Document:

PURCHASE AND SALE
AGREEMENT

     

    This
PURCHASE and SALE AGREEMENT (the “Agreement”) is made this 7th day of
January, 2008, by and between SIERRA–DEAN PRODUCTION COMPANY LP,
a Texas limited partnership (“Seller”) and REEF OIL & GAS INCOME AND
DEVELOPMENT FUND III, L.P., a Texas limited partnership (“Buyer”), and for purposes of Sections
8 and 11(a)(ii) herein, REEF EXPLORATION, L.P., a
Texas limited partnership (“RELP”), and SPI OPERATIONS LLC, a Texas
limited liability company (“SPI”). The Buyer and Seller may
be collectively referred to herein as the “Parties” and individually as a “Party.”

     

    RECITALS

     

    A.       WHEREAS,
Seller owns certain oil and gas properties described herein and desires to sell
certain interests in such properties; and

     

    B.        WHEREAS,
Buyer desires to purchase certain interests in such properties.

     

    C.        WHEREAS,
Buyer desires to purchase and Seller desires to sell additional interests in
such properties over the life of this Agreement;

     

    NOW,
THEREFORE, in consideration of their 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,
Buyer and Seller agree to the purchase and sale of the oil and gas properties
described below, in accordance with the following terms and
conditions:

     

    AGREEMENT

     

    1.        Purchase
and Sale.

     

    (a)     
    Property
Being Sold.
Subject to the terms and conditions of this Agreement, Seller agrees to
sell and convey and Buyer agrees to purchase and accept the Subject Property for
the Purchase Price as defined hereinafter. The term “Subject
Property” or,
where the context so requires, “Subject
Properties,”
shall mean:

     

    
      	
               
      

            	
              (i)

            	
              The
      percentages set forth in Exhibit
      “A” attached hereto of
      the right, title and interest in and to the oil, gas and mineral leases,
      described in Exhibit
      “A”, (the “Leases”) whether
      the interests in such property are fee interest, net revenue interests,
      royalty interests, leasehold interests, licenses, concessions, working
      interests, farmout rights, or other mineral rights of any nature (such
      percentages being hereinafter the “Leasehold
      Interest”);

            

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (ii)

            	
              The
      percentages set forth in Exhibit
      “B” attached hereto of
      the right, title and interest in and to the oil and/or gas wells (whether
      producing, non – producing or shut – in), the water source
      wells, and any other types of wells, including injection and disposal
      wells, located on the land covered by the Dean, Dean “B” and Dean K Units,
      all of such wells being hereinafter referred to as (the “Wells”) and such percentage
      interest in such Wells being hereinafter referred to as the “Well Interest”. The
      Dean, Dean B and Dean K Units, as such Units are described in Exhibit A to
      the JOA attached hereto as Exhibit H, including the Leases, the Wells, the
      Contracts and the Equipment being hereinafter referred to as the “Units”;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              The
      percentages set forth in the contracts and agreements listed in Exhibit
      “C” attached hereto
      (collectively, the “Contracts”) with such percentage
      interest being referred to as the “Assigned Contracts”. In the event there
      are other agreements or contracts necessary or desirable with respect to
      the operations being conducted on the Units, at its option, Buyer shall be
      entitled to the benefits of such contracts or
  agreements;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              The
      percentages set forth under the heading of “Buyer’s Interest” in Exhibit
      “D” attached hereto of
      the right, title and interest in and to all equipment, machinery, fixtures
      and other real, personal and mixed property owned by Seller and situated
      on the Units, now or as of the Closing Date, or otherwise appurtenant to
      or currently used or held for use in connection with the ownership or
      operation of the Units, including, without limitation, well equipment,
      casing, rods, tanks, boilers, buildings, tubing, pumps, motors, fixtures,
      machinery, inventory, separators, dehydrators, compressors, treaters,
      power lines, field processing facilities, flowlines, gathering lines,
      transmission lines and all other pipelines, or inventory in storage,
      including but not limited to the items listed on Exhibit “D” (the “Equipment”), with such
      percentages being referred to as the “Assigned
      Equipment”.;

            

    

     

    
      	
               
      

            	
              (v)

            	
              Originals,
      if in Seller’s possession, or copies of all of the files, records,
      information and data pertaining in any material way to the Units in
      Seller’s possession and/or to which Seller has a right (“Records”), including, without
      limitation, title records, abstracts, title opinions, title certificates,
      production records, severance tax records, geological and geophysical
      data, reservoir and well information, engineering data, proprietary data,
      accounting data and all other information relating in any way to the
      ownership or operation of the Units but exclusive of (A) any such records,
      data or information where the transfer of same is prohibited by third
      party agreements or applicable law, as to which Seller is unable to secure
      a waiver or (B) the work product of Seller’s legal counsel, excluding
      title opinions;

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (vi)

            	
              To
      the extent assignable, all governmental permits, licenses, and
      authorizations, as well as any applications for the same, related to the
      Leases, and/or Wells or the use thereof (“Permits”).

            

    

     

    The
portion of the Subject Property described in Sections l(a)(i), (ii), (iii) and
(iv) above may hereinafter be referred to as the “Buyer’s
Working Interest.”

