Document:

exv10w1

 

Exhibit 10.1

PURCHASE AND SALE AGREEMENT

between

THE HOUSTON EXPLORATION COMPANY

as Seller

and

MERIT MANAGEMENT PARTNERS I, L.P., MERIT MANAGEMENT PARTNERS II,

L.P., MERIT MANAGEMENT PARTNERS III, L.P., MERIT ENERGY PARTNERS III,

L.P., MERIT ENERGY PARTNERS D-III, L.P., MERIT ENERGY PARTNERS E-III,

L.P. AND MERIT ENERGY PARTNERS F-III, L.P.

as Buyer

Dated

February 28, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE I DEFINITIONS AND INTERPRETATION	 	 	1	 
	1.1
	 	Defined Terms	 	 	1	 
	1.2
	 	References	 	 	12	 
	1.3
	 	Articles	 	 	12	 
	1.4
	 	Number and Gender	 	 	12	 
	 
	 	 	 	 	 	 
	ARTICLE II PURCHASE AND SALE	 	 	13	 
	2.1
	 	Purchase and Sale	 	 	13	 
	2.2
	 	Excluded Assets	 	 	14	 
	2.3
	 	Revenues and Expenses	 	 	14	 
	 
	 	 	 	 	 	 
	ARTICLE III PURCHASE PRICE	 	 	14	 
	3.1
	 	Purchase Price	 	 	14	 
	3.2
	 	Deposit	 	 	15	 
	3.3
	 	Adjustments to Purchase Price	 	 	15	 
	3.4
	 	Adjustment Methodology	 	 	17	 
	3.5
	 	Preliminary Settlement Statement	 	 	17	 
	3.6
	 	Final Settlement Statement	 	 	18	 
	3.7
	 	Disputes	 	 	18	 
	3.8
	 	Allocation of Purchase Price / Allocated Values	 	 	19	 
	3.9
	 	Interim Settle   Up	 	 	19	 
	 
	 	 	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER	 	 	19	 
	4.1
	 	Organization, Existence	 	 	19	 
	4.2
	 	Authorization	 	 	19	 
	4.3
	 	No Conflicts	 	 	20	 
	4.4
	 	Consents	 	 	20	 
	4.5
	 	Litigation	 	 	20	 
	4.6
	 	Material Contracts	 	 	20	 
	4.7
	 	No Violation of Laws	 	 	20	 
	4.8
	 	Insurance	 	 	20	 
	4.9
	 	Hurricane Damage	 	 	21	 
	4.10
	 	Wells	 	 	21	 
	4.11
	 	Preferential Rights	 	 	21	 
	4.12
	 	Royalties, Etc	 	 	21	 
	4.13
	 	Personal Property	 	 	21	 
	4.14
	 	Current Commitments	 	 	21	 
	4.15
	 	Environmental	 	 	21	 
	4.16
	 	Production Taxes	 	 	22	 
	4.17
	 	Brokers’ Fees	 	 	22	 
	4.18
	 	Accuracy of Data	 	 	22	 
	4.19
	 	Affiliated Contracts	 	 	22	 

i

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	4.20
	 	Sales Contracts	 	 	22	 
	4.21
	 	Hedging	 	 	23	 
	4.22
	 	Limitations	 	 	23	 
	 
	 	 	 	 	 	 
	ARTICLE V BUYER’S REPRESENTATIONS AND WARRANTIES	 	 	23	 
	5.1
	 	Organization; Existence	 	 	23	 
	5.2
	 	Authorization	 	 	23	 
	5.3
	 	No Conflicts	 	 	23	 
	5.4
	 	Consents	 	 	23	 
	5.5
	 	Bankruptcy	 	 	24	 
	5.6
	 	Litigation	 	 	24	 
	5.7
	 	Financing	 	 	24	 
	5.8
	 	Regulatory	 	 	24	 
	5.9
	 	Independent Evaluation	 	 	24	 
	5.10
	 	Brokers’ Fees	 	 	24	 
	5.11
	 	NORM, Wastes and Other Substances	 	 	24	 
	 
	 	 	 	 	 	 
	ARTICLE VI COVENANTS	 	 	25	 
	6.1
	 	Conduct of Business	 	 	25	 
	6.2
	 	HSR Act	 	 	26	 
	6.3
	 	Bonds, Letters of Credit and Guarantees	 	 	26	 
	6.4
	 	Cooperation with Seller Retained Litigation, Etc	 	 	26	 
	6.5
	 	Cooperation with Respect to Insurance Claims	 	 	26	 
	6.6
	 	Plugging, Abandonment, Decommissioning and Other Costs	 	 	27	 
	6.7
	 	Record Retention	 	 	27	 
	6.8
	 	Notifications	 	 	27	 
	 
	 	 	 	 	 	 
	ARTICLE VII BUYER’S CONDITIONS TO CLOSING	 	 	27	 
	7.1
	 	Representations	 	 	27	 
	7.2
	 	Performance	 	 	28	 
	7.3
	 	No Legal Proceedings	 	 	28	 
	7.4
	 	Title Defects and Environmental Defects	 	 	28	 
	7.5
	 	HSR Act	 	 	28	 
	 
	 	 	 	 	 	 
	ARTICLE VIII SELLER’S CONDITIONS TO CLOSING	 	 	28	 
	8.1
	 	Representations	 	 	28	 
	8.2
	 	Performance	 	 	28	 
	8.3
	 	No Legal Proceedings	 	 	28	 
	8.4
	 	Title Defects and Environmental Defects	 	 	29	 
	8.5
	 	HSR Act	 	 	29	 
	8.6
	 	Replacement Bonds, Letters of Credit and Guarantees	 	 	29	 
	8.7
	 	Insurance	 	 	29	 
	 
	 	 	 	 	 	 
	ARTICLE IX CLOSING	 	 	29	 
	9.1
	 	Date of Closing	 	 	29	 
	9.2
	 	Place of Closing	 	 	29	 
	9.3
	 	Closing Obligations	 	 	29	 

ii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	9.4
	 	Records	 	 	31	 
	 
	 	 	 	 	 	 
	ARTICLE X ACCESS/DISCLAIMERS	 	 	31	 
	10.1
	 	Access	 	 	31	 
	10.2
	 	Confidentiality	 	 	33	 
	10.3
	 	Disclaimers	 	 	33	 
	 
	 	 	 	 	 	 
	ARTICLE XI TITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS	 	 	34	 
	11.1
	 	Seller’s Title	 	 	34	 
	11.2
	 	Notice of Title Defects; Defect Adjustments	 	 	34	 
	11.3
	 	Casualty or Condemnation Loss	 	 	39	 
	11.4
	 	Preferential Purchase Rights and Consents to Assign	 	 	40	 
	 
	 	 	 	 	 	 
	ARTICLE XII ENVIRONMENTAL MATTERS	 	 	42	 
	12.1
	 	Environmental Defects	 	 	42	 
	12.2
	 	NORM, Wastes and Other Substances	 	 	42	 
	 
	 	 	 	 	 	 
	ARTICLE XIII ASSUMPTION; INDEMNIFICATION; SURVIVAL	 	 	45	 
	13.1
	 	Assumption of Obligations by Buyer	 	 	45	 
	13.2
	 	Indemnities of Seller	 	 	45	 
	13.3
	 	Indemnities of Buyer	 	 	46	 
	13.4
	 	Express Negligence	 	 	46	 
	13.5
	 	Indemnification Procedures	 	 	46	 
	13.6
	 	Survival	 	 	48	 
	13.7
	 	Non   Compensatory Damages	 	 	49	 
	13.8
	 	Disclaimer of Application of Anti   Indemnity Statutes	 	 	49	 
	13.9
	 	Buyer Credit Support	 	 	49	 
	 
	 	 	 	 	 	 
	ARTICLE XIV TERMINATION, DEFAULT AND REMEDIES	 	 	50	 
	14.1
	 	Right of Termination	 	 	50	 
	14.2
	 	Effect of Termination	 	 	50	 
	 
	 	 	 	 	 	 
	ARTICLE XV MISCELLANEOUS	 	 	50	 
	15.1
	 	Exhibits and Schedules	 	 	50	 
	15.2
	 	Expenses and Taxes	 	 	51	 
	15.3
	 	Assignment	 	 	51	 
	15.4
	 	Preparation of Agreement	 	 	52	 
	15.5
	 	Publicity	 	 	52	 
	15.6
	 	Notices	 	 	52	 
	15.7
	 	Removal of Name	 	 	53	 
	15.8
	 	Further Cooperation	 	 	53	 
	15.9
	 	Filings, Notices and Certain Governmental Approvals	 	 	53	 
	15.10
	 	Entire Agreement; Conflicts	 	 	53	 
	15.11
	 	Parties in Interest	 	 	54	 
	15.12
	 	Amendment	 	 	54	 
	15.13
	 	Waiver; Rights Cumulative	 	 	54	 
	15.14
	 	Governing Law; Jurisdiction, Venue; Jury Waiver	 	 	54	 

iii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	15.15
	 	Severability	 	 	54	 
	15.16
	 	Counterparts	 	 	55	 
	15.17
	 	Like   Kind Exchange	 	 	55	 
	15.18
	 	Certain Governmental Approvals	 	 	55	 
	15.19
	 	Adequacy of Supplemental Bonds or Arrangements for the Pledge of Securities	 	 	56	 
	15.20
	 	Special Offshore Interests	 	 	57	 

iv

 

EXHIBITS AND SCHEDULES

	 	 	 
	Exhibits
	 	 
	 
	 	 
	 
	 	 
	Exhibit A

	 	Well (WI/NRI), Encumbrances
	Exhibit B

	 	Form of Bill of Sale
	Exhibit C

	 	Form of Assignment of Record Title to Oil and Gas Lease
	Exhibit D

	 	Form of Assignment of Oil and Gas Lease Operating Rights
	Exhibit E

	 	Form of Assignment of Right of Way
	Exhibit F

	 	Form of Assignment of Contract Rights
	Exhibit G

	 	Form of Title Indemnity Agreement
	Exhibit H

	 	Form of Access Agreement
	 
	 	 
	Schedules
	 	 
	 
	 	 
	Schedule 1.1(j)

	 	Contested Mechanics’ or Similar Liens
	Schedule 1.1(k)

	 	Contested Liens Under Leases or Operating Agreements
	Schedule 2.1(i)

	 	Excluded Geologic Data
	Schedule 3.3

	 	Oil and Gas Imbalances
	Schedule 3.8

	 	Allocated Values
	Schedule 4.4

	 	Consents
	Schedule 4.5

	 	Litigation
	Schedule 4.6

	 	Material Contracts
	Schedule 4.7

	 	Violation of Laws
	Schedule 4.8

	 	Insurance
	Schedule 4.9

	 	Hurricane Damage
	Schedule 4.10

	 	Wells
	Schedule 4.11

	 	Preferential Rights
	Schedule 4.13

	 	Personal Property
	Schedule 4.14

	 	AFEs
	Schedule 4.15

	 	Environmental
	Schedule 4.16

	 	Production Taxes
	Schedule 4.20

	 	Sales Contracts
	Schedule 6.1

	 	Conduct of Business
	Schedule 13.1

	 	Retained Litigation

v

 

PURCHASE AND SALE AGREEMENT

     THIS PURCHASE AND SALE AGREEMENT (as may be amended, restated, supplemented or otherwise
modified from time to time, the “Agreement”) is executed this 28th day of February, 2006, between
The Houston Exploration Company, a Delaware corporation (“Seller”), and Merit Management Partners
I, L.P., Merit Management Partners II, L.P., Merit Management Partners III, L.P., Merit Energy
Partners III, L.P., Merit Energy Partners D-III, L.P., Merit Energy Partners E-III, L.P. and Merit
Energy Partners F-III, L.P., all Delaware limited partnerships (collectively, “Buyer”).

Recitals:

     Seller desires to sell and convey, and Buyer desires to purchase and pay for, the Assets (as
hereinafter defined) effective as of the Effective Time (as hereinafter defined).

     NOW, THEREFORE, for and in consideration of the mutual promises contained herein, the benefits
to be derived by each party hereunder, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

     1.1 Defined Terms. In addition to the terms defined in the introductory paragraph and
elsewhere in this Agreement, for purposes hereof, the following expressions and terms shall have
the meanings set forth in this Article I, unless the context otherwise requires:

     “Access Agreement” shall have the meaning set forth in Section 12.1(b)(iv).

     “Accounting Arbitrator” shall have the meaning set forth in Section 3.7.

     “Adjusted Purchase Price” shall have the meaning set forth in Section 3.3.

     “AFEs” shall have the meaning set forth in Section 4.14.

     “Affected Well” shall have the meaning set forth in Section 11.2(g)(v).

     “Affiliate” shall mean any Person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with, another Person. The
term “control” and its derivatives with respect to any Person means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or otherwise.

     “Aggregate Deductible” shall mean $4,000,000.

     “Agreement” shall have the meaning set forth in the first paragraph herein.

1

 

     “Allocated Value,” with respect to any Asset, means the amount set forth on Schedule
3.8 for such Asset.

     “Applicable Contracts” means all Contracts by which the Properties and other Assets are bound
or that primarily relate to the Properties or other Assets and (in each case) that will be binding
on the Assets or Buyer after the Closing, including, without limitation; farmin and farmout
agreements; bottomhole agreements; crude oil, condensate and natural gas purchase and sale,
gathering, transportation and marketing agreements; hydrocarbon storage agreements; acreage
contribution agreements; operating agreements; balancing agreements; pooling declarations or
agreements; unitization agreements; processing agreements; saltwater disposal agreements;
facilities or equipment leases; crossing agreements; letters of no objection; platform use
agreements; production handling agreements; and other similar contracts and agreements, of Seller
and primarily related to the Properties or other Assets, but exclusive of any master service
agreements.

     “Assets” shall have the meaning set forth in Section 2.1.

     “Assignments” means the Assignments of Record Title to Oil and Gas Lease(s), substantially in
the form attached as Exhibit C, the Assignments of Oil and Gas Lease(s) Operating Rights,
substantially in the form attached as Exhibit D, the Assignments of Rights of Way,
substantially in the form attached as Exhibit E and assignments of Seller’s rights,
obligations and interests in all contracts and agreements transferred to Buyer in this transaction,
including the operating agreements and other contracts described on Exhibit A,
substantially in the form of Exhibit F.

     “Assumed Obligations” shall have the meaning set forth in Section 13.1.

     “Buyer” shall have the meaning set forth in the first paragraph of this Agreement.

     “Buyer Indemnified Parties” shall have the meaning set forth in Section 13.2.

     “Buyer’s Representatives” shall have the meaning set forth in Section 10.1(a).

     “Claim” shall have the meaning set forth in Section 13.5(c).

     “Claim Notice” shall have the meaning set forth in Section 13.5(c).

     “Closing” shall have the meaning set forth in Section 9.1.

     “Closing Date” shall have the meaning set forth in Section 9.1.

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

     “Confidentiality Agreement” shall mean that certain Confidentiality Agreement between Merit
Energy Company and Wachovia Securities dated December 7, 2005.

     “Contract” means any written contract, agreement, lease, license or other legally binding
arrangement of Seller insofar only as same relates or pertains to the Assets, excluding, however,

2

 

any (a) Lease, easement, right-of-way, permit or other instrument creating or evidencing an
interest in the Assets or a real or immovable property related to or used in connection with the
operations of any Assets and (b) master service agreement.

     “Cure Period” shall have the meaning set forth in Section 11.2(c).

     “Customary Post-Closing Consents” shall mean the consents and approvals for the assignment of
the Assets to Buyer that are customarily obtained after the assignment of properties similar to the
Assets.

     “Defective Support Property” shall have the meaning set forth in Section 11.2(g)(v).

     “Defensible Title” shall mean such title of Seller with respect to the Assets that:

     (i) with respect to each Well (or the specified zone(s) therein) shown in Exhibit
A, entitles Seller as of the Effective Time to receive the Net Revenue Interest shown in
Exhibit A for such Well (or the specified zone(s) therein) throughout the duration
of the productive life of such Well (or the specified zone(s) therein), except for (A)
decreases in connection with those operations in which Seller may be a non-consenting
co-owner to the extent identified on Exhibit A, (B) decreases resulting from the
establishment or amendment of pools or units, (C) decreases required to allow other working
interest owners to make up past underproduction or pipelines to make up past under
deliveries (which are covered in Section 3.3), and (D) as otherwise stated in
Exhibit A;

     (ii) with respect to each Well (or the specified zone(s) therein) shown in Exhibit
A, obligates Seller as of the Effective Time to bear the Working Interest shown in
Exhibit A for such Well (or the specified zone(s) therein) not greater than the
Working Interest shown in Exhibit A for such Well (or the specified zone(s) therein)
without increase throughout the productive life of such Well (or the specified zone(s)
therein), except (A) increases resulting from contribution requirements with respect to
defaulting co-owners under applicable operating agreements or applicable Law, (B) increases
to the extent that they are accompanied by a proportionate increase in Seller’s Net Revenue
Interest and (C) as otherwise stated in Exhibit A; and

     (iii) is free and clear of all Encumbrances, other than Permitted Encumbrances.

     “Deposit” shall have the meaning set forth in Section 3.2.

     “Dispute Notice” shall have the meaning set forth in Section 3.6.

     “DOJ” shall mean the Department of Justice.

     “Effective Time” shall mean 7:00 a.m. (Central Standard Time) on January 1, 2006.

     “Encumbrance” shall mean any lien, security interest, pledge, charge or encumbrance.

     “Environmental Arbitrator” shall have the meaning set forth in Section 12.1(e).

3

 

     “Environmental Claim Date” shall have the meaning set forth in Section 12.1(a).

     “Environmental Condition” shall mean (a) a condition existing on the date of this Agreement
with respect to the air, soil, subsurface, surface waters, ground waters and/or sediments that
causes an Asset (or Seller with respect to an Asset) not to be in compliance with any Environmental
Law or (b) the existence as of the date of this Agreement with respect to the Assets or their
operation of any environmental pollution or contamination caused by or related to any Asset for
which remedial or corrective action is presently required (or if known, would be presently
required) under Environmental Laws.

     “Environmental Defect Notice” shall have the meaning set forth in Section 12.1(a).

     “Environmental Laws” means all applicable Laws in effect as of the date of this Agreement
relating to the protection of the environment, including, without limitation, those laws relating
to the storage, handling, generation, processing, treatment, storage, transportation, disposal or
other management of Hazardous Substances.

     “Excluded Assets” shall mean all assets of Seller and its Subsidiaries other than the Assets
expressly set forth in Section 2.1 hereof. Excluded Assets shall include, without
limitation, (a) all of Seller’s corporate minute books, financial records and other business
records that relate to Seller’s business generally (including the ownership and operation of the
Assets); (b) all trade credits, all accounts, receivables and all other proceeds, income or
revenues attributable to the Assets with respect to any period of time prior to the Effective Time
to the extent they arise by the first anniversary of the Closing Date; it being understood that
following such anniversary, they shall be the property of Buyer; (c) all claims and causes of
action of Seller arising under or with respect to any Contracts that are attributable to periods of
time prior to the Effective Time to the extent they arise by the first anniversary of the Closing
Date, except that any claims or causes of action for indemnification, contribution, breach of
contract or duty or similar rights shall continue to be Excluded Assets during the period for which
Seller is responsible for the related liabilities in the definition of Excluded Liabilities; it
being understood that following such time, they shall be the property of Buyer; (d) all rights and
interests of Seller (A) under any agreement of indemnity, (B) under any bond or (C) to any
insurance or condemnation proceeds or awards (except with respect to damage from Hurricane Rita and
Katrina as set forth in Section 2.1(d)) arising, in each case, from acts, omissions or
events or damage to or destruction of property with respect to all periods prior to the Effective
Time; (e) all Hydrocarbons produced and sold from the Properties with respect to all periods prior
to the Effective Time; (f) all claims of Seller for refunds of or loss carry forwards with respect
to (A) production or any other taxes attributable to any period prior to the Effective Time, (B)
income or franchise taxes or (C) any taxes attributable to the Excluded Assets; (g) all personal
computers and associated peripherals and all radio and telephone equipment; (h) all of Seller’s
proprietary and other computer software, patents, trade secrets, copyrights, names, trademarks,
logos and other intellectual property; (i) all documents and instruments of Seller that may be
protected by an attorney-client privilege; (j) all data that cannot be disclosed to Buyer as a
result of confidentiality arrangements under agreements with Third Parties; (k) all audit rights as
to Third Parties arising (A) under any of the Applicable Contracts or otherwise with respect to any
period prior to the Effective Time to the extent they arise by the first anniversary of the Closing
Date; it being understood that following such anniversary, they shall be the property of Buyer or
(B) with

4

 

respect to any of the Excluded Assets; (l) all Seismic Data (except to the extent that it
becomes Geologic Data); (m) documents prepared or received by Seller with respect to (A) lists of
prospective purchasers of the Assets compiled by Seller or its representatives or advisors, (B)
bids submitted by other prospective purchasers of the Assets, (C) analyses by Seller of any bids
submitted by any prospective purchaser, (D) correspondence between or among Seller, its respective
representatives and any prospective purchaser other than Buyer and (E) correspondence between
Seller or any of its respective representatives with respect to any of the bids, the prospective
purchasers or the transactions contemplated by this Agreement or any similar agreement; and (n) any
offices, office leases or personal property located on such sites that are not directly related to
any one or more of the Assets.

