
              Contract
                No.:

            	 	
              1001917
                - Operating Agreement

            
	 	 	
              Parties: 

            	 	
              Hall-Houston
                Oil Company and Exxon Corporation

            
	 	 	
              Effective
                Date:

            	 	
              September
                1, 1988

            
	 	 	
              Lands
                Covered:

            	 	
              Covering
                High Island Block 176, Offshore Texas.

            
	 	 	 	 	 
	
              2.

            	 	
              Contract
                No.:

            	 	
              1001939
                - Farmout Agreement

            
	 	 	
              Parties: 

            	 	
              Hall-Houston
                Oil Company and Exxon Corporation

            
	 	 	
              Effective
                Date:

            	 	
              September
                1, 1988

            
	 	 	
              Lands
                Covered:

            	 	
              Covering
                High Island Block 195, Offshore Texas.

            
	 	 	 	 	 
	
              3.

            	 	
              Contract
                No.:

            	 	
              0408358-001
                - Platform and Facilities Agreement

            
	 	 	
              Parties: 

            	 	
              Hall-Houston,
                Exxon Corporation et al

            
	 	 	
              Effective
                Date:

            	 	
              September
                1, 1988

            
	 	 	
              Lands
                Covered:

            	 	
              Platform
                "A" (Platform ID No. 10468-1) located on High Island Block 176, including
                but not limited to the compressors, the facilities and the 10" sales
                line
                from Platform "A", High Island Block 176 to the subsea tap valve
                located
                in High Island Block 140 on Transco's 24"
                pipeline.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

     

    
      	
              4.

            	 	
              Contract
                No.:

            	 	
              1029891
                - Farmout Agreement

            
	 	 	
              Parties:

            	 	
              Exxon
                Mobil Corporation and Spinnaker Exploration Oil Company

            
	 	 	
              Effective
                Date:

            	 	
              May
                30, 2003

            
	 	 	
              Lands
                Covered:

            	 	
              SE/4SE/4
                High Island Block 196, OCS-G 06168

            
	 	 	 	 	 
	
              5.

            	 	
              Contract
                No.:

            	 	
              210466000
                - Lateral Line Interconnect, Platform Use and Operation
                Agreement

            
	 	 	
              Parties:

            	 	
              WFS
                - Offshore Gathering Company, Seller Production Company and Apache
                Corporation

            
	 	 	
              Effective
                Date:

            	 	
              March
                1, 2001

            
	 	 	
              Lands
                Covered:

            	 	
              The
                HI 176 B & C Gas Gathering System, being the pipeline from the base of
                the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly
                located in HI 177.

            
	 	 	 	 	 
	
              6.

            	 	
              Contract
                No.:

            	 	
              210466000-1
                - Letter Agreement - Construction and Operation of Gathering Pipeline,
                High Island Block 176 and 177

            
	 	 	
              Parties:

            	 	
              Seller
                Production Company, Apache Corporation, Forcenergy Inc. and Ridgewood
                Energy Corporation

            
	 	 	
              Effective
                Date:

            	 	
              October
                10, 2000

            
	 	 	
              Lands
                Covered:

            	 	
              The
                HI 176 B & C Gas Gathering System, being the pipeline from the base of
                the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly
                located in HI 177.

            
	 	 	 	 	 
	
              SUBJECT
                TO THE FOLLOWING PIPELINE RIGHTS-OF-WAY

            
	 	 	 	 	 
	
              1.

            	 	
              Pipelines:

            	 	
              0404358-002

            
	 	 	 	 	
              Pipeline
                Right-of-Way OCS-G 10515, Segment No. 8569

            
	 	 	 	 	 
	 	 	 	 	
              0408360-002

            
	 	 	 	 	
              Pipeline
                Right-of-Way OCS-G 11186, Segment No. 8943

            
	 	 	 	 	 
	 	 	 	 	
              0408360-003

            
	 	 	 	 	
              Pipeline
                Right-of-Way OCS-G 11156, Segment No. 8705

            
	 	 	 	 	 
	 	 	 	 	
              0408360-004

            
	 	 	 	 	
              Pipeline
                Segment No. 11303

            

    

    

    C.
      GALVESTON INTERESTS

    

    LEASES

    

    
      	 	
              A.

            	 	
              Serial
                No.:

            	 	
              OCS-G
                21324

            
	 	 	 	
              Date:

            	 	
              December
                1, 1999

            
	 	 	 	
              Lessee:

            	 	
              Union
                Oil of California

            
	 	 	 	
              Land
                Covered:

            	 	
              Galveston
                Area Block 297, OCS Leasing Map, Texas Map No. 6, containing approximately
                5760 acres.

            
	 	 	 	 	 	 
	 	
              D.

            	 	
              Serial
                No.:

            	 	
              OGS-G
                25534

            
	 	 	 	
              Date:

            	 	
              November
                1, 2003

            
	 	 	 	
              Lessee:

            	 	
              Fidelity
                Exploration & Production Company, et al.