     

    (b)          Property
Not Being Sold.
The term “Subject
Property” or, as
the context requires, “Subject
Properties,”
shall not include any of the following:

     

    
      	
               
      

            	
              (i)

            	
              Any
      interest of Seller in and to the Leases not included in the Subject
      Properties;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              Any
      interest of Seller in and to the Wells and Units not included in the
      Subject Properties;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              Any
      interest of Seller in and to the Contracts not included in the Subject
      Properties;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              Any
      interest of Seller in and to the Equipment not included in the Subject
      Properties;

            

    

     

    
      	
               
      

            	
              (v)

            	
              all
      trade credits and all accounts, instruments and general intangibles (as
      such terms are defined in the Texas Uniform Code) attributable to the
      Subject Property with respect to any period prior to the Effective
      Date;

            

    

     

    
      	
               
      

            	
              (vi)

            	
              all
      claims and causes of action of Seller (a) arising from acts, omissions or
      events, or damage to or destruction of property occurring prior to the
      Effective Date or (b) arising under or with respect to any of the
      Contracts that are attributable to periods of time prior to the Effective
      Date (including claims for adjustments or
  refunds);

            

    

     

    
      
        
        

      

      
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              (vii)

            	
              all
      rights and interests of Seller (a) under any policy or agreement of
      insurance or indemnity, (b) under any bond, or (c) to any insurance or
      condemnation proceeds or awards arising, in each case, from acts,
      omissions or events or damage to or destruction of property, occurring
      prior to the Effective Date;

            

    

     

    
      	
               
      

            	
              (viii)

            	
              all
      hydrocarbons produced and sold from the Subject Property with respect to
      all periods prior to the Effective Date, together with all proceeds from
      or of such hydrocarbons;

            

    

     

    
      	
               
      

            	
              (ix)

            	
              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 Date or (B) income or franchise
taxes;

            

    

     

    
      	
               
      

            	
              (x)

            	
              all
      amounts due or payable to Seller as adjustments to insurance premiums
      related to the Subject Property with respect to any period prior to the
      Effective Date;

            

    

     

    
      	
               
      

            	
              (xi)

            	
              all
      proceeds, income or revenue (and any security or other deposits made)
      attributable to the Subject Property for any period prior to the Effective
      Date;

            

    

     

    
      	
               
      

            	
              (xii)

            	
              all
      of Seller’s proprietary computer software, patents, trade secrets,
      copyrights, names, trademarks, logos and other intellectual
      property;

            

    

     

    
      	
               
      

            	
              (xiii)

            	
              all
      instruments of Seller that may be protected by an attorney – client
      privilege, excluding title opinions;
and

            

    

     

    
      	
               
      

            	
              (xiv)

            	
              all
      amounts resulting from hedging transactions and any gains or losses
      attributable to any hedging activities entered into prior to the Effective
      Date by Seller with respect to the Subject
  Property.

            

    

     

    The
interests described in Sections 1(b)(i), (ii), (iii) and (iv) above may
hereinafter be referred to as the “Seller’s
Working Interest”
and the Seller’s Working Interest and the Buyer’s Working Interest are
collectively hereinafter known as the “Working
Interest” represented by Seller to
equal an 82% interest in the Leases, Wells, Contracts, and Equipment in the Dean
and Dean B Units and a 100% interest in the Leases, Wells, Contracts and
Equipment in the Dean K Unit.

     

    2.      
 Purchase
Price. Buyer
agrees to pay to Seller for the Subject Property the sum of Eleven Million Five
Hundred Thousand Dollars ($11,500,000.00), subject to adjustment in accordance
with Section 8 of this Agreement (the “Purchase
Price”). At
Closing (as defined below) when the conditions set forth in Sections 7 and 8(b)
below have been satisfied, the Purchase Price shall be paid by Buyer to Seller,
by wire transfer of immediately available funds to the accounts designated by
the Parties on the Closing Date (hereinafter defined) or by check, in accordance
with the provisions of Section 8 (c) (i), (ii), (iii), (iv), (v) and
(vi).

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    3.       
 Effective
Date and Closing Date.

     

    (a)           Closing
Date. Subject to
the terms and conditions herein, the transactions contemplated by this Agreement
(“Closing”) shall take place on or
before January 9, 2008 (the “Closing
Date”). The
conveyance of the Subject Property shall take place on this date.

     

    (b) 
         Effective
Date. The
Effective Date for the purpose of distributing the revenue from the Subject
Property only shall be December 1, 2007 at 7:00 a.m. local time at the place
where the Subject Property is located. Seller and Buyer agree that Buyer shall
be entitled to 100% of the revenue (less the costs of operating) from the
Subject Property after the Effective Date.

     

    (c)           Ownership
Prior to the Closing Date. Except as specifically
stated in Section 3 (b), (i) Seller shall be entitled to all of the rights of
ownership attributable to the Subject Properties prior to the Closing Date and
(ii) Seller shall bear and be responsible for the obligations of ownership
attributable to the operation of the Subject Properties prior to the Closing
Date.

     

    (d)          Ownership
Subsequent to the Closing Date. Buyer shall be entitled to
all of the rights of ownership attributable to the Subject Properties subsequent
to the Closing Date. Buyer shall also bear and be responsible for the
obligations of ownership attributable to the operation of the Subject Properties
subsequent to the Closing Date.

    
      
        
        

      

      
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    4.         Earned
Interests.