Seller and Buyer recognize that the Excluded Assets may include automation equipment or telemetry
equipment that is critical to the operation of some of the Assets. Seller and Buyer recognize that
it is not the intent hereof to damage the value of any Asset through the exclusion of such
equipment and in the event of the existence of essential equipment, the parties will enter into an
agreement that will preserve the value of such Assets.

     “Excluded Liabilities” shall mean all obligations and liabilities of Seller to the extent they
are:

     (i) Operating Expenses attributable to or arising out of the ownership, use or
operation of the Assets (except insofar as they are attributable or related to Environmental
Conditions) prior to the Effective Time (it being agreed that such obligations or
liabilities which are of a continuous or ongoing nature and extend over the Effective Time
shall be apportioned between Seller and Buyer on the basis of the respective obligations or
liabilities suffered before or after the Effective Time) to the extent they arise by the
first anniversary of the Closing Date;

     (ii) attributable to or arise out of the off-site disposal of Hazardous Substances
prior to the Effective Time to the extent they arise by the first anniversary of the Closing
Date;

     (iii) attributable to bodily injury and death, personal injury, illness, disease,
maintenance, cure, wrongful death, loss of support arising prior to the Effective Time
(whether arising out of environmental matters or otherwise) to the extent they arise by the
second anniversary of the Closing Date;

     (iv) attributable to or arise out of the ownership, use or operation of the Excluded
Assets by Seller or an Affiliate of Seller;

     (v) attributable to or arise out of the actions, suits or proceedings, if any, set
forth on Schedule 13.1, except insofar as they are attributable or relate to the
Assets for periods after the Effective Time;

     (vi) Third Party Claims for payment of any rentals, royalties, minimum royalty, excess
royalty, overriding royalty interests, production payments, and other payments due and/or
payable by Seller to mineral and royalty holders and other interest owners prior to the
Effective Time under or with respect to the Assets and the

5

 

Hydrocarbons produced therefrom or attributable thereto to the extent they arise by the
first anniversary of the Closing Date, except for any loss of title, Title Defect or other
title defect attributable to any failure to properly or timely make any such payment; and

     (vii) resulting from Third Party joint interest billing audits to the extent related to
time periods prior to the Effective Time and to the extent they arise by the first
anniversary of the Closing Date.

     “Final Price” shall have the meaning set forth in Section 3.6.

     “Final Settlement Statement” shall have the meaning set forth in Section 3.6.

     “FTC” shall mean the Federal Trade Commission.

     “GAAP” means United States generally accepted accounting principles, consistently applied.

     “Geologic Data” means all (i) seismic, geological, geochemical or geophysical data (including
cores and other physical samples of materials from wells or tests) belonging to Seller or licensed
from third parties relating to the Properties that can be transferred without additional
consideration to such third parties (or including such licensed data in the event Buyer agrees to
pay such additional consideration), and (ii) interpretations of seismic, geological, geochemical or
geophysical data belonging to Seller or licensed from third parties that can be transferred without
additional consideration to such third parties (or including such licensed data in the event Buyer
agrees to pay such additional consideration).

     “Governmental Authority” shall mean any federal, state, local, municipal or other government;
any governmental, regulatory or administrative agency, commission, body or other authority
exercising or entitled to exercise any administrative, executive, judicial, legislative, regulatory
or taxing authority or power; and any court or governmental tribunal having or asserting
jurisdiction.

     “Hazardous Substances” shall mean any substance defined or regulated as a “hazardous
substance” or “hazardous waste” under any Environmental Laws.

     “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder.

     “Hydrocarbons” means oil and gas and other hydrocarbons produced or processed in association
therewith.

     “Imbalance” means (i) any imbalance at the wellhead between the amount of Hydrocarbons
produced from a Well and allocable to the interests of Seller therein and the shares of production
from the relevant Well to which Seller is entitled and (ii) any marketing imbalance between the
quantity of Hydrocarbons required to be delivered by Seller under any Contract relating to the
purchase and sale, gathering, transportation, storage, processing or marketing of Hydrocarbons and
the quantity of Hydrocarbons actually delivered by Seller pursuant to the relevant Contract,
together with any appurtenant rights and obligations concerning future in-kind

6

 

and/or cash balancing at the wellhead and production balancing at the delivery point into the
relevant sale, gathering, transportation, storage or processing facility.

     “Indemnified Party” shall have the meaning set forth in Section 13.5(a).

     “Indemnifying Party” shall have the meaning set forth in Section 13.5(a).

     “Individual Environmental Threshold” shall have the meaning set forth in Section
12.1(d).

     “Individual Title Benefit Threshold” shall have the meaning set forth in Section
11.2(i).

     “Individual Title Defect Threshold” shall have the meaning set forth in Section
11.2(i).

     “Interim Period” shall mean that period of time commencing with the Effective Time and ending
at 7:00 a.m. (Central Standard Time) on the Closing Date.

     “Knowledge” shall mean with respect to Seller, the actual knowledge (without investigation) of
Seller’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, General Manager
— Offshore, Corporate Counsel and Offshore Operations Manager.

     “Lands” shall have the meaning set forth in Section 2.1(a).

     “Law” shall mean any applicable statute, law, rule, regulation, ordinance, order, code,
ruling, writ, injunction, or decree of or by any Governmental Authority.

     “Leases” shall have the meaning set forth in Section 2.1(a).

     “Liabilities” shall mean any and all claims, causes of actions, payments, charges, judgments,
assessments, liabilities, losses, damages, penalties, fines or costs and expenses, including any
attorneys’ fees, legal or other expenses incurred in connection therewith and including
liabilities, costs, losses and damages for personal injury or death or property damage.

     “Material Adverse Effect” shall mean an event, condition or circumstance that, individually or
in the aggregate, results in a material adverse effect on the ownership, operations or value of the
Assets, taken as a whole and as currently operated as of the date of this Agreement, or a material
adverse effect on the ability of Seller to consummate the transactions contemplated by this
Agreement; provided, however, that none of the following shall constitute a Material Adverse
Effect: (i) any effect resulting from entering into or taking any actions required by this
Agreement or the announcement of the transactions contemplated by this Agreement; (ii) any effect
resulting from changes in general market, economic, financial or political conditions in the area
in which the Assets are located, the United States or worldwide, any disruptions of the capital
markets, any acts of God, any outbreak of hostilities or war or any acts of terrorism, (iii) any
effect resulting from a change in Laws from and after the date of this Agreement; (iv) any
reclassification or recalculation of reserves in the ordinary course of business; (v) any changes
in the prices of Hydrocarbons or other changes affecting the oil and gas industry generally; (vi)
any results of Seller’s drilling activities after the date of this Agreement or declines in well
performance in the absence of gross negligence or willful

7

 

misconduct on the part of Seller; (vii) any effect resulting from actions taken by Buyer or
its Affiliates; (viii) any effect resulting from a change in accounting requirements or principles
imposed on the Seller, its business or the Assets by GAAP implemented after the date of this
Agreement; and (ix) any effect resulting from any delay in third party transportation or processing
due to hurricanes or related repairs.

     “Material Contracts” shall have the meaning set forth in Section 4.6.

     “MMS” shall mean the Minerals Management Service.

     “Net Revenue Interest,” with respect to any Well, means the interest in and to all
Hydrocarbons produced, saved and sold from or allocated to such Well, after giving effect to all
royalties, overriding royalties, production payments, carried interests, net profits interests,
reversionary interests and other burdens upon, measured by or payable out of production therefrom.

     “NORM” shall mean naturally occurring radioactive material.

     “OPA” means the Oil Pollution Act of 1990, as amended.

     “Operating Expenses” shall have the meaning set forth in Section 2.3.

     “P & A Obligations” shall have the meaning set forth in Section 6.6.

     “Permitted Encumbrances” shall mean:

     (a) lessor’s royalties, non-participating royalties, overriding royalties, reversionary
interests and similar burdens upon, measured by or payable out of production if the net
cumulative effect of such burdens does not operate to reduce the Net Revenue Interest of
Seller in any Well (or the specified zone(s) therein) to an amount less than the Net Revenue
Interest set forth on Exhibit A for such Well (or the specified zone(s) therein) and
do not obligate Seller to bear a Working Interest for such Well (or the specified zone(s)
therein) in any amount greater than the Working Interest set forth on Exhibit A for
such Well (or the specified zone(s) therein) (unless the Net Revenue Interest for such Asset
is greater than the Net Revenue Interest set forth on Exhibit A in the same
proportion as any increase in such Working Interest);

     (b) preferential rights to purchase set forth on Schedule 4.11 and required
third party consents to assignments and similar agreements;

     (c) liens for taxes or assessments not yet due or delinquent or, if delinquent, that
are being contested in good faith in the normal course of business;

     (d) Customary Post-Closing Consents;

     (e) conventional rights of reassignment;

     (f) such Title Defects as Buyer may have waived expressly in writing;

8

 

     (g) all applicable Laws and rights reserved to or vested in any Governmental Authority
(i) to control or regulate any Asset in any manner; (ii) by the terms of any right, power,
franchise, grant, license or permit or by any provision of Law, to terminate such right,
power, franchise grant, license or permit or to purchase, condemn, expropriate or recapture
or to designate a purchaser of any of the Assets; (iii) to use such property in a manner
which does not materially impair the use of such property for the purposes for which it is
currently owned and operated and (iv) to enforce any obligations or duties affecting the
Assets to any Governmental Authority, with respect to any franchise, grant, license or
permit;

     (h) rights of a common owner of any interest in rights-of-way or easements currently
held by Seller and such common owner as tenants in common or through common ownership;

     (i) easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way
and other rights in the Assets for the purpose of pipelines, transportation lines,
distribution lines and other like purposes or for the joint or common use of, rights-of-way,
facilities and equipment which do not materially impair the value of the Assets or the use
of the Assets as currently owned and operated;

     (j) vendors, carriers, warehousemen’s, repairmen’s, mechanics, workmen’s,
materialmen’s, construction or other like liens arising by operation of Law in the ordinary
course of business or incident to the construction or improvement of any property in respect
of obligations which are not yet due, or which are being contested in good faith by
appropriate proceedings by or on behalf of Seller as identified on Schedule 1.1(j);

     (k) liens created under leases and/or operating agreements or by operation of Law in
respect of obligations that are not yet due, or that are being contested in good faith by
appropriate proceedings by or on behalf of Seller as identified on Schedule 1.1(k);

     (l) any encumbrance affecting the Assets which is expressly assumed, bonded or paid by
Buyer at or prior to Closing or which is discharged by Seller at or prior to Closing;

     (m) any matters referenced on Exhibit A;

     (n) the terms and conditions of the Leases and all Material Contracts that do not
reduce the Net Revenue Interest of Seller in any Well (or the specified zone(s) therein) to
an amount less than the Net Revenue Interest set forth on Exhibit A for such Well
(or the specified zone(s) therein) and do not obligate Seller to bear a Working Interest for
such Well (or the specified zone(s) therein) in any amount greater than the Working Interest
set forth on Exhibit A for such Well (unless the Net Revenue Interest for such Asset
is greater than the Net Revenue Interest set forth on Exhibit A in the same
proportion as any increase in such Working Interest); and

     (o) all other instruments, obligations, defects and irregularities affecting the Assets
that do not reduce the Net Revenue Interest of Seller in any Well (or the specified zone(s)
therein) to an amount less than the Net Revenue Interest set forth on Exhibit A

9

 

for such Well (or the specified zone(s) therein) and do not obligate Seller to bear a
Working Interest for such Well (or the specified zone(s) therein) in any amount greater than
the Working Interest set forth on Exhibit A for such Well (unless the Net Revenue
Interest for such Asset is greater than the Net Revenue Interest set forth on Exhibit
A in the same proportion as any increase in such Working Interest).

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

     “Personal Property” shall have the meaning set forth in Section 2.1(g).

     “Preference Notices” shall have the meaning set forth in Section 11.4(b).

     “Preference Right Assets” shall have the meaning set forth in Section 11.4(d).

     “Preference Rights” shall have the meaning set forth in Section 11.4(a).

     “Preliminary Settlement Statement” shall have the meaning set forth in Section 3.5.

     “Property” or “Properties” shall have the meaning set forth in Section 2.1(b).

     “Purchase Price” shall have the meaning set forth in Section 3.1.

     “Qualified Buyer” shall mean any Buyer that, in Seller’s sole discretion, is financially
capable of satisfying the Assumed Obligations.

     “Qualified Parent Guarantor” shall mean any Parent Guarantor that, in Seller’s sole
discretion, is financially capable of satisfying the Assumed Obligations.

     “Records” shall have the meaning set forth in Section 2.1(i).

     “Remediation” shall mean, with respect to an Environmental Condition, the implementation and
completion of any remedial, removal, response, construction, closure, disposal or other corrective
actions required under Environmental Laws to correct or remove such Environmental Condition.

     “Remediation Amount” shall mean, with respect to an Environmental Condition, the present value
as of the Closing Date (using an annual discount rate of ten percent) of the cost (net to Seller’s
interest)) of the most cost effective Remediation of such Environmental Condition to a regulatory
standard equal to but no more stringent than as required for land use of the Asset as of the
Closing Date.

     “Seismic Data” means all seismic, geological or geophysical data owned by Third Parties that
Seller does not have the right to transfer (or that Seller can only transfer upon payment of
additional consideration to such Third Parties).

     “Seller” shall have the meaning set forth in the first paragraph of this Agreement.

10

 

     “Seller Indemnified Parties” shall have the meaning set forth in Section 13.3(a).

     “Third Party” shall mean any Person other than a party to this Agreement or an Affiliate of a
party to this Agreement.

     “Title Arbitrator” shall have the meaning set forth in Section 11.2(j).

     “Title Benefit” shall mean any right, circumstance or condition that operates (i) to increase
the Net Revenue Interest of Seller in any Well (or the specified zone(s) therein) above that shown
for such Well in Exhibit A, to the extent the same does not cause a greater than
proportionate increase in Seller’s Working Interest therein above that shown in Exhibit A,
or (ii) to decrease the Working Interest of Seller in any Well (or the specified zone(s) therein)
below that shown for such Well (or the specified zone(s) therein) in Exhibit A, to the
extent the same causes a decrease in Seller’s Working Interest that is proportionately greater than
the decrease in Seller’s Net Revenue Interest therein below that shown in Exhibit A.

     “Title Benefit Amount” shall have the meaning set forth in Section 11.2(e).

     “Title Benefit Notice” shall have the meaning set forth in Section 11.2(b).

     “Title Claim Date” shall have the meaning set forth in Section 11.2(a).

     “Title Defect” means any Encumbrance, defect or other matter that causes Seller not to have
Defensible Title in and to the Assets as of the Effective Time; provided that the following shall
not be considered Title Defects:

     (i) defects in the chain of title consisting of the failure to recite marital status in
a document or omissions of successions of heirship or estate proceedings, unless Buyer
provides affirmative evidence that such failure or omission has resulted in another Person’s
superior claim of title to the relevant Asset;

     (ii) defects arising out of lack of survey, unless a survey is expressly required by
applicable Laws;

     (iii) defects arising out of lack of evidence of record of corporate or other entity
authorization unless Buyer provides affirmative evidence that such corporate or other
entity action was not authorized and results in another Person’s superior claim of title to
the relevant Asset;

     (iv) defects that have been cured by applicable Laws of limitations or prescription;

     (v) the exercise by a Third Party prior to the Closing of a preferential purchase
right, which is addressed solely in Section 11.3(b); or

     (vi) the failure or refusal of a Third Party to consent on or before the Closing Date
to the assignment of an Asset to Buyer, which is addressed solely in Section
11.4(e).

11

 

     “Title Defect Amount” shall have the meaning set forth in Section 11.2(d)(i) of this
Agreement.

     “Title Defect Notice” shall have the meaning set forth in Section 11.2(a).

     “Title Defect Property” shall have the meaning set forth in Section 11.2(a).

     “Title Indemnity Agreement” shall have the meaning set forth in Section 11.2(d)(ii).

     “Transaction Documents” means those documents executed pursuant to or in connection with this
Agreement.

     “Treasury Regulations” means the regulations promulgated by the United States Department of
the Treasury pursuant to and in respect of provisions of the Code. All references herein to
sections of the Treasury Regulations shall include any corresponding provision or provisions of
succeeding, similar, substitute, proposed or final Treasury Regulations.

     “Wachovia” means Wachovia Capital Markets, LLC.

     “Wells” shall have the meaning set forth in Section 2.1(b).

     “Working Interest,” with respect to any Well, means the interest in and to such Well that is
burdened with the obligation to bear and pay costs and expenses of maintenance, development and
operations on or in connection with such Well, but without regard to the effect of any royalties,
overriding royalties, production payments, net profits interests and other similar burdens upon,
measured by or payable out of production therefrom.

     1.2 References. The words “hereby,” “herein,” “hereinabove,” “hereinafter,” “hereinbelow,”
“hereof,” “hereto,” “hereunder,” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular article, section or provision of this
Agreement. References in this Agreement to articles, sections, exhibits or schedules are to such
articles, sections, exhibits or schedules of this Agreement unless otherwise specified.

     1.3 Articles. This Agreement, for convenience only, has been divided into articles. The
rights and other legal relations of the parties hereto shall be determined from this Agreement as
an entirety and without regard to the aforesaid division into articles and sections and without
regard to headings prefixed to such articles.

     1.4 Number and Gender. Whenever the context requires, reference herein made to a single
number shall be understood to include the plural; and likewise, the plural shall be understood to
include the singular. Words denoting sex shall be construed to include the masculine, feminine and
neuter, when such construction is appropriate; and specific enumeration shall not exclude the
general but shall be
construed as cumulative. Definitions of terms defined in the singular or plural shall be equally
applicable to the plural or singular, as applicable, unless otherwise indicated.