            
	 	 	 	
              Land
                Covered:

            	 	
              Galveston
                Area Block 287, OCS Leasing Map, Texas Map No. 6, containing approximately
                5760 acres.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    
      	 	
              E.

            	 	
              Serial
                No.:

            	 	
              OCS-G
                25536

            
	 	 	 	
              Date:

            	 	
              October
                1, 2003

            
	 	 	 	
              Lessee:

            	 	
              Gryphon
                Exploration Company

            
	 	 	 	
              Land
                Covered:

            	 	
              Insofar
                only as to the E/2 NE/4 Galveston Area Block 298, OCS Leasing Map,
                Texas
                Map No. 6,

            
	 	 	 	 	 	
              containing
                approximately 720 acres.

            

    

    

    *Prospect
      Payout is defined in that certain Offshore Prospect Participation Agreement
      dated August 18, 1999, as amended December 30, 2004, between Capco Offshore,
      Inc., and Fidelity Exploration, et al.

     

    WELLS

    

    
      	
              Name

            	 	
              Working
                Interest

            	 	
              Net
                Revenue Interest

            
	
              GA
                297 #1

            	 	
              30.00%
                WI - BPO

            	 	
              30%
                x 5/6 NRI - BPO*

            
	 	 	
              25.50%
                WI - APO

            	 	
              25.5%
                x 5/6 NRI - APO*

            

    

    

    *Subject
      to and bearing its proportionate part of all existing overriding royalties,
      carried interests, and other burdens on production reflected of record or
      disclosed in that certain Offshore Prospect Participation Agreement dated
      December 30, 2004, Between Capco Offshore, Inc. and Fidelity Exploration
      Company, Inc., et al.

    

    SUBJECT
      TO THE FOLLOWING PRIOR AGREEMENT

    

    That
      certain Offshore Prospect Participation Agreement dated August 18, 1999, by
      and
      between Capco Offshore, Inc., Fidelity Exploration & Production Company,
      Reef Partners, L.L.C., and Blue Dolphin Exploration Company, as amended Dec.
      30,
      2004, covering all of Galveston Area Blocks 287, 297, and the E/2NE of Galveston
      Area Block 298.

    

    SUBJECT
      TO THE FOLLOWING BURDENS

    

    
      	 	
              1.

            	
              Overriding
                Royalty Interest in favor of Gryphon Exploration Company as set forth
                in
                that certain Letter Agreement dated October 1, 2004, by and between
                Fidelity Exploration & Production Company and Gryphon Exploration
                Company equal to 3.0% of 6/6th
                covering the NW/4 of Galveston Area Block 297 and the E/2NE of Galveston
                Area Block 298.

            

    

    

    
      	 	
              2.

            	
              After
                Prospect Payout Overriding Royalty Interest in favor of Blue Dolphin
                Petroleum Company as set forth in that certain Offshore Prospect
                Participation Agreement dated December 30, 2004, by and between Capco
                Offshore, Inc., Fidelity Exploration & Production Company, Reef
                Partners, L.L.C., and Blue Dolphin Exploration Company equal to 2.0%
                of
                6/6th
                covering all of Galveston Area Block 287, and 2.5% of 6/6ths covering
                all
                of Galveston Area Block 297.

            

    

    

    
      	 	
              3.

            	
              After
                Prospect Payout Reversionary Interest in favor of Fidelity Exploration
                & Production Company and Blue Dolphin Petroleum Company as set forth
                in that certain Offshore Prospect Participation Agreement dated December
                30, 2004, by and between Capco Offshore, Inc., Fidelity Exploration
&
                Production Company, Reef Partners, L.L.C., and Blue Dolphin Exploration
                Company equal to 7.50% of 6/6th
                each, covering all of Galveston Area Blocks 287, 297 and E/2NE of
                Galveston Area Block 298.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    D.
      CHANDELEUR INTERESTS

    

    Schedule
      of Wells

    

    
      	
              Well
                Name

            	 	
              API

            	 	
              Operator

            	 	
              Working
                Interest

            	 	
              Net
                Revenue Interest

            
	
              CA
                Blk. 30 #1 (Hustler)

            	 	
              1772840058

            	 	
              Capco

            	 	
              1.000

            	 	
              0.79833333

            
	
              CA
                Blk. 30 #3 (Seamaster)

            	 	
              1772840060

            	 	
              Capco

            	 	
              1.000

            	 	
              0.79833333

            
	
              CA
                Blk. 27 #2 (Fireball)

            	 	
              1772840062

            	 	
              Capco

            	 	
              1.000

            	 	
              0.77892924

            
	
              Biloxi
                Marsh LC #1-2

            	 	
              1708720315

            	 	
              MERIDIAN

            	 	
              0.145357

            	 	
              0.106111

            
	
              PXP
                SL 17656 #2 (Fiesta)

            	 	
              1708720327

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.328125

            
	
              PXP
                CA 30 #2 (Hustler West)

            	 	
              1772840059

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.3764583

            
	
              PXP
                SL 17812 #1 (Avenger)

            	 	
              1773020034

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.328125

            
	
              PXP
                SL 17389 #1 (Prowler)

            	 	
              1773020036

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            
	
              PXP
                SL 17388#1(Catalina)

            	 	
              1773020035

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            
	
              PXP
                SL 17387#1 (Skyraider Dp.)