     

    (a)          
On the Closing Date, Buyer shall acquire the Buyer’s Working interest. Seller
and Buyer agree that, for a period of five (5) years from the Closing Date (the
“Acquisition Period”), Buyer shall have the right to earn from Seller additional
Working Interest (such additional Working Interest being hereinafter referred to
as the “Earned Working Interest”) by paying the “Expenditures” as that term is
defined in Section 4 (c) below. The total of the Buyer’s Working Interest and
the Earned Working Interest (the “B&E WI”) with respect to
the Dean and Dean “B” Units may be calculated at any point in time by
multiplying by 82% (100% for the Dean “K” Unit), a fraction, the numerator of
which is the sum of the Purchase Price ($11,500,000) plus Buyer paid
Expenditures, and the denominator of which is the sum of $23,000,000 (deemed to
be the value of the Buyer’s and Seller’s interest in the Units) plus Buyer and
Seller paid Expenditures, (the “WI
Fraction”).   For example, if Buyer paid Expenditures are
$10,000,000, and Seller has made no Expenditures, the B&E WI for the Dean
and Dean “B” Units would be calculated as $21,500,000 divided by $33,000,000,
multiplied by 82%, which equals 53.424242%. Therefore, Buyer’s Earned Working
Interest at that point in time for the Dean and Dean “B” Units would equal
12.424242% (53.424242% minus 41%). A like example for the Dean K Unit would
yield a 65.151515% B&E WI ($21,500,000/$33,000,000 X 100%). The “Monthly Earned Working Interest”
for a given month would be calculated by subtracting from the B&E WI
at the end of that month, the B&E WI for the last day of the preceding
month. Following the Closing Date, on the 25th day of
each month, Buyer agrees to provide Seller with a notice detailing the Monthly
Earned Working Interest for the previous month and the updated B&E WI and
Seller’s Working Interest as of the beginning of the month in which the notice
is sent. Notwithstanding any other provision in this Agreement, the Monthly
Earned Working Interest earned in a particular month shall be deemed part of the
B&E WI and no longer part of the Seller’s Working Interest at the end of
that particular month. In the event Buyer incurs Expenditures in a particular
month but does not have knowledge of such Expenditures until a later month, the
Monthly Earned Working Interest, B&E WI and Seller’s Working Interest shall
be retroactively adjusted to reflect such Expenditures in the proper
month.

     

    (b)           Buyer
and Seller further agree that during the Acquisition Period, the Seller’s
Working Interest as adjusted above shall be treated as a “Carried Working Interest.” A
Carried Working Interest shall not be required to bear any part of the
Expenditures attributable to Seller’s Working Interest; provided, however, that
Seller shall be responsible for all costs attributable to the Seller’s Working
Interest that are not Expenditures. Upon the termination of the Acquisition
Period, the Seller’s Working Interest shall no longer be a Carried Working
Interest and shall bear its share of Expenditures as well as its share of Lease
Operating Expenses, as that term is defined below.

     

    (c)           Regardless
of whether the expenditures are treated as capitalized expenditures or operating
expenses, the term “Expenditures” shall include
all expenditures for operations on the Units made during the Acquisition Period
pertaining to:

     

    
      	
               
      

            	
              (i)

            	
              capitalized
      costs (whether for income tax or for Generally Accepted Accounting
      Principles), regardless of nature;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              drilling,
      testing, completing, and equipping costs for all new wells, both producers
      and water injection wells;

            

    

     

    
      	
            	
              (iii) 

            	
              the
      return of shut-in wells to
production;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              stimulations
      of producing wells, including clean outs and acid
  jobs;

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (v)

            	
              stimulations
      of water injection wells, including clean outs and acid
    jobs;

            

    

     

    
      	
            	
              (vi) 

            	
              conversion
      of producing wells to injection
wells;

            

    

     

    
      	
            	
              (vii) 

            	
              re-entry
      of plugged and abandoned injector
wells;

            

    

     

    
      	
               
      

            	
              (viii)

            	
              routine
      well repairs on all wells, producers or water
  injectors;

            

    

     

    
      	
               
      

            	
              (ix)

            	
              purchase,
      new or replacement, or repair of personal property or equipment, including
      but not limited to pumping units, including routine maintenance
      thereon;

            

    

     

    
      	
            	
              (x) 

            	
              trunkline
      repair and maintenance;

            

    

     

    
      	
               
      

            	
              (xi)

            	
              facility
      and equipment repairs and additions, including storage facilities,
      heater-treaters, free water knockout vessels, three-phase separators,
      tri-plex injection pumps, gas gather system, metering facilities,
      pipelines, flowlines, three phase test manifold satellite stations, and
      office facilities and equipment;

            

    

     

    (d)          Within
25 days of the end of each month, Buyer agrees to provide Seller with an
accounting of all funds spent during the previous month for which Buyer has
received invoices from vendors. This accounting will identify each payment made
during the month as an Expenditure or a Lease Operating Expense. “Lease
Operating Expense” is defined as a payments made for operations on the Units
which are not Expenditures. Buyer and Seller agree that the accounting discussed
in this paragraph is for informational purposes only, and Seller and its
successors and assigns shall have no right to approve or disapprove Buyer’s
designation of a payment as an Expenditure or a Lease Operating
Expense.