12

 

ARTICLE II

PURCHASE AND SALE

     2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, Seller
agrees to sell and assign and Buyer agrees to purchase and pay for, all of Seller’s right, title
and interest in and to the following (less and except for the Excluded Assets) (collectively, the
“Assets)”:

     (a) the oil and gas leases more particularly described in Exhibit A, subject to
any depth restrictions described in Exhibit A, (collectively, the “Leases”),
together with any and all other rights, titles and interests of Seller in and to (i) the
leasehold estates created thereby, subject to any depth restrictions described in
Exhibit A, and to the terms, conditions, covenants and obligations set forth in the
Leases and/or Exhibit A, and (ii) the lands covered by the Leases or included in
units with which the Leases may have been pooled or unitized, subject to any depth
restrictions described in Exhibit A (the “Lands”), including in each case, without
limitation, royalty interests, overriding royalty interests, production payments, net
profits interests, carried interests, reversionary interests and all other interests of any
kind or character;

     (b) all oil and gas wells located on the Leases and the Lands or on other leases or
lands with which the Leases and/or the Lands may have been pooled or unitized, including
those specified on Exhibit A (collectively, the “Wells”) and all Hydrocarbons
produced therefrom or allocated thereto from and after the Effective Time (the Leases, the
Lands, and the Wells being collectively referred to hereinafter as the “Properties”);

     (c) all rights and interests in, under or derived from all unitization and pooling
agreements in effect with respect to the Properties and the units created thereby which
accrue or are attributable to the interests of Seller in the Properties;

     (d) all rights and interests in or to insurance claims, proceeds or unpaid awards with
respect to damage to the Assets from Hurricane Rita and Katrina, including those set forth
on Schedule 4.9 hereto;

     (e) to the extent that they may be assigned, all Applicable Contracts;

     (f) to the extent that they may be assigned, all permits, licenses, servitudes,
easements and rights-of-way to the extent used primarily in connection with the ownership or
operation of the Properties or the Personal Property (as hereinafter defined);

     (g) all equipment, machinery, fixtures and other real, moveable and non-moveable
personal and mixed property located on the Properties or the other Assets described above as
of the Effective Time, including, without limitation, well equipment, casing, rods, tanks,
boilers, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines,
pipelines, gathering systems, processing and separation facilities,
platforms, structures, materials and other items used primarily in the operation
thereof (“Personal Property”);

     (h) all Imbalances relating to the Properties or other Assets;

13

 

     (i) except as set forth on Schedule 2.1(i) hereto, the Geologic Data to the
extent relating primarily to the Properties; and

     (j) all of the rights, titles and interests of Seller in and to all of the original (or
copies if originals are not available) files, records, information and data, whether written
or electronically stored, primarily relating to the Assets (the “Records”), including,
without limitation: (i) land and title records (including abstracts of title, title
opinions and title curative documents); (ii) contract files; (iii) correspondence; (iv)
operations, engineering, geological, environmental, production and accounting records and
(v) facility, field and well records but excluding any of the foregoing items that are
Excluded Assets.

     2.2 Excluded Assets. Seller shall reserve and retain all of the Excluded Assets.

     2.3 Revenues and Expenses. Subject to the provisions hereof, Seller shall remain entitled
to all of the rights of ownership (including, without limitation, the right to all production,
proceeds of production and other proceeds including overhead payments received from Third Parties,
amounts for the handling, processing and transportation of Hydrocarbons and amounts for platform
space for or by Third Parties), subject to any applicable time periods set forth in the definition
of “Excluded Assets,” and shall remain responsible for all Operating Expenses, in each case
attributable to the Assets for the period of time prior to the Effective Time, subject to any
applicable time periods set forth in the definition of “Excluded Liabilities.” Subject to the
provisions hereof and subject to the occurrence of the Closing, Buyer shall be entitled to all of
the rights of ownership (including, without limitation, the right to all production, proceeds of
production and other proceeds including overhead payments received from Third Parties, amounts for
the handling, processing and transportation of Hydrocarbons and amounts for platform space for or
by Third Parties) and shall be responsible for all Operating Expenses, in each case, attributable
to the Assets for the period of time from and after the Effective Time, and, to the extent they
arise after the first anniversary of the Closing Date, the period of time prior to the Effective
Time. All Operating Expenses attributable to the Assets, in each case that are: (i) actually
incurred with respect to operations conducted or production prior to the Effective Time shall be
paid by or allocated to Seller and (ii) incurred with respect to operations conducted or production
after the Effective Time shall be paid by or allocated to Buyer. “Operating Expenses” means all
operating expenses (including without limiting the foregoing in any respect, rentals, costs of
insurance and ad valorem, property, severance, production and similar taxes based upon or measured
by the ownership or operation of the Assets or the production of Hydrocarbons therefrom, but
excluding any other taxes) and capital expenditures incurred in the ownership and operation of the
Assets
and, where applicable, in accordance with any relevant operating or unit agreement and overhead
costs charged to the Assets under any relevant operating agreement or unit agreement.

ARTICLE III

PURCHASE PRICE

     3.1 Purchase Price. The purchase price for the Assets shall be $220,000,033 (the “Purchase
Price”), payable in United States currency by wire transfer in same day funds as and when provided
in this Agreement.

14

 

     3.2 Deposit. Upon execution of this Agreement, Buyer shall deposit by wire transfer in
same day funds into escrow with Seller the sum of $11,000,000, representing 5% of the Purchase
Price (the “Deposit”). The Deposit shall be applied toward the Purchase Price at the Closing.

     (a) If (i) all conditions precedent to the obligations of Buyer set forth in
Article VII have been met and (ii) the transactions contemplated by this Agreement
are not consummated on or before the Closing Date because of: (A) the failure of Buyer to
materially perform any of its obligations hereunder, (B) the failure of any of Buyer’s
representations or warranties hereunder to be true and correct in all material respects as
of the Closing, then, in such event, Seller shall have the right to terminate this Agreement
and retain the Deposit.

     (b) If this Agreement is terminated by the mutual written agreement of Buyer and
Seller, or if the Closing does not occur on or before the Closing Date for any reason other
than as set forth in Section 3.2(a), then Buyer shall be entitled to the prompt
return of the Deposit, free of any claims by Seller with respect thereto. Buyer and Seller
shall thereupon have the rights and obligations set forth in Section 14.2.

     3.3 Adjustments to Purchase Price. The Purchase Price shall be adjusted as follows, and
the resulting amount shall be herein called the “Adjusted Purchase Price”:

     (a) The Purchase Price shall be adjusted upward by the following amounts (without
duplication):

     (i) an amount equal to all Operating Expenses and other costs and expenses
incurred by Seller that are attributable to the Assets after the Effective Time,
whether incurred before or after the Effective Time, including, without limitation,
a fixed rate overhead of $200,000 per month;

     (ii) the amount of all prepaid expenses attributable to the Assets that are
incurred by or on behalf of Seller prior to the Closing Date and that are, in
accordance with GAAP, attributable to the period after the Effective Time,
including without limitation, (A) bond and insurance premiums incurred by or on
behalf of Seller during the Interim Period, (B) royalties or other burdens upon,
measured by or payable out of proceeds of production, (C) rentals and other lease
maintenance payments, (D) ad valorem, property, severance and production taxes and
any other taxes (exclusive of income taxes and the Texas Franchise Tax) based upon
or measured by the ownership of the Assets, the production of Hydrocarbons or the
receipt of proceeds therefrom, and (E) prepayments of Operating Expenses made by or
on behalf of Seller to operators of Properties not operated by Seller pursuant to
cash calls or otherwise;

     (iii) to the extent that Seller is underproduced as of the Effective Date in an
aggregate amount greater (or overproduced in a lesser amount) than the net
Imbalances for gas set forth in Schedule 3.3, as complete and final
settlement of all Imbalances, an amount based on a rate mutually agreeable to Buyer
and Seller;

15

 

     (iv) to the extent that Seller is underproduced as of the Effective Date in an
aggregate amount greater (or overproduced in a lesser amount) than the net
Imbalances for oil set forth in Schedule 3.3, as complete and final
settlement of all Imbalances, an amount based on a rate mutually agreeable to Buyer
and Seller;

     (v) the amount incurred by Seller prior to the Effective Time for repair of
hurricane damage to the Assets, as set forth on Schedule 4.9 hereto;

     (vi) Title Benefit Amounts as a result of any Title Benefits for which the
Title Benefit Amount has been determined prior to the date of the Final Settlement
Statement;

     (vii) without duplication of any other amounts set forth in this Section
3.3(a), the amount of all taxes prorated to Buyer but paid by Seller in
accordance with Section 15.2; and

     (viii) any other amount provided for elsewhere in this Agreement or otherwise
agreed upon by Seller and Buyer.

     (b) The Purchase Price shall be adjusted downward by the following amounts (without
duplication):

     (i) an amount equal to all proceeds received by the Seller attributable to the
sale of Hydrocarbons produced from or allocable to the Assets during the Interim
Period, net of Third Party expenses (other than Operating Expenses) directly
incurred in earning or receiving such proceeds and for which no adjustment pursuant
to Section 3.3(a) is made, and any sales, excise or similar Taxes in
connection therewith not reimbursed to Seller by a third party purchaser;

     (ii) an amount equal to all other proceeds received by Seller (other than from
the sale of Hydrocarbons produced from or allocable to the Assets) to which Buyer is
entitled pursuant to Section 2.3;

     (iii) if Seller makes the election under Section 11.2(d)(i) with
respect to a Title Defect, the Title Defect Amount with respect to such Title Defect
if the Title Defect Amount has been determined prior to Closing;

     (iv) if Seller makes the election under Section 12.1(b)(i) with respect
to an Environmental Defect, the Remediation Amount with respect to such
Environmental Defect if the Remediation Amount has been determined prior to Closing;

     (v) an amount equal to all amounts received by Seller as (A) overhead payments
from Third Parties, (B) handling, processing and transportation fees, (C) platform
rental payments, and (D) other payments from Third Parties related to ownership of
the Assets, in each case attributable to time periods after the Effective Time;

16

 

     (vi) an amount determined pursuant to Section 11.4(c) or Section
12.1(b)(iii) for any Properties and other Assets excluded from the Assets
pursuant to such Sections;

     (vii) without duplication of any other amounts set forth in this Section
3.3, the amount of all taxes prorated to Seller but payable by Buyer in
accordance with Section 15.2;

     (viii) to the extent that Seller is overproduced as of the Effective Date in an
aggregate amount greater (or underproduced in a lesser amount) than the net
Imbalances for gas as set forth in Schedule 3.3, as complete and final
settlement of all such Imbalances, an amount based on a rate of mutually agreeable
to Buyer and Seller;

     (ix) to the extent that Seller is overproduced as of the Effective Date in an
aggregate amount greater (or underproduced in a lesser amount) than the net
Imbalances for oil as set forth in Schedule 3.3, as complete and final
settlement of all such Imbalances, an amount based on a rate mutually agreeable to
Buyer and Seller; and

     (x) any other amount provided for elsewhere in this Agreement or otherwise
agreed upon by Seller and Buyer.

Buyer and Seller agree that neither party shall be charged interest on the Deposit or the
Purchase Price. Buyer and Seller agree that any adjustments related to Subsections
3.3(a)(iii) and (iv) and Section 3.3(b)(viii) and (ix) shall be
handled on the Final Settlement Statement and not on the Preliminary Settlement Statement or
after the payment of the final adjustment pursuant to Section 3.6. It is intended
that adjustments pursuant to such Subsections are to be based on the net variance from the
amount of underproduction or overproduction shown on Schedule 3.3, as the volumes
shown on such schedule are understood to have been accounted for in the Purchase Price. The
rate for adjustment for Imbalance variances from the amount shown on Schedule 3.3 is
intended to be a reasonable amount (based on such factors as the time period that the
Imbalance was accrued, the time period allowed for repayment and the historical or projected
price for the product during the time period in question) for those Imbalances discovered
and raised by either party within the time frames set forth in Section 3.6. Buyer
and Seller agree that any upward adjustments for amounts under Subsection 3.3(a)(v)
related to expenses for which Seller has not received reimbursement from Seller’s insurers
shall be deferred to the Final Settlement Statement, rather than addressed on the
Preliminary Settlement Statement.

     3.4 Adjustment Methodology. When available, actual figures will be used for the
adjustments to the Purchase Price at the Closing. To the extent actual figures are not available,
estimates will be used subject to final adjustments in accordance with Section 3.6.

     3.5 Preliminary Settlement Statement. Not less than five business days prior to the
Closing, Seller shall prepare and submit to Buyer for review a draft settlement statement (the

17

 

“Preliminary Settlement Statement”) that shall set forth the Adjusted Purchase Price,
reflecting each adjustment made in accordance with this Agreement as of the date of preparation of
such Preliminary Settlement Statement and the calculation of the adjustments used to determine such
amount, together with the designation of Seller’s account for the wire transfer of funds as set
forth in Section 9.3(d). Within three business day of receipt of the Preliminary
Settlement Statement, Buyer will deliver to Seller a written report containing any changes that
Buyer proposes to be made to the Preliminary Settlement Statement and an explanation of any such
changes and the reasons therefor. The Preliminary Settlement Statement, with any changes agreed
upon by the parties, will be used to adjust the Purchase Price at Closing.

          3.6 Final Settlement Statement.

          (a) On or before 120 days after the Closing, a final settlement statement (the “Final
Settlement Statement”) will be prepared by Seller, based on actual income and expenses
during the Interim Period and which takes into account all final adjustments made to the
Purchase Price and shows the resulting final Purchase Price (“Final Price”). The Final
Settlement Statement shall set forth the actual proration of the amounts required by this
Agreement. As soon as practicable, and in any event within 60 days, after receipt of the
Final Settlement Statement, Buyer shall either agree in writing with the Final Settlement
Statement or return a written report containing any proposed changes to the Final Settlement
Statement and an explanation of any such changes and the reasons therefor (the “Dispute
Notice”). If the Final Price set forth in the Final Settlement Statement is mutually agreed
upon by Seller and Buyer, the Final Price shall be paid according thereto. For the
avoidance of doubt, any payment owing under this Section 3.6 shall not be subject to
the Indemnification Threshold or Indemnification Cap contained in Section 13.5. Any
difference in the Adjusted Purchase Price as paid at Closing pursuant to the Preliminary
Settlement Statement and the Final Price shall be paid by the owing party without interest
within ten days of (i) the Final Settlement Statement or (ii) if the Final Price is
disputed, resolution of the Final Price, to the owed party. All amounts paid pursuant to
this Section 3.6 shall be delivered in United States currency by wire transfer of
immediately available funds to the account specified in writing by the relevant party.

          (b) If Seller fails to prepare the Final Settlement Statement within such 120-day
period, it shall pay to Buyer interest at the rate of 10% per annum from the 121st day after
the Closing until preparation of such Final Settlement Statement on the net amount, if any,
owing to Buyer as shown on such Final Settlement Statement.

          (c) If Buyer fails to either agree with the Final Settlement Statement or return a
Dispute Notice within 60 days of its receipt of the Final Settlement Statement, it shall pay
to Seller interest at the rate of 10% per annum from the 61st day after receipt
of the Final Settlement Statement on the net amount, if any, owing to Seller as shown on
such Final Settlement Statement.

          3.7 Disputes. If Seller and Buyer are unable to resolve the matters addressed in the Dispute Notice, each of
Buyer and Seller shall within 60 days after the earlier of delivery of such Dispute Notice or the
deadline for submitting such Dispute Notice under Section 3.6 above, summarize its position
with regard to such dispute in a written document of twenty pages or less

18

 

and submit such summaries to such party as the parties may mutually select (the “Accounting Arbitrator”), together with this
Agreement, the Dispute Notice, the Preliminary Settlement Statement, the Final Settlement Statement
and any other documentation such party may desire to submit. Within 30 business days after
receiving the parties’ respective submissions, the Accounting Arbitrator shall render a decision
choosing either Seller’s position or Buyer’s position with respect to each matter addressed in any
Dispute Notice, based on the materials described above. Any decision rendered by the Accounting
Arbitrator pursuant hereto shall include a written statement as to the basis for such decision and
shall be final, conclusive and binding on Seller and Buyer and will be enforceable against any of
the parties in any court of competent jurisdiction. The costs of such Accounting Arbitrator shall
be borne by the non-prevailing party.

          3.8 Allocation of Purchase Price / Allocated Values. Buyer and Seller agree that the
unadjusted Purchase Price shall be allocated among the Assets as set forth in Schedule 3.8
of this Agreement. The “Allocated Value” for any Asset equals the portion of the unadjusted
Purchase Price allocated to such Asset on Schedule 3.8 and such Allocated Value shall be
used in calculating adjustments to the Purchase Price as provided herein.

          3.9 Interim Settle-Up. The Parties acknowledge that it is not the intent of this Agreement
that either party be deprived of material amounts of revenue or be burdened by material amounts of
expense until the final adjustment pursuant to Section 3.6. If at any time after Closing
either party believes it is owed material revenues or material expense reimbursement, which
revenues and expense reimbursement owed shall be netted against revenues and expenses due the other
party, it may request payment from the other party, not more frequently than monthly, and such
party shall make payment of any undisputed amounts within a commercially reasonable period of time.
For purposes of this Section 3.9, material shall mean an amount in excess of $4,000,000.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller represents and warrants to Buyer the following:

          4.1 Organization, Existence. Seller is a corporation duly formed and validly existing under
the laws of the State of Delaware. Seller has all requisite power and authority to own and operate
its property (including, without limitation, its interests in the Assets) and to carry on its
business as now conducted. Seller is duly licensed or qualified to do business as a corporation
and is in good standing in all jurisdictions in which such qualification is required by Law.

          4.2 Authorization.Seller has full power and authority to enter into and perform this Agreement and the Transaction
Documents to which it is a party and the transactions contemplated herein and therein. The
execution, delivery and performance by Seller of this Agreement have been duly and validly
authorized and approved by all necessary corporate action on the part of Seller. This Agreement
is, and the Transaction Documents to which Seller is a party when executed and delivered by Seller
will be, the valid and binding obligation of Seller, enforceable against Seller in accordance with
their respective terms, subject to the effects of

19

 

bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar Laws, as well as to principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at law).

          4.3 No Conflicts. Subject to the giving of all notices to Third Parties and the receipt of all
consents, approvals and waivers from Third Parties in connection with the transactions contemplated
hereby, the execution, delivery and performance by Seller of this Agreement and the consummation of
the transactions contemplated herein will not (i) conflict with or result in a breach of any
provisions of the organizational documents of Seller, (ii) result in a default or the creation of
any Encumbrance or give rise to any right of termination, cancellation or acceleration under any of
the terms, conditions or provisions of any Lease, Applicable Contract, note, bond, mortgage,
indenture, license or other material agreement to which any Seller is a party or by which any
Seller or the Assets may be bound or (iii) violate any material Law applicable to any Seller or any
of the Assets.

          4.4 Consents. Except (a) for consents set forth in Schedule 4.4, (b) for Customary
Post-Closing Consents, (c) for consents under Contracts that are terminable upon not greater than
90 days’ notice without payment of any fee or are otherwise material, (d) compliance with any
applicable requirements of the MMS and (e) compliance with any applicable requirements of the HSR
Act, there are no other consents required in connection with the transfer of the Assets or the
consummation of the transactions contemplated by this Agreement.

          4.5 Litigation. Except as set forth in Schedule 4.5, there is no suit, action,
investigation or inquiry by any Person or by or before any Governmental Authority, and no legal,
administrative or arbitration proceedings pending, or to Seller’s Knowledge, threatened against
Seller or any of the Assets, to which Buyer is a party or which individually or in the aggregate
would be material or would materially adversely affect the ability of Seller to consummate the
transactions contemplated in this Agreement.

          4.6 Material Contracts.

          (a) Schedule 4.6 sets forth all Applicable Contracts to which Seller is a party
that are material to the Assets (collectively, the “Material Contracts”).

          (b) Except as set forth on Schedule 4.6, (i) there exist no defaults under the
Material Contracts by Seller or, to Seller’s Knowledge, by any other Person that is a party
thereto, and (ii) no event has occurred that with notice or lapse of time or both would
constitute any default under any such Material Contract by Seller or, to Seller’s Knowledge,
any other Person who is a party thereto. Seller has made available to Buyer copies of each
Material Contract and all amendments thereto.

          4.7 No Violation of Laws. Except as set forth on Schedule 4.7, to Seller’s Knowledge,
Seller has not materially violated any applicable Laws with respect to the ownership or operation
of the Assets. This Section 4.7 does not include any matters with respect to Environmental
Laws, such matters being addressed exclusively in Section 4.15.