            	 	
              1773020038

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            
	
              PXP
                SL 17390#1(Twin Otter)

            	 	
              1772720532

            	 	
              PXP

            	 	
              0.4375

            	 	
              0.338125

            

    

    

    Schedule
      of Leases

    

    LEASES

    

    
      	
              LESSOR

            	 	
              LESSEE

            	 	
              DATE

            	 	
              RECORDING
                INFO.

            
	
              USA-Mineral
                Management Service-

              OCS-G
                24002***

            	 	
              Manti
                Resources, Inc.

            	 	
              5/1/2002

            	 	
              N/A

            
	
              State
                of Louisiana - No. 17365

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 339/MLB 116,Folio 6, Entry 397916, St. Bernard Parish,
                LA

            
	
              USA-Mineral
                Management Service-

              OCS-G
                24001***

            	 	
              Manti
                Resources, Inc.

            	 	
              5/1/2002

            	 	
              N/A

            
	
              Mabel
                Isabel Molero Quatroy, et al *

            	 	
              Manti
                Resources, Inc.

            	 	
              5/9/2001

            	 	
              COB
                696, Folio 731/MLB 113, Entry #384834,

              St.
                Bernard Parish, LA

            
	
              LAC
                Real Estate Holdings, L.L.C.*

            	 	
              Louisiana
                Oil and Gas, Inc.

            	 	
              5/3/2001

            	 	
              COB
                696, Folio 724/MLB 113, Entry #384833, 

              St.
                Bernard Parish, LA

            
	
              Biloxi
                Marsh Lands Corporation*

            	 	
              White
                Mountain Royalty Corporation

            	 	
              10/26/2000

            	 	
              Memo-COB
                694,MLB 112,Entry 383297,St. Bernard Parish, LA

            
	
              State
                of Louisiana - No. 17656

            	 	
              WLB
                Investments, Inc.

            	 	
              11/18/2002

            	 	
              COB
                730, Folio 182/MLB 118, Folio 98, Entry #406251, St. Bernard Parish,
                LA,
                NA
                # 03-03420, Instrument # 251353, Orleans Parish, LA.

            
	
              State
                of Louisiana - No. 17812

            	 	
              Manti
                Jamba,Ltd.,et al

            	 	
              5/19/2003

            	 	
              COB
                738, Folio 793/MLB 121, Folio 54, Entry #413799,St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17389

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 387/MLB 116, Folio 10, Entry #397920,St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17388

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 375/MLB 116, Folio 9, Entry #397919,St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17387**

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio 363/MLB 116, Folio 8, Entry #397918,St. Bernard Parish,
                LA

            
	
              State
                of Louisiana - No. 17390

            	 	
              Kalar
                Corporation

            	 	
              3/18/2002

            	 	
              COB
                717, Folio, 399,/MLB 116, Folio 11, Entry #397921,St. Bernard Parish,
                LA

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    *
      =
      INSOFAR AND ONLY INSOFAR as said leases fall within the confines of unit tract
      numbers 1A and 1B within the CRIS 1 RA SUC, established by Office of
      Conservation Order No. 960-A-2, effective April 9, 2002, and approved by the
      Office of Conservation on November 4, 2003.

    

    **
      = LESS
      AND EXCEPT measured depths from the surface of the earth down to the
      stratigraphic equivalent of the bottom of the producing sand found between
      the
      depths of 4,926' and 5,018' in the Manti Operating Company State Lease No.
      17387
      No. 1 Well situated thereon.

    

    ***Subject
      to a 3.5% overriding royalty interest, in favor of J. Michael Poole, Sr.,
      pursuant to Article 4.01 in that certain Exploration Joint Venture Agreement
      between Manti Resources, Inc., and Sunbelt Energy, Ltd., et al, dated May 1,
      2001. 

    

    [*]
      SAVE
      AND EXCEPT that certain royalty interest purchased from Biloxi Marsh Lands
      Corporation in favor of Manti Operating Company, effective May 24, 2001,
      recorded in COB 696, MLB 113, Entry No. 384864, in the official records of
      St.
      Bernard Parish, Louisiana.

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    EXHIBIT
      “B”

    To
      Management Agreement between

    CAPCO
      OFFSHORE, INC. and HOACTZIN PARTNERS, L.P.

    

    OPERATING
      AGREEMENT

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    EXHIBIT
      “C”

    To
      Management Agreement between

    CAPCO
      OFFSHORE, INC. and HOACTZIN PARTNERS, L.P.

    

    WARRANT
      FOR ISSUANCE OF STOCK

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