     

    (e)           Seller
and Buyer agree that Seller shall not dissolve itself during the Acquisition
Period without the written consent of Buyer.

     

    (f)           Seller
and Buyer agree that within sixty (60) days of the end of each Fiscal Quarter
(as defined below), Seller shall deliver to Buyer a recordable assignment, on
the form attached hereto as Exhibit
“F”, of the
cumulative Monthly Earned Working Interests accrued by Buyer during the previous
quarter. A “Fiscal
Quarter” shall
end on March 31, June 30, September 30 and December 31 of each
year.

     

    (g)           Notwithstanding
anything to the contrary contained in this Agreement, prior to the earlier of
date twenty – four months after the Closing Date or January 9, 2010 (the
“Required Contribution Date”), the total of the Expenditures made by Buyer shall
be at least twenty million dollars ($20,000,000) (the “Required
Contribution”).

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (h)         
In the event Buyer fails to make the Required Contribution by the Required
Contribution Date, Seller shall have the option for a period of thirty (30) days
after the Required Contribution Date to reacquire the Subject Property and
Earned Working Interest for an amount equal to the Repurchase Price (as defined
below). In connection with Buyer’s receipt of the Repurchase Price, Buyer agrees
to execute, acknowledge and deliver any agreements necessary to effectuate the
repurchase of the Subject Property and the Earned Working Interest by Seller or
as may be reasonably requested by Seller. The “Repurchase
Price” shall be
equal to the total of the Purchase Price, plus interest on the Purchase Price at
a rate of 10% accruing from the Closing Date, plus the total Buyer’s paid
Expenditures, plus interest at a rate of 10% accruing from the first of the
month in which Buyer made each Expenditure. If Buyer does not make the Required
Contribution, Seller shall have no other recourse against Buyer aside from the
right, denoted herein, to reacquire the Subject Property and the Earned Working
Interest. Specifically, but not by way of limitation, Seller shall have no right
to sue Buyer for damages or to demand specific performance of the Required
Contribution.

     

    5.        
Representations
and Warranties of Seller. Seller represents and
warrants to Buyer as of the date hereof and as of the Closing Date, as
follows:

     

    (a)        
  Authority. Seller is a limited
partnership duly organized and validly existing under the laws of the State of
Texas and is qualified or licensed to conduct business in each of the
jurisdictions in which it owns the Leases or acts as the operator of the Units.
Seller has full legal power, right and authority to carry on its business as
such is now being conducted, to own and to transfer Seller’s interest in the
Units and the Permits to enter into and to perform its obligations under the
terms of this Agreement, and to carry out the transactions contemplated by this
Agreement.

     

    (b)           Valid
Agreement. The
execution and delivery by Seller of this Agreement and the consummation of the
transactions contemplated by this Agreement will not: (i) violate, nor be in
conflict with, any provision of Seller’s certificate of formation or certificate
of limited partnership, limited partnership agreement or other governing
documents;(ii) violate or be in conflict with any material agreement or
instrument to which Seller or the Units are bound; (iii) violate or be in
conflict with any governmental license, permit, law, statute, rule, decree,
regulation, judgment, order, ruling or decree applicable to Seller or the Units;
or (iv) create any default (with due notice or lapse of time or both) or any
lien or encumbrance or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license or agreement to which Seller or Units are
bound.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

     

    (d)           Special
Warranty. Except
as set forth on Schedule
5(d), Seller
shall warrant title to and defend all and singular the Subject Property and the
Earned Working Interest to be conveyed to Buyer, its successors and assigns,
against every person whomsoever lawfully claiming the same or any part thereof,
by, through or under Seller, but not otherwise.

     

    (e)           Brokers. Seller has incurred no
obligation or liability, contingent or otherwise for a brokers’ or finders’ fee
with respect to this transaction for which Buyer shall have any obligation or
liability.

     

    (f)           Bankruptcy. There are no bankruptcy,
reorganization, or similar arrangement proceedings pending, being contemplated
by or, to Seller’s knowledge, threatened against it.

     

    (g)           Suits and
Claims. No suit,
action, claim, or other proceeding is now pending or, to Seller’s best
knowledge, threatened before any court or governmental agency against Seller,
(except that certain suit, Norman Rockmaker v. Ronnie L. Steinocher, et al, No.
CV 45,624, filed in the District Court for the 385th Judicial District, Midland
County, Texas, hereinafter the Steinocher suit of which Buyer has been informed,
in which Seller is a named Third Party), or the Units. To Seller’s knowledge, no
notice in writing from any governmental authority or any other person has been
received by Seller claiming any violation of or noncompliance with any law with
respect to the Units.

     

    (h)           Agreements. To Seller’s best knowledge,
all of the Contracts, Leases and Permits are in full force and effect and Seller
is not in breach of, and with the lapse of time or the giving of notice, or
both, will not be in breach of, any of its obligations thereunder except to the
extent such a breach would not have a material adverse effect on the value of
the Units. To Seller’s best knowledge, no other party is in breach of, or with
the giving of notice, or both, would be in breach of any of its obligations
thereunder. All of the Contracts pertaining to the Units and the Permits are
listed on Exhibit
“C”.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (i)           
Taxes. All due and payable ad
valorem, property, production, severance and similar taxes and assessments based
on or measured by the ownership of property or the production of hydrocarbons or
the receipt of proceeds therefrom on the Units, for any periods prior to the
Closing Date, have been properly paid except for ad valorem taxes due to Cochran
County for the year 2006 and 2007.