          4.8 Insurance. Seller has made available to Buyer a list of, and true and complete copies
of, its insurance policies and fidelity bonds relating to the Assets. Schedule 4.8 sets
forth

20

 

all material claims of Seller pending under any of such policies or bonds with respect to the
Assets, none of which coverage has been denied or disputed by the underwriters of such policies or
bonds or in respect of which such underwriters have reserved their rights. Seller has made
available to Buyer true and complete copies of all material correspondence between Seller, its
agents and Affiliates and Seller’s insurers or underwriters with respect to the claims listed on
Schedule 4.8.

          4.9 Hurricane Damage. Schedule 4.9 sets forth as of the date hereof (i) to Seller’s
Knowledge, a true and correct list of all material damage to the Assets from Hurricane Rita and
Katrina, (ii) Seller’s good faith estimate of the cost to repair such damage, (iii) the cost of
such repairs incurred as of the Effective Time and incurred as of the date hereof, (iv) the status
and estimated completion date of such repairs and (v) the status of insurance claims with respect
to each such repair.

          4.10 Wells. Schedule 4.10 sets forth the status as of February 1, 2006 of each of the
Wells included in the Assets. The mechanical condition of such Wells does not deviate materially
from the well bore schematics made available to Buyer in the data room.

          4.11 Preferential Rights. Except as set forth in Schedule 4.11, there are no
preferential rights to purchase that are applicable to the transfer of the Assets in connection
with the transactions contemplated hereby.

          4.12 Royalties, Etc. Seller has timely and properly paid all royalties, overriding royalties
and other burdens on production due by Seller with respect the Properties, or if not paid, is
contesting such royalties and other burdens in good faith.

          4.13 Personal Property. To Seller’s Knowledge, except as set forth in Schedules 4.9 or
4.13(a), taken as a whole, all Personal Property constituting a part of the Assets are in a
state of repair so as to be adequate for normal operations, ordinary wear and tear excepted.
Schedule 4.13(b) sets forth the Personal Property (including automation equipment and
telemetry equipment) used by Seller with respect to the Assets that is not being transferred to
Buyer hereunder.

          4.14 Current Commitments. Schedule 4.14 sets forth, as of the date of this Agreement,
all authorities for expenditures (“AFEs”) relating to the Properties to drill or rework Wells or
for other capital expenditures pursuant to any of the Material Contracts or any applicable joint or
unit operating agreement for which all of the activities anticipated in such AFEs or commitments
have not been completed by the date of this Agreement.

          4.15 Environmental.

          (a) Except as set forth in Schedule 4.15, Seller has not received written
notice from any Person of, and to Seller’s Knowledge there has not been, any release,
disposal, event, condition, circumstance, activity, practice or incident concerning the
Assets that (i) violates any Environmental Law, (ii) interferes with or prevents compliance
by Seller with any Environmental Law; or (iii) gives rise to or results in any liability of
Seller to any Person under any Environmental Law.

21

 

          (b) To Seller’s Knowledge, all material reports, studies and written notices from
environmental Governmental Authorities specifically addressing environmental matters related
to Seller’s ownership or operation of the Properties, which are in Seller’s possession, have
been made available to Buyer.

          4.16 Production Taxes. Except as disclosed in Schedule 4.16, during the period of
Seller’s ownership of the Assets, all ad valorem, property, production, severance and similar taxes
and assessments (including penalties and interest) based on or measured by the ownership of the
Assets, the production of Hydrocarbons or the receipt of proceeds therefrom that have become due
and payable before the Effective Time are being properly paid, other than taxes which are being
contested in good faith.

          4.17 Brokers’ Fees. Seller has incurred no liability, contingent or otherwise, for brokers’ or
finders’ fees relating to the transactions contemplated by this Agreement for which Buyer or any
Affiliate of Buyer shall have any responsibility.

          4.18 Accuracy of Data. To Seller’s Knowledge, (i) all documents furnished to Buyer by Seller, including, without
limitation, all maps, reports and analyses, are true and correct copies of documents contained in
Seller’s files, and (ii) all lease operating expense information and data furnished by Seller to
Buyer are true and correct in all material respects. The representations and warranties contained
in this Section 4.18 shall not be construed to be representations or warranties with
respect to the accuracy of any estimates, forecasts or conclusions contained in any document, any
such representations or warranties being expressly denied.

          4.19 Affiliated Contracts. After Closing, the Assets will not be bound or burdened by any
contractual obligation to Seller or an Affiliate of Seller except pursuant to this Agreement.

          4.20 Sales Contracts. With respect to any agreement or contract for the sale of
hydrocarbons affecting or relating to the Assets (the “Sales Contracts”):

          (a) Advance Payments. Except for imbalances or as shown on Schedule
4.20, Seller is not obligated by virtue of (i) any prepayment arrangement, (ii) a
“take-or-pay” or similar provision, (iii) a production payment, or (iv) any other
arrangement to deliver hydrocarbons produced from the Assets at some future time without
then or thereafter receiving full payment therefor.

          (b) Carried Payments. Payments for hydrocarbons sold pursuant to each of the
Sales Contracts are current (subject to adjustment in accordance with the Sales Contracts)
and to the best of Seller’s Knowledge in accordance with the prices set forth in the Sales
Contracts.

          (c) Terminable Sales Contracts. Except as set forth on Schedule 4.20,
no Sales Contract has a term in excess of 90 days, or is not terminable upon notice of 90
days or less.

22

 

          4.21 Hedging. All of Seller’s hedging arrangements and the net profits interest of
Transworld pursuant to that certain Purchase and Sale Agreement dated September 3, 2003 with
Transworld Exploration and Production Inc. and certain of its affiliates shall be retained by
Seller and Buyer shall have no responsibility therefor.

          4.22 Limitations. Seller’s representations and warranties are given subject to and are
qualified by any matters disclosed by or under this Agreement, including any Schedule attached
hereto.

ARTICLE V

BUYER’S REPRESENTATIONS AND WARRANTIES

     Each Buyer hereby jointly and severally represents and warrants to Seller the following:

          5.1 Organization; Existence. Each Buyer is duly organized and validly existing under the laws
of the State of Delaware and has all requisite power and authority to own and operate its property
and to carry on its business as now conducted. Each Buyer is duly licensed or qualified to do
business as a limited partnership in all jurisdictions in which such qualification is required by
Law.

          5.2 Authorization. (a) Each Buyer has full power and authority to enter into and perform this
Agreement and the Transaction Documents to which it is a party and the transactions contemplated
herein and therein; (b) the execution, delivery and performance by each Buyer of this Agreement
have been duly and validly authorized and approved by all necessary partnership action on the part
of each Buyer; and (c) this Agreement is, and the Transaction Documents to which each Buyer is a
party when executed and delivered by such Buyer will be, the valid and binding obligations of such
Buyer, enforceable against Buyer in accordance with their respective terms, subject to the effects
of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws, as
well as to principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).

          5.3 No Conflicts. The execution, delivery and performance by each Buyer of this Agreement and
the Transaction Documents and the consummation of the transactions contemplated herein and therein
will not conflict with or result in a breach of any provisions of the certificate of formation,
agreement of limited partnership or other governing documents of any Buyer nor will it violate any
Law or Order applicable to any Buyer or any of its property.

          5.4 Consents. Except for Customary Post-Closing Consents and compliance with any applicable
requirements under the HSR Act, there are no consents or other restrictions on assignment that any
Buyer is obligated to obtain or furnish, including, but not limited to, requirements for consents
from Third Parties to any assignment (in each case) that would be applicable in connection with the
consummation of the transactions contemplated by this Agreement by Buyer.

23

 

          5.5 Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending,
being contemplated by or, to Buyer’s knowledge, threatened against any Buyer.

          5.6 Litigation. There is no suit, action, investigation or inquiry by any Person or by or before any
Governmental Authority, and no legal, administrative or arbitration proceedings pending, or to
Buyer’s knowledge, threatened against any Buyer, or to which any Buyer is a party, that would have
a material adverse effect upon the ability of Buyer to consummate the transactions contemplated in
this Agreement.

          5.7 Financing. Buyer has and shall have as of the Closing Date, sufficient funds on hand with
which to pay the Purchase Price and consummate the transactions contemplated by this Agreement.

          5.8 Regulatory. Each Buyer is, and after Closing shall continue to be, qualified to own the
federal oil, gas and mineral leases in the MMS Gulf of Mexico Outer Continental Shelf Region,
including meeting Buyer’s existing or increased bonding or any other bonding and financial
requirements of the MMS or other governmental agencies. The consummation of the transactions
contemplated in this Agreement will not cause any Buyer to be disqualified as such an owner or to
exceed any acreage limitation imposed by any law, statute, rule or regulation. To the extent
required by any applicable Laws and except to the extent, if any, that any Buyer will, as of
Closing, be covered by the bonds of Third Party operators of the applicable Assets, each Buyer will
have as of Closing, and will thereafter continue to maintain, lease bonds, area-wide bonds or any
other surety bonds as may be required by, and in accordance with, all applicable Laws governing the
ownership of such leases, and has filed any and all required reports necessary for such ownership
with all Governmental Authorities having jurisdiction over such ownership, including but not
limited to adequate financial assurance in accordance with OPA.

          5.9 Independent Evaluation. Each Buyer is sophisticated in the evaluation, purchase, ownership
and operation of oil and gas properties and related facilities. In making its decision to enter
into this Agreement and to consummate the transactions contemplated herein, each Buyer (a) has
relied or shall rely solely on its own independent investigation and evaluation of the Assets and
the advice of its own legal, tax, economic, insurance, environmental, engineering, geological and
geophysical advisors and the express provisions of this Agreement and not on any comments,
statements, projections or other materials made or given by any representatives or consultants or
advisors engaged by Seller, and (b) has satisfied or shall satisfy itself through its own due
diligence as to the environmental and physical condition and state of repair of and contractual
arrangements and other matters affecting the Assets. Buyer has no knowledge of any fact that
results in the breach of any representation, warranty or covenant of Seller given hereunder or of
any “scrivener’s error” of the type referred to in Section 11.2(k).

          5.10 Brokers’ Fees. No Buyer nor any of their Affiliates has incurred any liability, contingent
or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this
Agreement for which Seller or Seller’s Affiliates shall have any responsibility.

          5.11 NORM, Wastes and Other Substances. Each Buyer acknowledges that the Assets have been used
for exploration, development and production of oil and gas and that there

24

 

may be petroleum,produced water, wastes or other substances or materials located in, on or under the Assets or
associated with the Assets. Equipment and sites included in the Assets may contain asbestos, NORM
or other Hazardous Substances. 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 Assets
or included in the Assets may contain NORM and other wastes or Hazardous Substances. NORM
containing material and/or other wastes or Hazardous Substances may have come in contact with
various environmental media, including without limitation, water, soils or sediment. Special
procedures may be required for the assessment, remediation, removal, transportation or disposal of
environmental media, wastes, asbestos, NORM and Hazardous Substances from the Assets.

ARTICLE VI

COVENANTS

          6.1 Conduct of Business. Except as set forth in Schedule 6.1, Seller agrees that from
and after the date hereof until Closing, except as expressly contemplated by this Agreement or as
expressly consented to in writing by Buyer (which consent will not be unreasonably withheld or
delayed), it will:

          (a) use customary commercially reasonable efforts to operate, where Seller is the
operator, or to cause the operators thereof, where Seller is not the operator, to maintain
and operate the Assets in the usual, regular and ordinary manner consistent with past
practice;

          (b) use commercially reasonable efforts to continue repairs to the Assets for hurricane
damage and to preserve and pursue all insurance claims on Schedule 4.9 with respect
thereto;

          (c) maintain the books of account and records relating to the Assets in the usual,
regular and ordinary manner, in accordance with its usual accounting practices;

          (d) maintain insurance relating to the Assets of the types and amounts consistent with
Seller’s past practices;

          (e) not enter into a Material Contract or terminate or materially amend or change the
terms of any Material Contract;

          (f) not approve any authorization for expenditure in excess of $500,000 relating to the
Assets;

          (g) not transfer, sell, farm-out, mortgage, pledge or dispose of any material portion
of the Assets other than the sale and/or disposal of Hydrocarbons in the ordinary course of
business and sales of equipment that is no longer necessary in the operation of the Assets
or for which replacement equipment has been obtained; and

          (h) not elect to non-consent or fail to timely elect to participate in and thus be
deemed to have elected to non-consent, any proposed well or other operation on or relating
to the Assets without first consulting with Buyer, and Buyer’s preference with

25

 

respect to any such proposed well or other operation shall be considered in good faith by Seller.

     Buyer acknowledges Seller owns undivided interests in certain of the properties comprising the
Assets that it is not the operator thereof, and Buyer agrees that the acts or omissions of the
other working interests owners (including the operators) who are not Seller or any Affiliates of
Seller shall not constitute a breach of the provisions of this Section 6.1, nor shall any
action required by a vote of working interest owners constitute such a breach so long as Seller has
voted its interest in a manner that complies with the provisions of this Section 6.1.

          6.2 HSR Act. If applicable, within five business days following the execution by Buyer and
Seller of this Agreement, Buyer and Seller will each prepare and simultaneously file with the DOJ
and the FTC, as applicable, the notification and report form required for the transactions
contemplated by this Agreement by the HSR Act, and request early termination of the waiting period
thereunder. Buyer and Seller agree to respond promptly to any inquiries from the DOJ or the FTC
concerning such filings and to comply in all material respects with the filing requirements of the
HSR Act. Buyer and Seller shall cooperate with each other and, subject to the terms of the
Confidentiality Agreement, shall promptly furnish all information to the other party that is
necessary in connection with Buyer’s and Seller’s compliance with the HSR Act. Buyer and Seller
shall keep each other fully advised with respect to any requests from or communications with the
DOJ or FTC concerning such filings and shall consult with each other with respect to all responses
thereto. Each of Seller and Buyer shall use its reasonable efforts to take all actions reasonably
necessary and appropriate in connection with any HSR Act filing to consummate the transactions
contemplated hereby.

          6.3 Bonds, Letters of Credit and Guarantees. Buyer acknowledges that none of the bonds,
letters of credit and guarantees, if any, posted by Seller or its Affiliates with Governmental
Authorities or Third Parties and relating to the Assets are transferable to Buyer. Except to the
extent that Buyer will, as of Closing, be covered by the bonds of the operators of the applicable
Assets, then on or before the Closing Date, Buyer shall obtain, or cause to be obtained in the name
of Buyer, replacements for such bonds, letters of credit and guarantees, to the extent such
replacements are necessary to permit the cancellation as of Closing of the bonds, letters of credit
and guarantees posted by Seller and/or its Affiliates.

          6.4 Cooperation with Seller Retained Litigation, Etc. Buyer agrees to use reasonable efforts
to cooperate with Seller in connection with Seller’s defense and other actions relating to or
arising out of the litigation and claims set forth on Schedule 13.1 and with respect to
future audits. Buyer agrees to make available Buyer’s employees engaged in, or having information
about, the ownership and operation of the Assets,
for the purposes of providing testimony, depositions, information and other related activities
relating to such litigation, claims and audits.

          6.5 Cooperation with Respect to Insurance Claims. From and after the Closing Date, Seller and
Buyer shall fully cooperate and shall use their commercially reasonable efforts to work with each
other and Seller’s insurers to enable Buyer to expeditiously recover insurance proceeds for damage
to the Assets resulting from Hurricanes Rita and Katrina (if any), as set

26

 

forth on Schedule 4.9 hereto, and Seller shall promptly pay over to Buyer any such proceeds that it receives.

          6.6 Plugging, Abandonment, Decommissioning and Other Costs. In addition to its other
obligations under this Agreement, Buyer shall comply with all Laws, Leases, Applicable Contracts
(including all joint and unit operating agreements) and prevailing industry standards relating to
(i) the plugging, abandonment and/or replugging of all Wells, including inactive Wells or
temporarily abandoned Wells, included in the Assets, (ii) the dismantling or decommissioning and
removal of any Personal Property and other property of whatever kind related to or associated with
operations and activities conducted by whomever on the Properties or otherwise, pursuant to the
Leases or Applicable Contracts and (iii) the clean up, restoration and/or remediation of the
property covered by the Leases or related to the Assets (collectively, the “P&A Obligations”).

          6.7 Record Retention. Buyer, for a period of seven years following Closing, will (i) retain
the Records, (ii) provide Seller, its Affiliates and its and their officers, employees and
representatives with access to the Records (to the extent that Seller has not retained the original
or a copy) during normal business hours for review and copying at Seller’s expense and upon
reasonable notice, and (iii) provide Seller, its Affiliates and its and their officers, employees
and representatives with access, during normal business hours, to materials received or produced
after Closing relating to any indemnity claim made under Section 13.2 of this Agreement for
review and copying at Seller’s expense. If Buyer shall desire to dispose of or transfer any such
Records or other materials upon or after the expiration of such seven-year period, Buyer shall,
prior to any disposition, give Seller notice and a reasonable opportunity at Seller’s expense to
segregate and remove or copy such Records or other materials as Seller may select.

          6.8 Notifications. Each Party shall promptly notify the other Party in writing of any
circumstances or facts or matters which become known to it after execution of this Agreement but
prior to Closing which are inconsistent in any respect with any Party’s representations and
warranties which would if subsisting at Closing be inconsistent with any of those representations
and warranties. The Parties agree that the disclosures set forth in the Schedules hereto shall be
deemed to be amended, as applicable, with effect on and from the date of such written notification
to reflect such circumstances, facts or matters. No supplement or amendment of any Schedule made
pursuant to this Section 6.8 shall be deemed to cure any breach of a representation or
warranty made by Seller or Buyer in this Agreement unless the parties agree thereto.

ARTICLE VII

BUYER’S CONDITIONS TO CLOSING

     The obligations of Buyer to consummate the transactions provided for herein are subject, at
the option of Buyer, to the fulfillment on or prior to the Closing Date of each of the following
conditions:

          7.1 Representations. The representations and warranties of Seller set forth in this Agreement
shall be true and correct on and as of the Closing Date, with the same force and effect as though
such representations and warranties had been made or given on and as of the Closing

27

 

Date, except where the failure of such representations or warranties to be so true and correct does not have,
and would not have, individually or in the aggregate, a Material Adverse Effect. Notwithstanding,
the Seller’s representations and warranties referenced above, there presently exist other
provisions in this Agreement pursuant to which price and other adjustments can be made relating to
certain of the representations and warranties, which may reduce Material Adverse Effects, by cure
or otherwise. The referenced provisions of Article IV and the provisions of this
Section 7.1, are not intended to replace or override those adjustment mechanisms, to the
extent they are applicable.

          7.2 Performance. Seller shall have performed or complied in all material respects with all
obligations, agreements and covenants contained in this Agreement as to which performance or
compliance by Seller is required prior to or at the Closing Date.

          7.3 No Legal Proceedings. No material suit, action or other proceeding shall be pending before
any Governmental Authority seeking to restrain, prohibit, enjoin or declare illegal, or seeking
substantial damages in connection with, the transactions contemplated by this Agreement.

          7.4 Title Defects and Environmental Defects. The sum of (i) all Title Defect Amounts
determined under Section 11.2(d)(i) prior to the Closing, less the sum of all Title Benefit
Amounts determined under Section 11.2(b) prior to Closing, plus (ii) all Remediation
Amounts for environmental defects determined under Article XII prior to the Closing, shall
not exceed 15% of the Purchase Price.

          7.5 HSR Act. If applicable, the waiting period under the HSR Act applicable to the
consummation of the transactions contemplated hereby shall have expired, notice of early
termination shall have been received, or a consent order issued by or from applicable Governmental
Authorities.

ARTICLE VIII

SELLER’S CONDITIONS TO CLOSING

     The obligations of Seller to consummate the transactions provided for herein are subject, at
the option of Seller, to the fulfillment on or prior to the Closing Date of each of the following
conditions precedent:

          8.1 Representations. The representations and warranties of Buyer set forth in this Agreement
shall be true and correct on and as of the Closing Date, with the same force and effect as though
such representations and warranties had been made or given on and as of the Closing Date, except
where the failure of such representations or warranties to be so true and correct would not have,
individually or in the aggregate, a Material Adverse Effect.