     

    (j)           
Liens. The Subject Property will be
conveyed free and clear of all liens, mortgages, pledges and encumbrances, and
there will be no liens, mortgages, pledges or encumbrances encumbering the Units
or Permits.

     

    (k)           Governmental
Authorizations.
Seller has obtained and is maintaining all federal, state and local
governmental licenses, permits, franchises, orders, exemptions, variances,
waivers, authorizations, certificates, consents, rights, privileges and
applications therefore that are presently necessary or required for the
ownership and operation of the Units as currently owned and operated (including,
but not limited to, those required under Environmental Laws).

     

    (1)           Outstanding
Capital Commitments.
Schedule
5 (1) contains a complete and
accurate list of all authorities for expenditure or other commitments of Seller
related to the Wells or for capital expenditures for which all of the activities
anticipated in such AFE’s or commitments have not been completed by the date of
this Agreement.

     

    (m)          Compliance
with Laws. To
Seller’s best knowledge, the Units and the Seller’s use thereof are in
compliance with the provisions and requirements of all laws, rules, regulations,
ordinances, orders, decisions and decrees of all governmental authorities having
jurisdiction with respect to Seller or the Units or the ownership and operation
thereof except for such noncompliance which would not have a material adverse
effect on the ownership, operation or value of the Units.

     

    (n)           No Third
Party Options. No
third party holds any preferential right, option, agreement, or commitment to
purchase any interest in the Units. No third party consents shall be required to
consummate the transaction, in whole or in part contemplated
herein.

     

    (o)           Equipment. To Seller’s best knowledge,
the Equipment used in conjunction with Units currently operated by Seller has
been maintained in operable repair, working order and operating condition
consistent with standard industry practices.

     

    (p)           Condemnation. To Seller’s best knowledge,
there is no actual or threatened taking (whether permanent, temporary, whole or
partial) of any part of the Units by reason of condemnation or the threat of
condemnation by a governmental authority.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (q)         
Suspense
Accounts. All
proceeds of production attributable to the Units are currently being properly
and timely paid directly to Seller or its authorized agents without the
furnishing of indemnity, other than the customary warranty contained in the
division orders, transfer orders or gas sale contracts that have been furnished
to Buyer, and no portion of such proceeds are being held in suspense, except for
those non-working interest owners, listed on Schedule 5 (q) attached
hereto, who have not previously executed Division Orders with the existing
purchaser of oil and gas from the Units.

     

    (r)          
Records. Seller has made available to
Buyer all of Seller’s records, which consist of existing Lease, Well and title
files, production records, Permits, Contracts, division orders and other
information, to the extent not subject to confidentiality agreements, in
Seller’s possession, custody or control relating to the Units. To Seller’s best
knowledge, Seller’s records and all statements made by Seller to Buyer are in
all material respects accurate.

     

    (s)          
Wells. Each Well has been drilled
and completed within the Units or within the limits otherwise permitted by
contract, pooling or unit agreement and by law. No Well is subject to penalties
on allowables after the date hereof because of any overproduction or any other
violation of applicable laws, rules, regulations or permits or judgments, orders
or decrees of any court or governmental body or agency, which would prevent such
Well from being entitled to its full legal and regular allowable from and after
the date hereof as prescribed by any court or governmental body or
agency.

     

    (t)          
Schedules
and Exhibits. To
Seller’s best knowledge, all Schedules and Exhibits to this Agreement, and all
information referred to therein are true and correct in all material
respects.

     

    (u)          Prepayments
and Wellhead Imbalances.
Seller is not obligated, by virtue of a production payment, prepayment
arrangement under any contract for the sale of hydrocarbons and containing a
“take or pay”, advance payment or similar provision, gas balancing agreement or
any other arrangement, including but not limited to, a hedging contract to
deliver hydrocarbons produced from the Units at any time after the Effective
Date without then or thereafter receiving full payment therefore.

     

    (v)          Maintenance
of Interests.
Seller has maintained and operated the Units in a reasonable and prudent
manner, maintained insurance and bonds now in force with respect to the Units,
however, Seller has not paid when due those costs and expenses coming due and
payable in connection with the Units, listed on Schedule 5(v).

     

    
      
        
        

      

      
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    (w)         
Independent
Evaluation.
Seller is an experienced and knowledgeable operator/investor in the oil
and gas business. Seller has been advised by and has relied solely on its own
expertise and legal, tax, reservoir engineering, environmental and other
professional counsel concerning this transaction, the Units and value
thereof.

     

    (x)          
Environmental
Matters. To
Seller’s best knowledge, Seller is not in material violation of any
Environmental Laws (as such term is defined in Section 11)
applicable to the Units, or any material limitations, restrictions, conditions,
standards, obligations or timetables contained in any Environmental Laws. No
notice or action alleging such violation is pending or, to Seller’s best
knowledge, threatened against the Units. To the best of Seller’s knowledge, no
Environmental Defect (as defined below) exists in, on or under the Units as of
the Closing Date. “Environmental Defect” means a condition, in or under the
Units (including without limitation, air, land, soil, surface and sub-surface
strata, surface water, ground water or sediments) that causes any portion of the
Units to be in material violation of an Environmental Law or a condition that
can be reasonably expected to give rise to costs or liability under applicable
Environmental Laws, except for that certain October 9, 2007 initial report issue
by the Texas Railroad Commission and referred to in that certain Phase I
Environmental Site Assessment, dated December 12, 2007, prepared by Covington
and Associates, Environmental Engineers and Consultants.

     

    (y)         
Approvals. Seller has identified
and obtained all permissions, approvals and consents required to consummate the
transactions contemplated in this Agreement.

     

    (z)          
Net
Revenue Interest.
After crediting the Davric Corporation for its 18% working interest in
the Dean and Dean B Units, Seller owns an 82% working interest and a 65.6% net revenue
interest in the Dean Unit, an 82% working interest and a 65.7451% net revenue
interest in the Dean B Unit and a 100% working interest and a 68.75% net revenue
interest in the Dean K Unit.

     

    (aa)        
Expenses
and Charges. Except for
those listed in Section 5 (v), Seller has paid, or will pay, all bills,
debts, expenses or charges relating to the Units as of the Closing in the normal
course of its business operations. Royalties and all other lease burdens have
been properly and timely paid in accordance with the Leases or other applicable
Contracts.

     

    6.       
Representations
and Warranties of Buyer.
Buyer represents and warrants to Seller as of the date hereof and as of
the Closing Date, as follows:

     

    (a) Authority. Reef Oil & Gas Income
and Development Fund III,
L.P., is a limited partnership duly organized and validly existing under
the laws of the State of Texas and is qualified to conduct business in the State
of Texas.  Buyer has
full legal power, right and authority to carry on its business as such is now
being conducted, to enter into and perform this Agreement and to undertake the
transactions contemplated hereby.

     

    
      
        
        

      

      
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    (b)           Valid
Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not violate, nor be in conflict
with: (i) any provision of Buyer’s governing documents; (ii) any material
agreement or instrument to which Buyer is a party or by which Buyer is bound; or
(iii) any judgment, order, ruling or decree applicable to Buyer as a party in
interest or any law, rule or regulation applicable to Buyer.

     

    (c)           Authorization. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby are duly
and validly authorized by all requisite limited partnership action on the part
of Buyer. This Agreement constitutes the legal, valid and binding obligation of
Buyer enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy or other similar laws affecting the
rights and remedies of creditors generally as well as to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

     

    (d)           Independent
Evaluation. Buyer
is an experienced and knowledgeable investor in the oil and gas business. Buyer
has been advised by and has relied solely on its own expertise and legal, tax,
reservoir engineering, environmental and other professional counsel concerning
this transaction, the Units and value thereof.

     

    (e)           Brokers. Buyer has incurred no
obligation or liability, contingent or otherwise for brokers’ or finders’ fees
with respect to this transaction for which Seller shall have any obligation or
liability.

     

    (f)           Bankruptcy. There are no bankruptcy,
reorganization or arrangement proceedings pending, being contemplated by or to
the best knowledge of Buyer threatened against it.

     

    (g)           Qualification
as Operator.
Buyer represents and warrants that its affiliate, RELP is qualified with
the State of Texas to operate oil and gas properties.

     

    7.         Conditions
to Closing.

     

    (a)         
Seller’s
Conditions The obligations of
Seller at Closing under this Agreement are subject to the fulfillment, prior to
or at Closing, of each of the following conditions, any one or more of which may
be waived, in whole or in part, by Seller:

     

    
      
        
        

      

      
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    (i)           
that all representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects at Closing;

     

    (ii)           that
Buyer shall have performed and satisfied in all material respects all covenants
and agreements required by this Agreement to be performed or satisfied by Buyer
at Closing; and

     

    (iii)          at
the Closing Date, no suit, action or other proceeding shall be pending or
threatened in which it is sought to restrain or prohibit the performance of or
to obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.

     

    (iv)          Buyer
shall have executed, acknowledged and delivered, as appropriate, to Seller all
closing documents and funds described in Section
8(c).

     

    (b)        
 Buyer’s
Conditions The obligations of Buyer
at Closing under this Agreement are subject to the fulfillment, prior to or at
Closing, of each of the following conditions, any one or more of which may be
waived, in whole or in part, by Buyer:

     

    
      (i)            All
representations and warranties of Seller contained in this Agreement and in any
agreements or documents delivered in connection herewith shall be true and
correct in all material respects as of Closing.

       

      (ii)           Seller
shall have performed and satisfied in all material respects all covenants and
agreements required by this Agreement to be performed or satisfied by Seller at
Closing.

       

      (iii)          At
the Closing Date, no suit, action or other proceeding shall be pending or
threatened in which it is sought to restrain or prohibit the performance of or
to obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.

       

      (iv)          Seller
shall have taken all necessary actions to remove or discharge any liens,
security interests, and encumbrances covering the Units.

       

      (v)           All
necessary permissions, approvals and consents required from the owners of the
leasehold interests owned or leased by Seller shall be obtained and delivered to
Buyer by or at Closing.

       

      (vi)          Seller
shall have executed, acknowledged and delivered, as appropriate, to Buyer all
closing documents described in Section
8(b).