          8.2 Performance. Buyer shall have performed or complied in all material respects with all
obligations, agreements and covenants contained in this Agreement as to which performance or
compliance by Buyer is required prior to or at the Closing Date.

          8.3 No Legal Proceedings. No material suit, action or other proceeding shall be pending before
any Governmental Authority seeking to restrain, prohibit or declare illegal or

28

 

seeking substantial damages in connection with, the transactions contemplated by this Agreement.

          8.4 Title Defects and Environmental Defects. The sum of (i) all Title Defect Amounts
determined under Section 11.2(d)(i) prior to the Closing, less the sum of all Title Benefit
Amounts determined under Section 11.2(b) prior to Closing, plus (ii) all Remediation
Amounts for environmental defects determined under Article XII prior to the Closing, shall
not exceed 15% of the Purchase Price.

          8.5 HSR Act. If applicable, the waiting period under the HSR Act applicable to the
consummation of the transactions contemplated hereby shall have expired, notice of early
termination shall have been received or a consent order issued by or from applicable Governmental
Authorities.

          8.6 Replacement Bonds, Letters of Credit and Guarantees. Buyer shall have obtained, or caused
to be obtained, in the name of Buyer, replacements for Seller’s and/or its Affiliates’ bonds,
letters of credit and guaranties, if any, to the extent required by Section 6.3.

          8.7 Insurance. Buyer shall have furnished Seller with certificates of insurance on forms reasonably
acceptable to Seller which list Buyer’s insurance policies relating to the Assets, including (i)
insurance which complies with all applicable workers’ compensation and occupational disease laws
covering all of Buyer’s employees performing any work or activities as to oil and gas leasehold
interests subject to this Agreement, (ii) insurance for all work performed offshore, including
insurance to cover claims under the United States Longshoremen’s and Harbor Workers’ Act extended
to include the Outer Continental Shelf, (iii) commercial general liability insurance (including
contractual liability coverage) and pollution liability insurance, (iv) excess liability insurance
(including contractual liability coverage), (v) well control insurance and (vi) such other
insurance and proof of financial responsibility as is required under the applicable provisions of
OPA or MMS requirements.

ARTICLE IX

CLOSING

          9.1 Date of Closing. Subject to the conditions stated in this Agreement, the sale by Seller
and the purchase by Buyer of the Assets pursuant to this Agreement (the “Closing”) shall occur on
or before 9:00 a.m. on March 31, 2006, or such other date as Buyer and Seller may agree upon in
writing. The date of the Closing shall be the “Closing Date.”

          9.2 Place of Closing. The Closing shall be held at the offices of Akin Gump Strauss Hauer &
Feld LLP, 1111 Louisiana Street, 44th Floor, Houston, Texas 77002, or at such other
place as Seller and Buyer may agree to in writing.

          9.3 Closing Obligations. At the Closing, the following documents shall be delivered and the
following events shall occur, the execution of each document and the occurrence of each event being
a condition precedent to the others and each being deemed to have occurred simultaneously with the
others:

29

 

          (a) Seller and Buyer shall execute and deliver the Assignments, in sufficient
counterparts to facilitate recording in the applicable counties and parishes adjacent to the
Assets.

          (b) Seller and Buyer shall execute and deliver the Preliminary Settlement Statement.

          (c) Buyer and Seller shall execute and file all forms (and Buyer shall perform all
acts) required by the MMS (and other appropriate governmental agencies) to transfer
ownership and operatorship of the Assets, where applicable, from Seller to Buyer effective
as of the Effective Time.

          (d) Buyer shall deliver to Seller, to the account designated in the Preliminary
Settlement Statement, by direct bank or wire transfer in same day funds, the Adjusted
Purchase Price, less the amount of the Deposit.

          (e) Buyer shall deliver to Seller evidence acceptable to Seller that Buyer is qualified
to hold title to the Leases with the MMS and to operate (should Buyer’s Affiliate become the
operator of the Assets or a portion thereof) the platforms, wells, pipelines and facilities
associated therewith, including copies of Buyer’s MMS qualification card and any powers of
attorney of those persons executing documents at Closing on behalf of Buyer.

          (f) Buyer shall deliver to Seller evidence satisfactory to Seller that Buyer (or its
nominated Affiliated operator, if one is designated by Buyer upon Closing) has obtained all
lease, pipeline and operating bonds necessary for it to become operator of record by MMS
with respect to the Leases and oil and gas properties subject hereto.

          (g) Buyer shall deliver to Seller a secretary’s certificate of Buyer’s general partner,
including certified resolutions of its general partner, evidencing the approval of Buyer’s
general partner of this Agreement and the transactions contemplated hereby and including an
incumbency certificate regarding the authority of the person(s) signing this Agreement and
any of the Closing documents on behalf of the Buyer.

          (h) Where Seller is the designated Operator of a Lease, Buyer shall promptly file all
appropriate forms, declarations or bonds with federal and state governmental agencies
relative to Buyer’s Affiliate’s assumption of operations from such Seller. Buyer shall also
take all actions necessary to qualify as a successor Operator to Seller under any applicable
joint operating agreement (subject to the terms of that operating agreement) and to provide
appropriate evidence of financial responsibility as required by OPA.

          (i) Seller shall deliver to Buyer a secretary’s certificate of Seller, including
certified resolutions of its Board of Directors, evidencing the approval of Seller’s Board
of Directors of this Agreement and the transactions contemplated hereby and including an
incumbency certificate regarding the authority of the person(s) signing this Agreement and
any of the Closing documents on behalf of the Seller.

          (j) Seller shall deliver to Buyer on forms reasonably acceptable to Buyer transfer
orders or letters in lieu thereof directing all purchasers of production to make

30

 

payment to Buyer of proceeds attributable to production from the Assets from and after the Effective
Time, for delivery by Buyer to the purchasers of production.

          (k) Seller shall deliver an executed statement described in Treasury Regulation
§1.1445-2(b)(2) certifying that Seller is not a foreign person within the meaning of the
Code.

          (l) Seller and Buyer shall execute and deliver any other agreements, instruments and
documents which are required by other terms of this Agreement to be executed and/or
delivered at the Closing.

          9.4 Records. In addition to the obligations set forth under Section 9.3 above, within 30 days
following the Closing, Seller shall deliver to Buyer possession of the Records.

ARTICLE X

ACCESS/DISCLAIMERS

          10.1 Access.

          (a) From and after the date hereof and up to and including the Closing Date (or earlier
termination of this Agreement) but subject to applicable laws, the other provisions of this
Section 10.1 and obtaining any required consents of Third Parties, including Third
Party operators of the Assets (with respect to which consents Seller shall use commercially
reasonable efforts to obtain), Seller shall afford to Buyer and its officers, employees,
agents, accountants, attorneys, investment bankers and other authorized representatives
(“Buyer’s Representatives”) full access, during normal business hours and upon reasonable
notice, to the Assets and all Records and other documents in Seller’s or any their
respective Affiliates’ possession relating primarily to the Assets. Seller shall also make
available to Buyer and Buyer’s Representatives, upon reasonable notice during normal
business hours, Seller’s personnel knowledgeable with respect to the Assets in order that
Buyer may make such diligence investigation as Buyer considers necessary or appropriate.
All investigations and due diligence conducted by Buyer or any Buyer’s Representative shall
be conducted at Buyer’s sole cost, risk and expense and any conclusions made from any
examination done by Buyer or any Buyer’s Representative shall result from Buyer’s own
independent review and judgment.

          (b) Buyer shall be entitled to conduct a non-invasive environmental site assessment
with respect to the Assets. Seller or its designee shall have the right to accompany Buyer
and Buyer’s Representatives whenever they are on site on the Assets. Notwithstanding
anything herein to the contrary, Buyer shall not have access to, and shall not be permitted
to conduct any environmental due diligence with respect to any Assets where Seller does not
have the authority to grant access for such due diligence; provided, however, Seller shall
use its commercially reasonable efforts to obtain permission from any Third Party operator
to allow Buyer and Buyer’s Representatives such access, it being understood by Buyer that
the execution by Buyer of a customary boarding agreement may be a condition of such access.

31

 

          (c) Buyer shall coordinate its environmental site assessments and physical inspections
of the Assets with Seller to minimize any inconvenience to or interruption of the conduct of
business by Seller. Buyer shall abide by Seller’s, and any Third Party operator’s, safety
rules, regulations and operating policies while conducting its due diligence evaluation of
the Assets including any environmental or other inspection or assessment of the Assets.
Buyer hereby agrees to defend, indemnify and hold harmless each of the Third Party operators
and owners of the Assets and Seller Indemnified Parties from and against any and all
Liabilities arising out of, resulting from or relating to any field visit, environmental
property assessment, or other due diligence activity conducted by Buyer or any Buyer’s
Representative with respect to the Assets, even if such Liabilities arise out of or result
from, solely or in part, the
sole, active, passive, concurrent or comparative negligence, strict liability or other
fault or violation of Law of or by any such Third Party operator or owner or Seller
Indemnified Party, excepting only Liabilities actually resulting on the account of the gross
negligence or willful misconduct of such person.

          (d) Upon Seller’s request, Buyer agrees to provide Seller promptly, but not later than
the Environmental Claim Date, copies of all reports, test results, and other documentation
and data prepared or compiled by Buyer and/or any of Buyer’s Representatives and which
contain information collected or generated from Buyer’s due diligence with respect to the
Assets. Seller shall not be deemed by its receipt of said documents or otherwise to have
made any representation or warranty, expressed, implied or statutory, as to the condition to
the Assets or to the accuracy of said documents or the information contained therein.

          (e) Upon completion of Buyer’s due diligence, Buyer shall at its sole cost and expense
and without any cost or expense to Seller or its Affiliates, (i) repair all damage done to
the Assets in connection with Buyer’s due diligence in accordance with recognized industry
standards or requirements of Third Party operators, (ii) restore the Assets to the
approximate same or better condition than existed prior to commencement of Buyer’s due
diligence, to the full extent of any damage related to Buyer’s due diligence, and (iii)
remove all equipment, tools or other property brought onto the Assets in connection with
Buyer’s due diligence. Any disturbance to the Assets (including, without limitation, any
real property, platform or other fixtures associated with such Assets) resulting from
Buyer’s due diligence will be promptly corrected by Buyer.

          (f) During all periods that Buyer, and/or any of Buyer’s Representatives are on the
Assets, Buyer shall maintain, at its sole expense and with insurers reasonably satisfactory
to Seller, policies of insurance of the types and in the amounts reasonably requested by
Seller. Coverage under all insurance required to be carried by Buyer hereunder will (i) be
primary insurance, (ii) list Seller Indemnified Parties as additional insureds, (iii) waive
subrogation against Seller Indemnified Parties, (iv) be maintained for three years following
Buyer’s and/or Buyer’s Representatives due diligence activities, and (v) provide for 30
days’ prior notice to Seller in the event of cancellation or modification of the policy or
reduction in coverage. Upon request by Seller, Buyer shall provide evidence of such
insurance to Seller prior to entering upon the Assets.

32

 

          10.2 Confidentiality. Buyer acknowledges that, pursuant to its right of access to the Records
or the Assets, Buyer will become privy to confidential and other information of Seller and that
such confidential information shall be held confidential by Buyer and Buyer’s Representatives in
accordance with the terms of the Confidentiality Agreement. If the Closing should occur, the
foregoing confidentiality restriction on Buyer, including the Confidentiality Agreement, shall
terminate (except as to (i) such portion of the Assets that are not conveyed to Buyer pursuant to
the provisions of this Agreement, (ii) any assets covered by the Confidentiality Agreement that are
not conveyed to the Buyer pursuant to this Agreement; and (iii) the Excluded Assets).

          10.3 Disclaimers.

          (a) Except as and to the extent expressly set forth in Article IV and elsewhere
in this Agreement and the special warranty in the assignments to be executed pursuant
hereto, (i) Seller makes no representations or warranties, express, statutory or implied,
and (ii) Seller expressly disclaims all liability and responsibility for any representation,
warranty, statement or information made or communicated (orally or in writing) to Buyer or
any of its Affiliates or Representatives (including, without limitation, any opinion,
information, projection or advice that may have been provided to Buyer by any officer,
director, employee, agent, consultant, representative or advisor of Seller or any of its
Affiliates). In particular, except as expressly set forth in Article IV and
elsewhere in this Agreement and the special warranty in the assignments to be executed
pursuant hereto, and without limiting the generality of the foregoing, Seller expressly
disclaims any representation or warranty, express, statutory or implied, as to (i) title to
any of the Assets, (ii) the contents, character or nature of any report of any petroleum
engineering consultant or any engineering, geological or seismic data or interpretation,
relating to the Assets, (iii) the quantity, quality or recoverability of Hydrocarbons in or
from the Assets, (iv) any estimates of the value of the Assets or future revenues generated
by the Assets, (v) the production of Hydrocarbons from the Assets, (vi) the maintenance,
repair, condition, quality, suitability, design or marketability of the Assets, (vii) the
content of any information memorandum, reports, brochures, charts or statements prepared by
Seller or third parties with respect to the Assets and (viii) any other materials or
information that may have been made available to Buyer or its Affiliates, or its or their
Representatives in connection with the transactions contemplated by this Agreement or any
discussion or presentation relating thereto. Except as expressly set forth in Article
IV and elsewhere in this Agreement, Seller further disclaims any representation or
warranty, express, statutory or implied, of merchantability, freedom from latent vices or
defects, fitness for a particular purpose or conformity to models or samples of materials of
any assets, rights of a purchaser under appropriate statutes to claim diminution of
consideration or return of the Purchase Price, it being expressly understood and agreed by
the parties hereto that Buyer shall be deemed to be obtaining the Assets in their present
status, condition and state of repair, “as is” and “where is” with all faults or defects
(known or unknown, latent, discoverable or undiscoverable), and that Buyer has made or
caused to be made such inspections as Buyer deems appropriate. With respect to any of the
Assets that are located in or in

33

 

federal waters offshore Louisiana, Buyer acknowledges that
this waiver has been expressly called to its attention and includes, without limitation, a
waiver of warranty against rehibitory vices arising under Louisiana Civil Code Articles 2520
through 2548, inclusive.

          (b) Seller and Buyer agree that, to the extent required by applicable Law to be
effective, the disclaimers of certain representations and warranties contained in this
Section 10.3 are “conspicuous” disclaimers for the purpose of any applicable Law.

ARTICLE XI

TITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS

          11.1 Seller’s Title. General Disclaimer of Title Warranties and Representations. Other
than the special warranty in the assignments to be executed pursuant hereto, Seller makes no
warranty or representation, express, implied, statutory or otherwise, not even as to a return of
the Purchase Price, with respect to Seller’s title to any of the Assets and Buyer hereby
acknowledges and agrees that, other than pursuant to the special warranty in the assignments to be
executed pursuant hereto, Buyer’s sole remedy for any defect of title, including any Title Defect,
with respect to any of the Assets shall be as set forth in Section 11.2.

          11.2
Notice of Title Defects; Defect Adjustments.

          (a) Title Defect Notices. On or before five business days prior to Closing at
11:59 p.m. Central Standard Time, (the “Title Claim Date”), Buyer must deliver claim notices
to Seller meeting the requirements of this Section 11.2(a) (collectively the “Title
Defect Notices” and individually a “Title Defect Notice”) setting forth any matters which,
in Buyer’s reasonable opinion, constitute Title Defects and which Buyer intends to assert as
a Title Defect pursuant to this Article XI. For all purposes of this Agreement and
notwithstanding anything herein to the contrary, Buyer shall be deemed to have waived, and
Seller shall have no liability for, any Title Defect which Buyer fails to assert as a Title
Defect by a Title Defect Notice received by Seller on or before the Title Claim Date. To be
effective, each Title Defect Notice shall be in writing, and shall include (i) a description
of the alleged Title Defect(s), (ii) the Wells (and the applicable zone(s) therein) and/or
other Assets affected by the Title Defect (each a “Title Defect Property”), (iii) the
Allocated Value of each Title Defect Property, (iv) supporting documents reasonably
necessary for Seller to verify the existence of the alleged Title Defect(s), and (v) the
amount by which Buyer reasonably believes the Allocated Value of each Title Defect Property
is reduced by the alleged Title Defect(s) and the computations upon which Buyer’s belief is
based. To give Seller an opportunity to commence reviewing and curing Title Defects, Buyer
agrees to use reasonable efforts to give Seller, on or before the end of each calendar week
prior to the Title Claim Date, written notice of all Title Defects discovered by Buyer
during the preceding calendar week, which notice may be preliminary in nature and
supplemented prior to the Title Claim Date.

          (b) Title Benefit Notices. Seller shall have the right, but not the
obligation, to deliver to Buyer on or before the Title Claim Date with respect to each Title
Benefit a notice (a “Title Benefit Notice”) including (i) a description of the Title
Benefit, (ii) the

34

 

Wells (and the applicable zone(s) therein) affected by the Title Benefit,
and (iii) the amount by which Seller reasonably believes the Allocated Value of those Wells
(and the applicable zone(s) therein) is increased by the Title Benefit and the computations
upon which Seller’s belief is based. Seller shall be deemed to have waived all Title
Benefits of which it has not given notice on or before the Title Claim Date.

          (c) Seller’s Right to Cure. Seller shall have the right, but not the
obligation, to attempt, at its sole cost, to cure at any time prior to the Closing Date (the
“Cure Period”), any Title Defects of which it has been advised by Buyer. In addition,
Seller shall have the right to hold back any Title Defect Property from the Closing for a
period of up to 30 days to attempt to cure, at Seller’s sole cost, the applicable Title
Defect, and the Purchase Price payable at Closing shall be reduced by the Allocated Value of
such Property. Any Title Defect Property that is withheld from the initial Closing will be
conveyed to Buyer at a subsequent Closing on or before the 40th day following the
Closing Date, at which Closing Buyer shall pay to Seller the Allocated Value (subject to the
applicable adjustments set forth in this Article XI or in Section 3.3) of such Property,
whether or not Seller was able to cure the Title Defect.

          (d) Remedies for Title Defects. Subject to Seller’s continuing right to
dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect
thereto in accordance with this Section 11.2 and subject to the rights of the
parties pursuant to Section 14.1, in the event that any Title Defect timely asserted
by Buyer in accordance with Section 11.2(a) is not waived in writing by Buyer or
cured on or before Closing (or subsequent Closing, if applicable, pursuant to subsection (c)
above), Seller shall, at its sole option, elect to:

     (i) subject to the Individual Title Defect Threshold and the Aggregate
Deductible, reduce the Purchase Price by an amount (“Title Defect Amount”)
determined pursuant to Section 11.2(g) or 11.2(j) as being the value
of such Title Defect;

     (ii) indemnify Buyer against all Liability resulting from such Title Defect
pursuant to an indemnity agreement (the “Title Indemnity Agreement”) in the form
attached hereto as Exhibit G; or

     (iii) if applicable, terminate this Agreement pursuant to Section
14.1(a).

          Notwithstanding the foregoing, Seller may, at its option notify Buyer at any time on or
before 11:59 p.m. Central time on the second business day following the Title Claim Date
that Seller disputes the Title Defect and elects to exclude the Title Defect Property from
the Assets to be conveyed to Buyer at Closing, and the Purchase Price shall be reduced by
the Allocated Value of the Title Defect Property so excluded, and such disputed Title Defect
shall be resolved pursuant to Section 11.2(j). Upon resolution of the dispute under
Section 11.2(j), then within ten business days following such resolution, Buyer
shall purchase from Seller such Title Defect Property excluded from the conveyance of the
Assets at the Closing pursuant to the preceding sentence, under the terms of this Agreement
for price equal to the Allocated Value thereof previously

35

 

withheld from the Purchase Price,
adjusted if applicable for any Title Defect Amount and/or Title Benefit Amount associated
therewith as determined by the arbitrator under said Section 11.2(j) and adjusted as
otherwise provided herein.