       

      
        
          
          

        

        
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    8.       
Closing. This Agreement may be
executed by either party and transmitted to the other party by facsimile
transmission, and the facsimile transmission shall be deemed to be an original.
The transmitting party will also send an originally signed Agreement to the
other party via overnight delivery service, such as Fed Ex or UPS. Seller shall
provide Buyer a “Preliminary
Closing Settlement Statement” two days prior to Closing
respecting adjustments to the Purchase Price. At the Closing, the following
shall occur:

     

    (a)          Buyer
and Seller shall agree upon a “Closing
Settlement Statement,”
which shall include adjustments to the Purchase Price, which are known as
of the Closing Date, as follows:

     

    
      (i)       
    The estimated amount to be received by Buyer, including
any applicable bonuses, for Seller’s interest in the quantity of saleable oil in
storage on December 1, 2007, net of all applicable taxes and net of any charges
attributable to such oil that are deducted under the Contracts by the purchaser
before remitting payment, which estimated amount shall be corrected to the
actual amount received in the Final Settlement Statement (defined
below);

       

      (ii)           The
amount of all operating and capital expenditures that are attributable to the
Leases, Wells, Contracts or Equipment for the period from December 1,2007 to the
Closing Date;

       

      (iii)          The
amount received by Seller for the sale or other disposition of produced natural
gas and crude oil, net of all taxes for which Seller was not reimbursed, for the
period from December 1, 2007 to the Closing Date;

       

      (iv)          The
amount of proceeds (other than accounts receivable) received by Seller for
disposition, after December 1, 2007, of any substances produced from the Subject
Property;

       

      (v)           Any
ad valorem, property, production, severance and similar taxes and assessments on
the Units for the calendar year 2006 shall be paid by the Seller. Upon receipt
of an invoice for ad valorem taxes for 2007, Buyer shall forward a copy of same
to Seller and Seller shall be responsible for payment to Buyer of 23/24ths of
the same within thirty (30) days of receipt of such statement. In the event
Seller receives such ad valorem tax statement, Seller shall forward such
statement to Buyer and Seller shall deliver 23/24ths of the ad valorem tax to
Buyer prior to the date on which such taxes are due and payable. It is the
intent of this provision that Seller shall continue to bear its proportionate
part of ad valorem taxes after the Closing Date.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

     

    In the
event the parties are unable to agree upon a Closing Settlement Statement in a
timely matter, they agree that the Closing Date may be extended by a period of
up to ten (10) days.

     

    (b)           Seller
or SPI in Seller’s behalf as its General Partner, as appropriate, shall execute,
acknowledge and deliver the following to Buyer:

     

    
      (i)           
an Assignment, Conveyance and Bill of Sale in a mutually satisfactory and
recordable form containing a special warranty of title, the form of which is
attached hereto as Exhibit
“I” (the
“Assignment”);

       

      (ii)           properly
executed Railroad Commission Form P - 4’s assigning all operations on the units
to RELP,

       

      (iii)          letters-in-lieu
of transfer orders, and other instruments as are necessary to cause all
purchasers of production from the Units to pay all proceeds from such production
to RELP, as operator,

       

      (iv)          the
joint operating agreement in form attached hereto as Exhibit
“H”

       

      (v)           possession
of the Subject Properties, Equipment, Contracts, Leases, Records, Wells and
Permits,

       

      (vi)          evidence
of release or termination statements in form and substance satisfactory to Buyer
releasing and/or terminating all liens and security interests securing
indebtedness and covering any of the Units; and

       

      (vii)         execute,
acknowledge and deliver any other agreements provided for herein or necessary to
effectuate the transactions contemplated hereby as may be reasonably requested
by Buyer.

       

    

    
      (c)           Buyer
shall deliver the Purchase Price, as adjusted pursuant to Sections
8,9 and 10, to
Seller by allocating it as follows:

    

    
      (i)       
    $7,986,502.11 to CITIBANK, N.A., formerly known as
Citibank Texas, N.A., which was formerly known as First American Bank, SSB (by
wire transfer). Such funds represent a payment of the note and accrued interest
(Reef herein assumes the responsibility for the December 2007 payment of
interest.);

      (ii)           $1,732,299.19
to DAVRIC CORPORATION, a Nevada corporation (by wire transfer). Such funds
represent a payment of the note and accrued interest (Reef herein assumes the
responsibility for the December 2007 payment of interest.);

      (iii)          $131,421.26
to the Hockley and Cochran County Tax Assessor Collector (by
check);

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      (iv)          $102,637.67
to the following parties (Vendors referred to in Section 5 (v)) (by
check);

      (v)           $
47,139.77 to Seller (by wire transfer);

      (vi)          $1,500,000
to Seller as a one-year engineering and geology consulting fee.

       

      
        (d)           The
Parties believe that there is no existing Operating Agreement. However, if there
is an Operating Agreement that affects the Units, SPI agrees to resign as
operator.

         

        (e)           The
Parties shall execute and deliver any other necessary side letter agreements to
fulfill the purpose of this Agreement.