          (e) Remedies for Title Benefits. With respect to each Well (or specified
zone(s) therein) affected by Title Benefits reported under Section 11.2(b), the
Purchase Price shall be increased by an amount (the “Title Benefit Amount”) equal to the
increase in the Allocated Value for such Well caused by such Title Benefits, as determined
pursuant to Section 11.2(h). Notwithstanding anything to the contrary, (i) in no
event shall there be any adjustments to the Purchase Price or other remedies provided to
Seller for any individual Title Benefit for which the Title Benefit Amount does not exceed
$200,000 (the “Individual Title Benefit Threshold”); and (ii) in no event shall there be any
adjustments to the Purchase Price or other remedies provided to Seller for any Title Benefit
that exceeds the Individual Title Benefit Threshold unless the sum of the Title Benefit
Amounts of all such Title Benefits that exceed the Individual Title Benefit Threshold, in
the aggregate, exceeds the Aggregate Deductible, after which point Seller shall be entitled
to adjustments to the Purchase Price only with respect to such Title Benefits in excess of
such Aggregate Deductible.

          (f) Exclusive Remedy. Section 11.2(d) shall be the exclusive right and
remedy of Buyer with respect to Seller’s failure to have Defensible Title with respect to
any Asset, other than pursuant to the special warranty in the assignments to be executed
pursuant hereto.

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

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

     (ii) if the Title Defect is an Encumbrance that is undisputed and liquidated in
amount, then the Title Defect Amount shall be the amount necessary to be paid to
remove the Title Defect from the Title Defect Property;

     (iii) if the Title Defect does not affect the ratio of the Net Revenue Interest
to the Working Interest for any Title Defect Property stated in Exhibit A,
then the Title Defect Amount shall be the product of the Allocated Value of such
Title Defect Property multiplied by a fraction, the numerator of which is the Net
Revenue Interest decrease and the denominator of which is the Net Revenue Interest
stated in Exhibit A;

     (iv) if the Title Defect represents an obligation or Encumbrance upon or other
defect in title to the Title Defect Property of a type not described above, the
Title Defect Amount shall be determined by taking into account the Allocated Value
of the Title Defect Property, the portion of the Title Defect Property

36

 

affected by the Title Defect, the legal effect of the Title Defect, the potential economic
effect of the Title Defect over the life of the Title Defect Property, the values
placed upon the Title Defect by Buyer and Seller and such other reasonable factors
as are necessary to make a proper evaluation; provided, however, that if such Title
Defect is reasonably capable of being cured, the Title
Defect Amount shall not be greater than the reasonable cost and expense of
curing such Title Defect;

     (v) If (A) a Title Defect Property is not a Well (or specified zone(s)
therein), (B) such Title Defect Property does not have an Allocated Value, (C) the
Title Defect with respect to such Title Defect Property causes a loss of title to
such Title Defect Property, and (D) the loss of such title to such Title Defect
Property will prevent the continued operation or production of a Well (or one or
more specified zone(s) therein) shown in Exhibit A (such Well or the
specified zone(s) therein being referred to as the “Affected Well”) and the other
Assets are not capable of providing an alternative means to support, in all material
respects, the continued operation or production of the Affected Well, then such
Title Defect Property (a “Defective Support Property”) and such Affected Well(s)
shall collectively be considered a single Title Defect Property for purposes of this
Article XI; provided, however, that the Title Defect Amount resulting from
the Title Defect affecting such Defective Support Property shall be the lesser of
(1) the reasonable cost to replace such Defective Support Property, if such
Defective Support Property is reasonably capable of being replaced, (2) the
reasonable cost of providing an alternative means to support in all material
respects the continued operation or production of the Affected Well, or (3) the
Title Defect Amount that would otherwise be applicable to such Title Defect under
this Article XI.

     (vi) the Title Defect Amount with respect to a Title Defect Property shall be
determined without duplication of any costs or losses included in another Title
Defect Amount hereunder; and

     (vii) notwithstanding anything to the contrary in this Article XI, the
aggregate Title Defect Amounts attributable to the effects of all Title Defects upon
any Title Defect Property shall not exceed the Allocated Value of the Title Defect
Property.

          (h) Title Benefit Amount. The Title Benefit Amount resulting from a Title
Benefit shall be determined in accordance with the following methodology, terms and
conditions:

     (i) if Buyer and Seller agree on the Title Benefit Amount, then that amount
shall be the Title Benefit Amount; and

     (ii) if the Title Benefit represents a benefit in title of a type not described
above, the Title Benefit Amount shall be determined by taking into account the
Allocated Value of the affected property, the portion of the subject property
affected by the Title Benefit, the legal effect of the Title Benefit, the

37

 

potential economic effect of the Title Benefit over the life of the subject property, the
values placed upon the Title Benefit by Buyer and Seller and such other reasonable
factors as are necessary to make a proper evaluation.

          (i) Title Deductibles. Notwithstanding anything to the contrary, (i) in no
event shall there be any adjustments to the Purchase Price or other remedies provided by
Seller for any individual Title Defect for which the Title Defect Amount does not exceed
$200,000 (“Individual Title Defect Threshold”); and (ii) in no event shall there be any
adjustments to the Purchase Price or other remedies provided by Seller for any Title Defect
that exceeds the Individual Title Defect Threshold unless the sum of (1) the Title Defect
Amounts of all such Title Defects that exceed the Individual Title Defect Threshold, in the
aggregate, excluding any Title Defects cured by Seller plus (2) the Remediation Amounts of
all environmental defects, in the aggregate, excluding any individual Environmental Defect
for which the Remediation Amount does not exceed the Individual Environmental Threshold and
any environmental defects cured by Seller, exceeds the Aggregate Deductible, after which
point Buyer shall be entitled to adjustments to the Purchase Price or other remedies only
with respect to such Title Defects in excess of such Aggregate Deductible.

          (j) Title Dispute Resolution. Seller and Buyer shall attempt to agree on all
Title Defects, Title Benefits, Title Defect Amounts and Title Benefit Amounts prior to
Closing. If Seller and Buyer are unable to agree by Closing, the Title Defect Amounts and
Title Benefit Amounts in dispute shall be exclusively and finally resolved pursuant to this
Section 11.2(j). There shall be a single arbitrator, who shall be a title attorney
with at least ten years experience in oil and gas titles involving properties in the
regional area in which the Title Defect Properties are located, as selected by mutual
agreement of Buyer and Seller within 15 days after the end of the Cure Period, and absent
such agreement, by the Houston office of the American Arbitration Association (the “Title
Arbitrator”). The arbitration proceeding shall be held in Houston, Texas and shall be
conducted in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, to the extent such rules do not conflict with the terms of this Section. The
Title Arbitrator’s determination shall be made within 20 days after submission of the
matters in dispute and shall be final and binding upon both parties, without right of
appeal. In making his determination, the Title Arbitrator shall be bound by the provisions
of Sections 11.2(g) and 11.2(h) and, subject to the foregoing, may consider
such other matters as in the opinion of the Title Arbitrator are necessary to make a proper
determination. The Title Arbitrator, however, may not award the Buyer a greater Title
Defect Amount than the Title Defect Amount claimed by Buyer in its applicable Title Defect
Notice and may not award Seller a greater Title Benefit Amount than the Title Benefit Amount
claimed by Seller in its applicable Title Benefit Notice. The Title Arbitrator shall act as
an expert for the limited purpose of determining the specific disputed Title Defect, Title
Benefit, Title Defect Amounts and/or Title Benefit Amounts submitted by either party and may
not award damages, interest or penalties to either party with respect to any matter. Seller
and Buyer shall each bear its own legal fees and other costs of presenting its case. The
non-prevailing party shall bear the costs and expenses of the Title Arbitrator. To the
extent that the award of the Title Arbitrator with respect to any Title Defect Amount or
Title Benefit Amount is not taken into account as an

38

 

adjustment to the Purchase Price pursuant to Section 3.5 or Section 3.6, then within ten days after the Title
Arbitrator delivers written notice to Buyer and Seller of his award with respect to a Title
Defect Amount or a Title Benefit Amount, and subject to the other terms and provisions
hereof, (i) Buyer shall pay to Seller the amount, if any, so awarded
by the Title Arbitrator to Seller and (ii) Seller shall pay to Buyer the amount, if
any, so awarded by the Title Arbitrator to Buyer.

          (k) Scrivener’s Error. Notwithstanding anything set forth in this Article
XI, in the event that any of the Working Interests or Net Revenue Interests set forth in
Exhibit A differ from Seller’s records, and the parties agree that such difference
is attributable to a scrivener’s error, (i) Buyer shall have the right to raise such error
as a Title Defect subject to the provisions of this Section 11.2, (ii) Buyer and
Seller shall meet and attempt to agree on a Purchase Price adjustment due to such
difference, and (iii) the Individual Title Defect Threshold and the Aggregate Deductible
shall not apply to any such Purchase Price adjustment.

          11.3 Casualty or Condemnation Loss.

          (a) Notwithstanding anything herein to the contrary, from and after the Effective Time,
subject to the Closing, Buyer shall assume all risk of loss with respect to production of
Hydrocarbons through normal depletion (including watering out of any well, collapsed casing
or sand infiltration of any well) and the depreciation of Personal Property due to ordinary
wear and tear, in each case, with respect to the Assets.

          (b) If, after the date of this Agreement but prior to the Closing Date, any portion of
the Assets is destroyed by fire or other casualty or is taken in condemnation or under right
of eminent domain, and the aggregate amount of any such loss or taking exceeds 15% of the
Purchase Price, either party shall have the right to terminate this Agreement and Buyer
shall promptly receive back the Deposit. If the aggregate amount of any such loss or taking
is 15% or less of the Purchase Price, Buyer shall be required to close. If the loss as a
result of such individual casualty or taking exceeds $250,000 and the parties proceed to
Closing, Seller shall elect by written notice to Buyer prior to Closing either (i) to cause
the Assets affected by such casualty or taking to be repaired or restored to at least its
condition prior to such casualty or taking, at Seller’s sole cost, as promptly as reasonably
practicable (which work may extend after the Closing Date), or (ii) to indemnify Buyer
through a document reasonably acceptable to Seller and Buyer against any costs or expenses
that Buyer reasonably incurs to repair the Assets subject to such casualty or taking or
(iii) to treat such casualty or taking as a Title Defect with respect to the affected Asset
or Assets under Section 11.2 or (iv) Seller, at Closing, shall pay to Buyer all sums
paid or payable to Seller by Third Parties by reason of such casualty or taking insofar as
with respect to the Assets and shall assign, transfer and set over to Buyer or subrogate
Buyer to all of Seller’s right, title and interest (if any) in insurance claims, unpaid
awards and other rights against Third Parties (excluding any Liabilities, other than
insurance claims, of or against any Seller Indemnified Parties) arising out of such casualty
or taking insofar as with respect to the Assets; provided, however, that in the case of
(iv), Seller shall reserve and retain (and Buyer shall assign to Seller) all rights, title,
interests and claims against Third Parties for the recovery of

39

 

Seller’s costs and expenses incurred prior to the Closing Date in pursuing or asserting
any such insurance claims or other rights against Third Parties or in defending or asserting
rights in such condemnation or eminent domain action with respect to the Assets. In the
case of (i) — (iii), Seller shall retain all rights to insurance, condemnation awards and
other claims against third parties with respect to the casualty or taking except to the
extent the parties otherwise agree in writing.

          (c) If any action for condemnation or taking under right of eminent domain is pending
or threatened with respect to any Asset or portion thereof after the date of this Agreement,
but no taking of such Asset or portion thereof occurs prior to the Closing Date, Buyer shall
nevertheless be required to close and Seller, at Closing, shall assign, transfer and set
over to Buyer or subrogate Buyer to all of Seller’s right, title and interest (if any) in
such condemnation or eminent domain action, including any future awards therein, insofar as
they are attributable to the Assets threatened to be taken, except that Seller shall reserve
and retain (and Buyer shall assign to Seller) all rights, titles, interests and claims
against Third Parties for the recovery of Seller’s costs and expenses incurred prior to the
Closing in defending or asserting rights in such action with respect to the Assets.

     11.4 Preferential Purchase Rights and Consents to Assign.

          (a) The provisions of this Section 11.4 shall apply to agreements relating to
the Properties which enable or may enable a Third Party to purchase a Property or any part
thereof, as a result of the sale of such Property or portion thereof to Buyer (such rights
hereafter referred to as “Preference Rights”). Buyer is purchasing the Properties subject
to all Preference Rights.

          (b) Seller shall send notices of the transactions contemplated hereby to holders of
Preference Rights (“Preference Notices”) set forth on Schedule 4.11. The Preference
Notices shall be in a form reasonably satisfactory to Buyer, and shall include the Allocated
Value of the Property or portion thereof affected by each Preference Right. After receiving
a response to a Preference Notice, the Seller shall promptly provide a copy of the response
to Buyer at the address set forth in this Agreement. Seller and Buyer agree that the
Allocated Value for properties subject to Preference Rights shall be the sole responsibility
of Buyer, and Buyer agrees to indemnify Seller and hold Seller harmless from all liability
and claims related to the reasonableness of such values.

          (c) In the event, and only in such event, the holder of a Preference Right elects to
properly exercise such Preference Right and to purchase the Property subject thereto upon
the Closing, Seller shall convey on substantially the same terms and conditions set forth in
the applicable assignment attached to this Agreement (subject to such modifications as
deemed reasonably necessary by Buyer to reflect the relevant Preference Right transaction,
the price and the additional terms as contemplated by this Agreement) the Property or
portion of the Property subject to the Preference Right to the holder of such Preference
Right at the Closing; provided, however, that the Seller shall have no obligation to convey
any Property to a Preference Right holder unless and until the Closing occurs and provided
further that Seller shall: (i) convey to Buyer at Closing

40

 

all Property subject to Preference Rights for which the time for election to exercise
such Preferential Purchase Right has expired and the Preferential Right has not been
properly asserted; and (ii) retain all other Property subject to a Preference Right, subject
to Seller’s obligation to convey such Property to Buyer at such delayed Closing date to
occur at the time that the election to exercise such Preference Right has expired, and Buyer
shall take all such Property with any outstanding obligations or remaining Preference Rights
and shall indemnify Seller for any losses incurred in connection therewith as described
below. The Purchase Price to be paid at Closing by Buyer shall be reduced by the Allocated
Value of all Properties regarding which a Preference Right has been properly exercised and
no other adjustments related to such Property(ies) shall be made to the Purchase Price under
this Agreement. Notwithstanding the foregoing, any Property that is subject to a Preference
Right and held back at the initial Closing will be conveyed to Buyer at a delayed Closing
when the time for election to exercise such Preference Right has expired (which shall become
the new Closing Date with respect to such Property). At the delayed Closing, Buyer shall
pay Seller an amount equal to the amount by which the Purchase Price was reduced on account
of the holding back of such retained Property (as adjusted pursuant to Section 3.3
through the new Closing Date therefor).

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

          (e) In addition, Seller shall send to each holder of a right to consent to assignment
pertaining to the Assets and the transactions contemplated hereby a notice seeking such
party’s consent to the transaction contemplated hereby. If Seller fails to obtain a consent
prior to the Closing and the failure to obtain such consent would cause the assignment of
such Asset to Buyer to be void, then the Seller shall continue to hold the operating rights
or other legal title to such Asset as nominee for Buyer. Seller shall not be obligated to
incur any expenses, obligations or other liabilities, or be responsible for any Claims, in
Seller’s capacity as nominee and Buyer shall indemnify, defend and hold harmless Seller in
relation to such Assets. Seller and Buyer, as between themselves, shall treat and deal with
such Assets as if full legal and equitable title to such Assets had passed from Seller to
Buyer at Closing. If Seller fails to obtain a consent prior to Closing and such consent
does not relate to a material Asset or the failure to obtain such consent would not cause
the assignment of such Asset to Buyer to be void, then Buyer shall have no rights or
remedies against Seller with respect thereto.

41

 

ARTICLE XII

ENVIRONMENTAL MATTERS

     12.1 Environmental Defects.

          (a) Assertions of Environmental Defects. Buyer must deliver claim notices to
Seller meeting the requirements of this Section 12.1(a) (collectively the
“Environmental Defect Notices” and individually an “Environmental Defect Notice”) not later
than five days prior to Closing (the “Environmental Claim Date”) setting forth any matters
which, in Buyer’s reasonable opinion, constitute environmental defects and which Buyer
intends to assert as environmental defects pursuant to this Section 12.1. For all
purposes of this Agreement, Buyer shall be deemed to have waived any Environmental Defect
which Buyer fails to assert as an Environmental Defect by an Environmental Defect Notice
received by Seller on or before the Environmental Claim Date. To be effective, each
Environmental Defect Notice shall be in writing and shall include (i) a description of the
matter constituting the alleged Environmental Defect, (ii) a description of each Asset (or
portion thereof) that is affected by the alleged Environmental Defect, (iii) Buyer’s
assertion of the Allocated Value of the portion of the Assets affected by the alleged
Environmental Defect, (iv) supporting documents reasonably necessary for Seller to verify
the existence of the alleged Environmental Defect, and (v) a calculation of the Remediation
Amount (itemized in reasonable detail) that Buyer asserts is attributable to such alleged
Environmental Defect. Buyer’s calculation of the Remediation Amount included in the
Environmental Defect Notice must describe in reasonable detail the Remediation proposed for
the Environmental Condition that gives rise to the asserted Environmental Defect and
identify all assumptions used by the Buyer in calculating the Remediation Amount, including
the standards that Buyer asserts must be met to comply with Environmental Laws. Seller
shall have the right, but not the obligation, to cure any claimed Environmental Defect on or
before Closing. It shall be Buyer’s sole responsibility to inspect, investigate, and assess
any Environmental Conditions prior to the Environmental Claim Date.

          (b) Remedies for Environmental Defects. Subject to Seller’s continuing right
to dispute the existence of an Environmental Defect and/or the Remediation Amount asserted
with respect thereto, in the event that any Environmental Defect timely asserted by Buyer in
accordance with Section 12.1(a) is not waived in writing by Buyer or cured on or
before Closing, Seller shall, at its sole option, elect to:

     (i) subject to the Individual Environmental Threshold and the Aggregate
Deductible, reduce the Purchase Price by the Remediation Amount;

     (ii) assume responsibility for the Remediation of such Environmental Defect;

     (iii) with consent of Buyer which shall not be unreasonably conditioned,
withheld or delayed, retain the entirety of the Asset that is subject to such
Environmental Defect, together with all associated Assets, in which event

42

 

the Purchase Price shall be reduced by an amount equal to the Allocated Value
of such Asset and such associated Assets; or

     (iv) if applicable, terminate this Agreement pursuant to Section 14.1.

          If Seller elects the option set forth in clause (i) above, Buyer shall be deemed to
have assumed responsibility for Remediation of such Environmental Defect and such
Environmental Defect and all Liabilities with respect thereto shall be deemed to constitute
Assumed Obligations. If Seller elects the option set forth in clause (ii) above, Seller
shall use reasonable efforts to implement such Remediation in a manner which is consistent
with the requirements of Environmental Laws in a timely fashion for the type of Remediation
that Seller elects to undertake and shall have access to the affected Assets after the
Closing Date to implement and complete such Remediation in accordance with an Access
Agreement in substantially the form attached hereto as Exhibit H (the “Access
Agreement”). Seller will be deemed to have adequately completed the Remediation required in
the immediately preceding sentence (A) upon receipt of a certificate or approval from the
applicable Governmental Authority that the Remediation has been implemented to the extent
necessary to comply with existing regulatory requirements equal to but no more stringent
than as required for land use of the Assets as of the Closing Date or (B) upon written
consent of Buyer which consent may not be unreasonably withheld).

          (c) Exclusive Remedy. Subject to Section 12.1(d), Section
12.1(b) shall be the exclusive right and remedy of Buyer with respect to any
Environmental Defect. Buyer hereby waives any claims of cost recovery or contribution from
Seller or its Affiliates related to the Assets under any Environmental Law or any other
cause of action.

          (d) Environmental Deductibles. Notwithstanding anything to the contrary, (i)
in no event shall there be any adjustments to the Purchase Price or other remedies provided
by Seller for any individual Environmental Defect for which the Remediation Amount does not
exceed $200,000 (“Individual Environmental Threshold”); and (ii) in no event shall there be
any adjustments to the Purchase Price or other remedies provided by Seller for any
Environmental Defect for which the Remediation Amount exceeds the Individual Environmental
Threshold unless (A) the sum of (1) the Remediation Amounts of all such environmental
defects that exceed the Individual Environmental Threshold, in the aggregate, excluding any
environmental defects cured by Seller, plus (2) the Title Defect Amounts of all Title
Defects, in the aggregate, excluding any individual Title Defect for which the Title Defect
Amount does not exceed the Individual Title Defect Threshold and any Title Defects cured by
Seller, (B) exceeds the Aggregate Deductible, after which point Buyer shall be entitled to
adjustments to the Purchase Price or other remedies only with respect to such environmental
defects in excess of such Aggregate Deductible.

          (e) Environmental Dispute Resolution. Seller and Buyer shall attempt to agree
on all environmental defects and Remediation Amounts prior to Closing and as to the
completion of Remediation efforts after Closing. If Seller and Buyer are unable to

43

 

agree by Closing (or, after Closing, as to the completion of Remediation efforts), the
environmental defects and/or Remediation Amounts in dispute shall be exclusively and finally
resolved by arbitration pursuant to this Section 12.1. There shall be a single
arbitrator, who shall be an environmental attorney with at least ten years experience in
environmental matters involving offshore oil and gas producing properties in the Gulf of
Mexico, as selected by mutual agreement of Buyer and Seller within fifteen days after the
Closing Date, and absent such agreement, by the Houston office of the American Arbitration
Association (the “Environmental Arbitrator”). The arbitration proceeding shall be held in
Houston, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, to the extent such rules do not conflict with the
terms of this Article. The Environmental Arbitrator’s determination shall be made within
twenty days after submission of the matters in dispute and shall be final and binding upon
both parties, without right of appeal. In making his or her determination, the Environmental
Arbitrator shall be bound by the provisions set forth in this Section 12.1 and,
subject to the foregoing, may consider such other matters as in the opinion of the
Environmental Arbitrator are necessary or helpful to make a proper determination. The
Environmental Arbitrator, however, may not award the Buyer more than the Remediation Amount
claimed by Buyer in its applicable Environmental Defect Notice. The Environmental
Arbitrator shall act as an expert for the limited purpose of determining the specific
disputed environmental defects and/or Remediation Amounts submitted by either party and may
not award damages, interest or penalties to either party with respect to any matter. Seller
and Buyer shall each bear its own legal fees and other costs of presenting its case. The
non-prevailing party shall bear the costs and expenses of the Environmental Arbitrator. To
the extent that the award of the Environmental Arbitrator with respect to any Remediation
Amount is not taken into account as an adjustment to the Purchase Price pursuant to
Section 3.3, then within ten days after the Environmental Arbitrator delivers
written notice to Buyer and Seller of his or her award with respect to a Remediation Amount,
and subject to Section 12.1 and the other terms and provisions hereof, (i) Buyer
shall pay to Seller the amount, if any, so awarded by the Environmental Arbitrator to Seller
and (ii) Seller shall pay to Buyer the amount, if any, so awarded by the Environmental
Arbitrator to Buyer.

          12.2 NORM, Wastes and Other Substances. Buyer acknowledges that the Assets have been used
for exploration, development, and production of oil and gas and that there may be petroleum,
produced water, wastes, or other substances or materials located in, on or under the Assets or
associated with the Assets. Equipment and sites included in the Assets may contain asbestos, NORM
or Hazardous Substances. 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 Assets
or included in the Assets may contain NORM, asbestos and other wastes or Hazardous Substances.
NORM containing material and/or other wastes or Hazardous Substances may have come in contact with
various environmental media, including without limitation, water, soils or sediment. Special
procedures may be required for the assessment, remediation, removal, transportation, or disposal of
environmental media, wastes, asbestos, NORM and Hazardous Substances from the Assets.

44

 

ARTICLE XIII

ASSUMPTION; INDEMNIFICATION; SURVIVAL

          13.1 Assumption of Obligations by Buyer. Without limiting or otherwise affecting Buyer’s
rights to indemnity under this Article XIII and Buyer’s rights under any Title Indemnity
Agreement, from and after the Closing, Buyer assumes and hereby agrees to fulfill, perform, pay and
discharge (or cause to be fulfilled, performed, paid or discharged) all obligations and
Liabilities, known or unknown, with respect to the Assets, regardless of whether such obligations
or Liabilities arose prior to, on or after the Effective Time, including but not limited to the P&A
Obligations, Environmental Conditions and all other obligations and Liabilities relating in any
manner to the use, ownership or operation of the Assets, including but not limited to obligations
to (a) furnish makeup gas and/or settle Imbalances according to the terms of applicable gas sales,
processing, gathering or transportation Contracts, and (b) pay working interests, royalties,
overriding royalties and other interest, owners revenues or proceeds attributable to sales of
Hydrocarbons relating to the Properties, (c) properly plug and abandon any and all Wells, including
inactive Wells or temporarily abandoned Wells, drilled on the Properties or otherwise pursuant to
the Assets, (d) replug any Well, Wellbore or previously plugged Well on the Properties to the
extent required or necessary, (e) dismantle or decommission and remove any Personal Property and
other property of whatever kind related to or associated with operations and activities conducted
by whomever on the Properties or otherwise pursuant to the Assets, (f) clean up, restore and/or
remediate the premises covered by or related to the Assets in accordance with applicable agreements
and Laws, (g) perform all obligations with respect to any Preferential Purchase Right and consent
pertaining to any Asset and the transactions contemplated hereby that are not fully resolved prior
to Closing and (h) perform all obligations applicable to or imposed on the lessee or owner under
the Leases and the Applicable Contracts, or as required by Laws; and (all of said obligations and
Liabilities referenced in this Section 13.1, subject to the exclusions below, are herein
referred to as the “Assumed Obligations”); provided, Buyer does not assume any obligations or
Liabilities of Seller to the extent that they are:

          (i) attributable to or arise out of the ownership, use or operation of the Excluded
Assets; or

          (ii) Excluded Liabilities.

          13.2 Indemnities of Seller. Effective as of the Closing, subject to the limitations in
this Article XIII, Seller shall be responsible for, and hereby agrees to defend, indemnify,
hold harmless and forever release Buyer and its Affiliates and all of its and their respective
stockholders, partners, members, directors, officers, managers, employees, agents and
representatives (collectively, “Buyer Indemnified
Parties”) from and against any and all
liabilities, arising from, based upon, related to or associated with:

          (a) any act or omission by Seller involving or relating to the Excluded Assets;

          (b) the Excluded Liabilities for the applicable time periods set forth therein;

45

 

          (c) any breach of any representation or warranty made by Seller contained in
Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.11, and 4.17; and

          (d) any breach of Seller’s covenants or agreements contained in Sections 6.5,
11.4.

          13.3 Indemnities of Buyer. (a) Effective as of the Closing, each Buyer and each of its
successors and assigns shall jointly and severally assume, be responsible for, and hereby agree to
defend, indemnify, hold harmless and forever release Seller and its Affiliates and all of their
respective stockholders, partners, members, directors, officers, managers, employees, agents and
representatives (collectively, “Seller Indemnified
Parties”) from and against any and all
liabilities arising from, based upon, related to or associated with:

          (i) the Assumed Obligations;

          (ii) ownership or operation of the Assets after the Effective Time, including,
without limitation, the claims and expenses in Section 15.18(b);

          (iii) Title Defects related or attributable to the Assets (other than the
special warranty in the assignments to be executed pursuant hereto);

          (iv) environmental defects related or attributable to the Assets;

          (v) the Excluded Liabilities (other than the Excluded Assets) from and after
the applicable time periods set forth therein;

          (vi) any breach of any representation or warranty made by Buyer contained in
Article V; and

          (vii) any breach of Buyer’s covenants or agreements contained in Sections
6.3, 6.4, 6.6, and 11.4.

          13.4 Express Negligence. The indemnification, release and Assumed Obligations provided for
in this Agreement shall be applicable whether or not the liabilities, losses, costs, expenses and
damages in question arose or resulted solely or in part from the gross, sole, active, passive,
concurrent or comparative negligence, strict liability or other fault or violation of law of or by
any Indemnified Party. Buyer and Seller acknowledge that this statement complies with the express
negligence rule and is conspicuous.

          13.5 Indemnification Procedures. All claims for indemnification under Sections
13.2 and 13.3 shall be asserted and resolved as follows:

          (a) Notwithstanding anything to the contrary in this Agreement, the Buyer Indemnified
Parties shall not be entitled to indemnification under, and shall not assert any claim for
indemnification pursuant to, Sections 13.2(b) or (c) or until the aggregate
amount of such claims exceeds .5% of the Purchase Price (the “Indemnification Threshold”),
and then shall be entitled to such indemnification from the first dollar. In

46

 

no event will Buyer be entitled to indemnification under Sections 13.2(b) or
(c) once the aggregate of all claims made under such Section equals 15% of the
Purchase Price (the “Indemnification Cap”); provided that the Indemnification Threshold and
the Indemnification Cap shall not apply with respect to any claim for indemnification
asserted under Sections 13.2(a) or (d).

          (b) For purposes of this Article XIII, the term “Indemnifying Party” when used
in connection with particular Liabilities shall mean the party or parties having an
obligation to indemnify another party or parties with respect to such Liabilities pursuant
to this Article XIII, and the term “Indemnified Party” when used in connection with
particular Liabilities shall mean the party or parties having the right to be indemnified
with respect to such Liabilities by another party or parties pursuant to this Article
XIII.

          (c) To make claim for indemnification under Sections 10.1(c), 13.2 or
13.3, an Indemnified Party shall notify the Indemnifying Party of its claim under
this Section 13.5, including the specific details of and specific basis under this
Agreement for its claim (the “Claim Notice”). In the event that the claim for
indemnification is based upon a claim by a Third Party against the Indemnified Party (a
“Claim”), the Indemnified Party shall provide its Claim Notice promptly after the
Indemnified Party has actual knowledge of the Claim and shall enclose a copy of all papers
(if any) served with respect to the Claim; provided that the failure of any Indemnified
Party to give notice of a Claim as provided in this Section 13.5 shall not relieve
the Indemnifying Party of its obligations under Sections 10.1(c), 13.2 or
13.3 (as applicable) except to the extent such failure results in insufficient time
being available to permit the Indemnifying Party to effectively defend against the Claim or
otherwise materially prejudices the Indemnifying Party’s ability to defend against the
claim. In the event that the claim for indemnification is based upon an inaccuracy or
breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify
the representation, warranty, covenant or agreement that was inaccurate or breached.

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

          (e) If the Indemnifying Party admits its liability, it shall have the right and
obligation to diligently defend, at its sole cost and expense, the Claim. The Indemnifying
Party shall have full control of such defense and proceedings, including any compromise or
settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate in contesting any Claim which the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or settlement of any
Claim controlled by the Indemnifying Party pursuant to this Section 13.5(e). An
Indemnifying Party shall not, without the written consent of the

47

 

Indemnified Party, (i) settle any Claim or consent to the entry of any judgment with respect
thereto which does not include an unconditional written release of the Indemnified Party
from all liability in respect of such Claim or (ii) settle any Claim or consent to the entry
of any judgment with respect thereto in any manner that may materially and adversely affect
the Indemnified Party (other than as a result of money damages covered by the indemnity).

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

          (g) In the case of a claim for indemnification not based upon a Claim, the Indemnifying
Party shall have 30 days from its receipt of the Claim Notice to (i) cure the Liabilities
complained of, (ii) admit its liability for such Liability or (iii) dispute the claim for
such Liabilities. If the Indemnifying Party does not notify the Indemnified Party within
such 30-day period that it has cured the Liabilities or that it disputes the claim for such
Liabilities, the amount of such Liabilities shall conclusively be deemed a liability of the
Indemnifying Party hereunder.

     13.6 Survival.

          (a) Each representation, warranty, covenant and agreement made herein shall terminate
and cease to be of further force and effect as of the Closing or such later date after
Closing as is expressly stipulated in this Section for the survival thereof; except as to
claims for indemnification permitted by this Article XIII as to which a bona fide
Claim Notice with respect to such Claim has been delivered to the applicable Indemnifying
Party on or prior to such date. If any Asset becomes a retained Asset and the Closing with
respect thereto is delayed pursuant to Section 11.4, the parties’ respective
representations, warranties, covenants and agreements provided for in this Agreement with
respect to such retained Asset shall survive under this Section 13.6 in relation to
such delayed Closing rather than the initial Closing under this Agreement. In addition, the
definitions set forth in the Definitions section at the beginning of this Agreement or in
any other provision of this Agreement which are used in the representations, warranties,
covenants and agreements which survive the Closing pursuant to this Section shall survive
the Closing to the extent necessary to give operative effect to such surviving
representations, warranties, covenants and agreements. It is expressly agreed that:

48

 

     (i) Sections 4.1, 4.2, 4.3, 4.17, 4.21, 6.4, 6.5, 6.6, 9.4, 11.4, and
Article V shall survive the Closing without limitation or for such shorter
period of time as may be stipulated in such provisions or allowed by Law.

     (ii) The covenants and agreements of the parties in Section 6.7 shall
survive the Closing for a period of seven years.

     (iii) Sections 4.4, 4.5, 4.8, 4.9, 4.11, and 6.3 shall survive
until the first anniversary of the Closing Date.

     (iv) The agreements in Section 3.3 shall survive Closing until the
Final Settlement Statement has been executed by all parties to this Agreement.

     (v) The indemnities in Article XIII shall terminate as of the
termination date of each respective covenant or agreement that is subject to
indemnification, except in each case as to matters for which a specific written
claim for indemnity has been delivered to the Indemnifying Party on or before such
termination date. Buyer’s indemnities in Section 13.3 shall be deemed
covenants running with the Assets (provided, however, that Buyer and its successors
and assigns shall not be released from any of, and shall remain jointly and
severally liable to the Seller Indemnified Parties for, the obligations or
Liabilities of Buyer under such Article upon any transfer or assignment of any
Asset) and Seller’s indemnity set forth in Section 13.2 shall survive the
Closing without time limit.

          13.7 Non-Compensatory Damages. None of the Buyer Indemnified Parties nor Seller
Indemnified Parties shall be entitled to recover from Seller or Buyer, or their respective
Affiliates, any indirect, consequential, punitive or exemplary damages or damages for lost profits
of any kind arising under or in connection with this Agreement or the transactions contemplated
hereby, except to the extent any such party suffers such damages (including costs of defense and
reasonable attorney’s fees incurred in connection with defending of such damages) to a Third Party,
which damages (including costs of defense and reasonable attorney’s fees incurred in connection
with defending against such damages) shall not be excluded by this provision as to recovery
hereunder. Subject to the preceding sentence, Buyer, on behalf of each of the Buyer Indemnified
Parties, and Seller, on behalf of each of Seller Indemnified Parties, waive any right to recover
punitive, special, exemplary and consequential damages, including damages for lost profits, arising
in connection with or with respect to this Agreement or the transactions contemplated hereby.

          13.8 Disclaimer of Application of Anti-Indemnity Statutes. The parties acknowledge and
agree that the provisions of any anti-indemnity statute relating to oilfield services and
associated activities shall not be applicable to this Agreement and/or the transactions
contemplated hereby.

          13.9 Buyer Credit Support. Unless Buyer is a Qualified Buyer, prior to Closing Buyer shall
furnish at Closing for the benefit of, and deliver to, Seller (i) a letter of credit in form and
substance reasonably satisfactory to Seller or (ii) a Buyer Parent Guaranty, in either case to

49

 

secure Buyer’s performance of the Assumed Obligations and Buyer’s other obligations under
Article XIII and applicable of the Assignments. If at any time Seller determines that
Buyer is no longer a Qualified Buyer, or that such Buyer’s Qualified Parent Guarantor is no longer
a
Qualified Parent Guarantor, then Buyer shall promptly provide such letter of credit or Buyer Parent
Guaranty, as applicable.

ARTICLE XIV

TERMINATION, DEFAULT AND REMEDIES

          14.1 Right of Termination. This Agreement and the transactions contemplated herein may be
terminated at any time at or prior to Closing:

     (a) by Seller, at Seller’s option, if any of the conditions set forth in Article
VIII have not been satisfied on or before the Closing Date;

     (b) by Buyer, at Buyer’s option, if any of the conditions set forth in Article
VII have not been satisfied on or before the Closing Date; or

     (c) by Seller or Buyer if the Closing shall not have occurred on or before May 31,
2006;

provided, however, that no party shall have the right to terminate this Agreement pursuant to
clause (a), (b) or (c) above if such party or its Affiliates are at such time in material breach of
any provision of this Agreement.

          14.2 Effect of Termination. If the obligation to close the transactions contemplated
by this Agreement is terminated pursuant to any provision of Section 14.1 hereof, then,
except as provided in Section 3.2 and except for the provisions of Sections 1.1,
10.2, 10.3, 13.7 and this Section 14.2 and Article XV
(other than Sections 15.2(b), 15.7, 15.8, 15.9 and 15.17),
and any other provision hereof which, by its very nature, must survive such termination so as to
carry out the stated intent of Buyer and Seller, this Agreement shall forthwith become of no
further force or effort and the parties shall have no liability or obligation hereunder except and
to the extent such termination results from the material breach by a party of any of its covenants
or agreements hereunder. Upon a material breach of this Agreement by Seller that is not cured by
the Closing Date, Buyer, at its sole option and as its sole remedy, may (i) enforce specific
performance, or (ii) terminate this Agreement. In the event Buyer elects to terminate this
Agreement as set forth above, Seller shall immediately return the Performance Deposit to Buyer.

ARTICLE XV

MISCELLANEOUS

          15.1 Exhibits and Schedules. All of the Exhibits and Schedules referred to in this
Agreement are hereby incorporated into this Agreement by reference and constitute a part of this
Agreement. Each party to this Agreement and its counsel has received a complete set of Exhibits
and Schedules prior to and as of the execution of this Agreement. The Seller has or may have set

50

 

forth information on a Schedule in a section thereof that corresponds to the section of this
Agreement to which it relates. A matter set forth in one section of a Schedule need not be set
forth in any other Schedule so long as its relevance to such other section of the Schedule or
section of the Agreement is reasonably apparent on the face of the information disclosed therein to
the Person to which such disclosure is being made. The parties acknowledge and agree that (a) the
Schedules to this Agreement may include certain items and information solely for informational
purposes for the convenience of Buyer and (b) the disclosure by Seller of any matter in the
Schedules shall not be deemed to constitute an acknowledgement by Seller that the matter is
required to be disclosed by the terms of this Agreement or that the matter is material.

     15.2 Expenses and Taxes.

          (a) Except as otherwise specifically provided, all fees, costs and expenses incurred by
Buyer or Seller in negotiating this Agreement or in consummating the transactions
contemplated by this Agreement shall be paid by the party incurring the same, including,
without limitation, legal and accounting fees, costs and expenses.

          (b) All required documentary, filing and recording fees and expenses, including HSR
filing fees, in connection with the filing and recording of the assignments, conveyances or
other instruments required to convey title to the Assets to Buyer shall be borne by Buyer.
Seller shall assume responsibility for, and shall bear and pay, all federal income taxes,
state income taxes and other similar taxes (including any applicable interest or penalties)
incurred or imposed with respect to the transactions described in this Agreement. Buyer
shall assume responsibility for, and shall bear and pay, all state sales and use taxes
(including any applicable interest or penalties) incurred or imposed with respect to the
transactions described in this Agreement. Seller shall assume responsibility for, and shall
bear and pay, all ad valorem, property, severance, production, and similar taxes and
assessments based upon or measured by the ownership of the Assets, the production of
Hydrocarbons or the receipt of proceeds therefrom, but exclusive of income taxes (including
any applicable penalties and interest) and assessed against the Assets by any taxing
authority for any period prior to the Effective Time, and Buyer shall be responsible for,
and shall bear and pay, all such taxes and assessments assessed against the Assets by any
taxing authority for any period that begins on or after the Effective Time. For purposes of
this Agreement, the foregoing proration of ad valorem and property taxes shall be
accomplished at the Closing based on the ratio of the number of days in the year prior to
(for Seller) and on and after (for Buyer) the Effective Time to the total number of days in
the year as applied to the amount of ad valorem and property taxes for the most recent year
for which the amount of such taxes can be finally determined at the Closing. Buyer shall be
responsible for payment to the taxing authorities of all ad valorem and property taxes for
the current year, except to the extent Seller has paid all or a portion of the ad valorem
and property taxes to the taxing authorities for the current tax year.

          15.3 Assignment. This Agreement may not be assigned by Buyer without prior written consent
of Seller. No assignment of any rights hereunder by Buyer shall relieve Buyer of any obligations
and responsibilities hereunder.

51

 

          15.4 Preparation of Agreement. Both Seller and Buyer and their respective counsel
participated in the preparation of this Agreement. In the event of any ambiguity in this
Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

          15.5 Publicity. Seller and Buyer shall consult with each other with regard to all press
releases or other public or private announcements issued or made at or prior to the Closing
concerning this Agreement or the transactions contemplated herein, and, except as may be required
by applicable Laws or the applicable rules and regulations of any governmental agency or stock
exchange, neither Buyer nor Seller shall issue any such press release or other publicity without
the prior written consent of the other party, which shall not be unreasonably withheld (it being
agreed that the exclusion of Buyer’s name from a press release by Seller shall be reasonable if
requested by Buyer).

          15.6 Notices. All notices and communications required or permitted to be given hereunder
shall be in writing and shall be delivered personally, or sent by nationally recognized overnight
courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all
postage fully prepaid, or sent by facsimile transmission (provided any such facsimile transmission
is confirmed either orally or by written confirmation), addressed to the appropriate party at the
address for such party shown below or at such other address as such party shall have theretofore
designated by written notice delivered to the party giving such notice:

	 	 	 	 	 
	 

	 	If to Seller:
	 	The Houston Exploration Company
	 

	 	 	 	1100 Louisiana Street
	 

	 	 	 	Suite 2000
	 

	 	 	 	Houston, Texas 77002
	 

	 	 	 	Attn: Jeffrey Sherrick
	 

	 	 	 	Fax: 713-830-6885
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Akin, Gump, Strauss, Hauer & Feld LLP
	 

	 	 	 	1111 Louisiana Street
	 

	 	 	 	44th Floor
	 

	 	 	 	Houston, Texas 77002
	 

	 	 	 	Attn: Christine LaFollette
	 

	 	 	 	           Jennifer De la Rosa
	 

	 	 	 	Fax: 713-236-0822
	 
	 	 	 	 
	 

	 	If to Buyer:
	 	Merit Energy Company
	 

	 	 	 	13727 Noel Road, Suite 500
	 

	 	 	 	Dallas, Texas 75240
	 

	 	 	 	Attn: General Counsel
	 

	 	 	 	Fax: 972-960-8420

          Any notice given in accordance herewith shall be deemed to have been given when delivered to
the addressee in person or by courier, or transmitted by facsimile transmission during normal
business hours, or upon actual receipt by the addressee after such notice has either been delivered
to an overnight courier or deposited in the United States Mail, as the case may be.

52

 

The parties
hereto may change the address, telephone numbers and facsimile numbers to which such communications
are to be addressed by giving written notice to the other parties in the manner provided in this
Section 15.6.

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

          15.8 Further Cooperation. Without causing any representation or warranty to survive the
Closing, Buyer and Seller shall execute and deliver, or shall cause to be executed and delivered
from time to time, such further instruments of conveyance and transfer, and shall take such other
actions as any party may reasonably request, to convey and deliver the Assets to Buyer, to perfect
Buyer’s title thereto, and to accomplish the orderly transfer of the Assets to Buyer in the manner
contemplated by this Agreement, whether before or after the Closing. If any party hereto receives
monies belonging to the other, such amount shall immediately be paid over to the proper party. If
an invoice or other evidence of an obligation is received by a party, which is partially an
obligation of both Seller and Buyer, then the parties shall consult with each other and each shall
promptly pay its portion of such obligation to the obligee.

          15.9 Filings, Notices and Certain Governmental Approvals. Promptly after Closing Buyer
shall (a) record the Assignments of the Assets and all federal assignments executed at the Closing
in all applicable real property records and/or, if applicable, all state or federal agencies, (b)
send notices to vendors supplying goods and services for the Assets of the assignment of the
Properties to Buyer and, if applicable, the designation of Buyer as the operator thereof, (c)
actively pursue the unconditional approval of all applicable Governmental Authorities of the
Assignments of the Assets to Buyer and the designation of Buyer (if applicable), as the operator
thereof and (d) actively pursue all other consents and approvals that may be required in connection
with the assignment of the Assets to Buyer and the assumption of the liabilities assumed by Buyer
hereunder, that shall not have been obtained prior to Closing. Buyer obligates itself to take any
and all action required by any Governmental Authority in order to obtain such unconditional
approval, including but not limited to, the posting of any and all bonds or other security that may
be required in excess of any applicable or existing lease, pipeline or area-wide bond.

          15.10 Entire Agreement; Conflicts. This Agreement, the exhibits hereto and the
Confidentiality Agreement collectively constitute the entire agreement among Seller and Buyer
pertaining to the subject matter hereof and supersede all prior agreements, understanding,
negotiations and discussion, whether oral or written, of the parties pertaining to the subject
matter hereof. There are no warranties, representations or other agreements among the parties
relating to the subject matter hereof except as specifically set forth in this Agreement or the
assignments and other documents expressly contemplated hereby, and neither Seller nor Buyer shall
be bound by or liable for any alleged representation, promise, inducement or statements of
intention not so set forth. In the event of a conflict between the terms and provisions of this
Agreement and the terms and provisions of any exhibit hereto, the terms and provisions of this
Agreement shall govern

53

 

and control; provided, however, that the inclusion in any of the exhibits
hereto of terms and provisions not addressed in this Agreement shall not be deemed a conflict, and
all such additional provisions shall be given full force and effect, subject to the provisions of
this Section 15.10.

          15.11 Parties in Interest. The terms and provisions of this Agreement shall be binding
upon and inure to the benefit of Seller and Buyer and their respective legal representatives,
successors and assigns. No other person shall have any right, benefit, priority or interest
hereunder or as a result hereof or have standing to require satisfaction of the provisions hereof
in accordance with their terms.

          15.12 Amendment. This Agreement may be amended only by an instrument in writing executed
by the parties hereto against whom enforcement is sought.

          15.13 Waiver; Rights Cumulative. Any of the terms, covenants, representations, warranties
or conditions hereof may be waived only by a written instrument executed by or on behalf of the
party hereto waiving compliance. No course of dealing on the part of Seller or Buyer, or their
respective officers, employees, agents or representatives, nor any failure by Seller or Buyer to
exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any
way the right of such party at a later time to enforce the performance of such provision. No
waiver by any party of any condition, or any breach of any term, covenant, representation, or
warranty contained in this Agreement, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a waiver of any
other condition or of any breach of any other term, covenant, representation or warranty. The
rights of Seller and Buyer under this Agreement shall be cumulative, and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.

          15.14 Governing Law; Jurisdiction, Venue; Jury Waiver. This Agreement and the legal
relations among the parties shall be governed and construed in accordance with the laws of the
State of Texas, excluding any conflicts of law rule or principle that might refer construction of
such provisions to the laws of another jurisdiction. All of the parties hereto consent to the
exercise of jurisdiction in personam by the courts of the State of Texas for any action arising out
of this Agreement or the other Transaction Documents. All actions or proceedings with respect to,
arising directly or indirectly in connection with, out of, related to, or from this Agreement or
the other Transaction Documents shall be exclusively litigated in courts having situs in Houston,
Harris County, Texas. Each party hereto waives, to the fullest extent permitted by applicable law,
any right it may have to a trial by jury in respect of any action, suit or proceeding arising out
of or relating to this Agreement.

          15.15 Severability. If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any adverse
manner to any party. Upon such determination that any term or other provision is invalid, illegal
or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as possible in an

54

 

acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent
possible.

          15.16 Counterparts. This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but
all of such counterparts shall constitute for all purposes one agreement. Any signature hereto
delivered by a party by facsimile transmission shall be deemed an original signature hereto.

          15.17 Like-Kind Exchange. Buyer agrees to cooperate fully with Seller in facilitating a
tax-deferred, like-kind exchange of the Assets pursuant to Section 1031 of the U.S. Internal
Revenue Code of 1986, as amended, the U.S. Treasury Regulations promulgated thereunder, and U.S.
Revenue Procedure 2000-37 (“Rev. Proc. 2000-37”). At Seller’s request, Buyer shall execute all
documents, conveyances and other instruments necessary for Seller to effectuate a like-kind
exchange. For purposes of this Section 15.17, cooperation by Buyer shall include (i)
executing with immediate delivery, before, on or after Closing, any documents and agreements
reasonably requested by Seller for such purpose and (ii) any other action reasonably requested by
Seller for such purpose, including for the purpose of satisfying the requirements set forth in Rev.
Proc. 2000-37; provided, however, that Buyer shall not be obligated to incur any costs or
liabilities or postpone the Closing in connection therewith.

          15.18 Certain Governmental Approvals. Buyer shall use its best efforts after Closing
to obtain the unconditional approval by the MMS of (i) the Assignments of Record Title to Oil and
Gas Lease(s) in the form attached hereto as Exhibit C; (ii) the Assignments of Oil and Gas
Lease Operating Rights in the form attached hereto as Exhibit D; and (iii) the Assignments
of Rights of Way in the form attached hereto as Exhibit E. In the event Buyer or its
nominated operator is elected successor operator under the operating agreements applicable to any
of the Leases, Buyer also obligates itself to ensure that it or the successor operator makes
application to the MMS to qualify as operator with respect to that portion of the Assets it will
operate. Buyer shall take any actions reasonably required of it by the MMS or any other regulatory
agencies to obtain all requisite regulatory approvals, including but not limited to, the purchase
and posting of any and all bonds, supplemental bonds or other securities which may be required of
it pursuant to OPA and 30 C.F.R §§ 250.7, 256.58, 256.59, and 256.61 in excess of any existing
lease, pipeline or area-wide bond(s). Until the governmental approval with respect to an
assignment described in this Section 15.18 is obtained, however, the following shall occur:

          (a) Seller shall continue to hold the operating rights and record title to the
applicable Assets as nominee for Buyer;

          (b) Buyer’s indemnity under Section 13.3 shall include any and all claims,
expenses of any kind or character relating to the Assets accruing after the Effective Time
including but not limited to any bonding or regulatory costs incurred by Seller;

          (c) Seller shall act as Buyer’s nominee with respect to the Assets but shall be
authorized to act only upon and in accordance with Buyer’s specific written instructions,
and Seller shall have no authority, responsibility or discretion to perform any tasks or
functions with respect to the Assets other than those which are purely administrative or
ministerial in nature, unless otherwise specifically requested and authorized by Buyer in
writing; and

55

 

          (d) Buyer shall continue to maintain and provide at its cost the insurance coverages as
reviewed by Seller under Section 8.7 of this Agreement.

          If the MMS does not, within twelve months from the Closing Date, approve all (i) the
Assignments of Record Title of the Leases into Buyer, (ii) the Assignments of Oil and Gas Lease
Operating Rights into Buyer, and (iii) the Assignments of Rights of Way into Buyer, then:

          (w) As to those assignments that the MMS has approved, the transaction contemplated by
this Agreement will proceed as to those Assets in accordance with the terms and conditions
of this Agreement, mutatis mutandis; and

          (x) As to those assignments that the MMS has not approved due to a reason other than
the MMS’s delay in addressing otherwise valid filings by Buyer, Seller, at its option, may
either:

          (i) continue to hold the operating rights, title to the Leases and the rights
of way as Buyer’s nominee, or,

          (ii) upon 30 days’ notice to Buyer, rescind the purchase and sale of the Assets
that are the subject of such non-approvals and terminate this Agreement as to those
Assets, but only as to those Assets.

          (y) The exercise by Seller of the option to rescind as specified in the preceding
clause (x)(ii), however, shall be predicated upon Seller’s reasonable determination either
that (i) Buyer has failed to comply with the requirements of 30 C.F.R. § 256.64 and not
taken any and all actions required by MMS to obtain such approval, or (ii) there had been a
Material Adverse Effect on the financial condition of Buyer after Closing.

          (z) Upon such termination and rescission, this Agreement shall be null and void as
between Buyer and Seller with respect to the non-approved Assets, and (i) Buyer shall return
to Seller the assignments and any and all other documents, materials and data previously
delivered to Buyer with respect to such Assets; and (ii) Seller shall return to Buyer the
Purchase Price allocated to such Assets in Schedule 3.8, without interest, less the
proceeds of production net of all expenses, capital expenditures, royalties, and costs of
operations (including plugging and abandonment expenses but excluding mortgage interest and
any burdens or encumbrances created by Buyer which shall be released prior to this payment)
attributable to the Leases and other rights from and after the Effective Time. In no event,
however, shall Seller ever be required to reimburse Buyer for any expenditures associated
with workovers, recompletions, or the drilling, completion or plugging and abandonment of
wells drilled or work performed by Buyer on or with respect to such Assets unless same were
necessary to perpetuate the related Leases or operating rights or other rights. Seller
shall not be liable to Buyer if MMS approvals are not obtained, except as expressly provided
in this Section 15.18.

          15.19 Adequacy of Supplemental Bonds or Arrangements for the Pledge of Securities. Prior to
execution hereof, Buyer shall confer with the MMS regarding the amounts and terms for the posting
of supplemental bonds or pledge of securities pursuant to the

56

 

provisions of 30 C.F.R §§ 256.61 and
250.7, and within a reasonable time of any MMS determination pursuant to such regulations, Buyer
(directly or through its representative) shall
satisfy the MMS requirements concerning same, including all financial responsibility requirements
under OPA.

          15.20 Special Offshore Interests. The Parties acknowledge and agree that certain of
the offshore Assets are in the nature of contract rights that are not recognized by the MMS as
“record title” or “operating rights,” and that, accordingly, the MMS will not approve, and Buyer
and Seller do not expect the MMS to approve, the assignment of these interests from Seller to
Buyer. Buyer shall ensure nevertheless that the assignment documents relating to such interests
are appropriately filed in the “non-required filing” system of the MMS. Such interests shall be
excluded from the scope of Section 15.18 for all purposes.

57

 

          IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above
written.

	 	 	 
	 

	 	SELLER:
	 
	 	 
	 

	 	THE HOUSTON EXPLORATION COMPANY

	 	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Jeffery B. Sherrick
	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	 Jeffrey B. Sherrick	 	 
	 

	 	Title:
	 	 Senior Vice President — Business
Development	 	 

	 	 	 
	 

	 	BUYER:
	 

	 	 MERIT MANAGEMENT PARTNERS I, L.P.
	 

	 	 MERIT MANAGEMENT PARTNERS II, L.P.
	 

	 	 MERIT MANAGEMENT PARTNERS III, L.P.
	 

	 	 MERIT ENERGY PARTNERS III, L.P.
	 

	 	 By: MERIT ENERGY COMPANY, General Partner

	 	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Fred N. Diem
	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 Fred N. Diem, Vice President	 	 

	 	 	 
	 

	 	MERIT ENERGY PARTNERS D-III, L.P.
	 

	 	By: MERIT MANAGEMENT PARTNERS I, General Partner
	 

	 	By: MERIT ENERGY COMPANY, General Partner

	 	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Fred N. Diem
	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 Fred N. Diem, Vice President	 	 

	 	 	 
	 

	 	MERIT ENERGY PARTNERS E-III, L.P.
	 

	 	By: MERIT MANAGEMENT PARTNERS II, L.P., General Partner
	 

	 	By: MERIT ENERGY COMPANY, Sole Member

	 	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Fred N. Diem
	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 Fred N. Diem, Vice President	 	 

	 	 	 
	 

	 	MERIT ENERGY PARTNERS F-III, L.P.
	 

	 	By: MERIT MANAGEMENT PARTNERS III, L.P., General Partner
	 

	 	By: MERIT ENERGY COMPANY, Sole Member

	 	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Fred N. Diem
	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 Fred N. Diem, Vice Presidentexv10w1

 

EXHIBIT 10.1

AMENDMENT TO THE

NOBLE
CORPORATION

1991 STOCK OPTION AND RESTRICTED STOCK PLAN

     Pursuant to the provisions of Section 15 thereof, the Noble Corporation 1991 Stock Option and
Restricted Stock Plan (the “Plan”) is hereby amended in the following respects only:

     FIRST: Section 2(h) of the Plan is hereby amended by restatement in its entirety to
read as follows:

     (h) “Disability” means the termination of an employee’s employment with the Company or
an Affiliate because of a medically determinable physical or mental impairment (i) that
prevents the employee from performing his or her employment duties in a satisfactory manner
and is expected either to result in death or to last for a continuous period of not less
than twelve months as determined by the Committee, or (ii) for which the employee is
eligible to receive disability income benefits under a long-term disability insurance plan
maintained by the Company or an Affiliate.

     SECOND: Section 2(s) of the Plan is hereby amended by restatement in its entirety to
read as follows:

     (s) “Retirement” means the termination of an employee’s employment with the Company or
an Affiliate for any reason (other than death, Disability or termination on account of
fraud, dishonesty or other acts detrimental to the interests of the Company or an Affiliate)
on or after the date as of which the sum of such employee’s age and the number of such
employee’s years of continuous service with the Company and its Affiliates (including
continuous service with a predecessor employer that is taken into account pursuant to an
acquisition agreement) equals or exceeds 60.

     THIRD: Section 9 of the Plan is hereby amended by restatement in its entirety to read
as follows:

     Section 9. Option Period and Terms of Exercise

     (a) Each Option shall be exercisable during such period of time as the Committee may
specify, but in no event for longer than 10 years from the date when the Option is granted;
provided, however, that

     (i) All rights to exercise an Option and any SARs that relate to such Option
shall, subject to the provisions of subsection (b) of this Section 9, terminate six
months after the date the Optionee ceases to be employed by at least one of the
employers in the group of employers consisting of the Company and its Affiliates,

 

 

for any reason other than death, Disability or Retirement, except that, in the event
of the termination of employment of the Optionee on account of fraud, dishonesty or
other acts detrimental to the interests of the Company or an Affiliate, the Option
and any SARs that relate to such Option shall thereafter be null and void for all
purposes. Employment shall not be deemed to have ceased by reason of the transfer
of employment, without interruption of service, between or among the Company and any
of its Affiliates.

     (ii) If the Optionee ceases to be employed by at least one of the employers in
the group of employers consisting of the Company and its Affiliates, by reason of
his death, Disability or Retirement, all rights to exercise such Option and any SARs
that relate to such Option shall, subject to the provisions of subsection (b) of
this Section 9, terminate five years thereafter.

     (b) In no event may an Option or any SARs that relate to such Option be exercised
after the expiration of the term thereof.

     IN WITNESS WHEREOF, this Amendment has been executed to be effective on this 27th day of
April, 2006.

	 	 	 	 	 
	 	NOBLE CORPORATION

 	 
	 	By:  	/s/ Mark A. Jackson
 	 
	 	 	Name:  	Mark A. Jackson 	 
	 	 	Title:  	President and Chief Operating
Officer 	 

-2-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00103-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00103-of-00352.parquet"}]]