         

        (f)           In
the event the Closing Date is extended pursuant to Section 8(a) above, SPI on
behalf of Seller agrees to maintain the Units, including but not limited to
Buyer’s Working Interest, in a reasonable and prudent manner, in full compliance
with applicable law and orders of any governmental authority, to pay when due
all costs and expenses coming due and payable in connection with the Units,
including but not limited to Buyer’s Working Interest, and to perform all of the
covenants and conditions contained in the Leases and Contracts and all related
agreements.

      

    

     

    9.         Post-Closing
Covenants.

     

    (a)           Final
Settlement Statement.
Not more than ninety (90) days after the Closing, Seller shall prepare
and deliver to Buyer, in accordance with this Agreement, a Final Settlement
Statement setting forth each adjustment or payment which was not finally
determined as of the Closing and showing the calculation of such adjustments. As
soon as practicable after receipt of the Final Settlement Statement, Buyer shall
deliver to Seller a written report containing any changes which Buyer proposes
be made to the Final Settlement Statement. The parties shall undertake with
diligence to agree with respect to the amounts due pursuant to such post-Closing
adjustments no later than one hundred eighty (180) days after the Closing.
The date upon which such agreement is reached or upon which the Final Purchase
Price is established shall be called the “Final
Settlement Date”.
In the event that (1) the Final Purchase Price is more than the amount
paid to Seller at Closing, Buyer shall pay to Seller in immediately available
funds the amount of such difference, or (2) the Final Purchase Price is less
than the amount paid to Seller at Closing, Seller shall pay to Buyer in
immediately available funds the amount of such difference. Payment by Buyer or
Seller shall be made within ten (10) business days of the Final Settlement
Date.

     

    (b)           Additional
Payments Received.
After the Final Settlement Date, Seller covenants and agrees that it will
hold and promptly transfer and deliver to Buyer, from time to time as and when
received by it, any cash, checks with appropriate endorsements (using its
reasonable efforts not to convert such checks into cash), or other property that
it may receive which belongs to Buyer, and will account to Buyer for all such
receipts.

     

    
      
        
        

      

      
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    (c)           Assumption
of Obligations.
From and after the Closing Date, Buyer assumes, will be bound by, and
agrees to perform all express and implied covenants and obligations of Seller
relating to the Subject Property, whether arising under (i) the Leases, prior
assignments of the Leases, the Contracts, the Permits or any other known
contractually-binding arrangements to which the Subject Property (or any
component thereof) may be subject and which will be binding on Buyer and/or the
Subject Property (or any component thereof) after the Closing or (ii) any
applicable laws, ordinances, rules and regulations of any governmental or
quasi-governmental authority having jurisdiction over the Subject Property.
Buyer also assumes Buyer’s proportionate part of the expenses and costs of
plugging and abandoning the Wells and restoration of operation sites, all in
accordance with the applicable laws, regulations and contractual provisions.
Buyer shall assume the risk of any change in the condition of the Subject
Property after the Closing Date.

     

    (d)           The
Buyer understands and agrees that the Subject Property is subject to all
existing Contracts relating to the Subject Property. Buyer shall assume and be
responsible for its proportionate share of all such obligations as of the
Closing Date.

     

    (e)           Buyer
and Seller agree to execute and deliver from time to time such further
instruments and do such other acts as may be reasonably necessary to effectuate
the purposes of this Agreement.

     

    (f)           Seller
agrees to execute any documents which it has the authority to execute, whether
before or after the Closing, to aid Buyer in clearing or perfecting title and
ownership to the Subject Property, to aid RELP in assuming duties as operator of
Units, and to facilitate the receipt of the proceeds of the sale of the
production therefrom and attributable thereto. Buyer shall make any request for
execution of such documents in writing and shall provide Seller with a copy of
the document.

     

    (g)           Seller
agrees that without the prior written consent of Buyer, which consent shall not
be unreasonably withheld, Seller shall not (i) enter into any agreement or
arrangement transferring, selling or encumbering any of the Seller’s Working
Interest; (ii) grant any preferential or other right to purchase or agree to
require the consent of any party to the transfer and assignment of the Seller’s
Working Interest to Buyer; or (iii) incur or agree to incur any contractual
obligations or liability (absolute or contingent) with respect to the Seller’s
Working Interest. Any conveyance or assignment is void unless the assignee
agrees to be bound by this Agreement and agrees that Seller’s Working Interest
are subject to this Agreement. It shall not be unreasonable for Buyer to
withhold consent if Buyer determines, in good faith, that adequate protections
do not exist to guarantee the proper and timely performance of all of the
obligations under this Agreement. Upon request, Buyer shall be provided with
such information sufficient to permit evaluation of the financial responsibility
of any proposed assignee.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (i)           
Seller agrees to take no action or enter into any agreement that would encumber
or create a lien or security interest in the Working interest.

     

    (j)           
Within 30 days of the Closing, the Parties agree to execute an agreement setting
forth the allocations to and the responsibilities of the Parties for federal
income tax purposes in accordance with the terms set forth on Exhibit
“G” hereto.

     

    (k)          
Seller agrees to maintain the Seller’s Working Interest in a reasonable and
prudent manner, in full compliance with applicable law and orders of any
governmental authority, to pay when due all costs and expenses coming due and
payable (other than Carried Expenditures) in connection with Seller’s Working
Interest and to perform (or cooperate with Buyer’s performance of) all of the
covenants and conditions contained in the Leases and Contracts and all related
agreements.

     

    10.       Costs and
Revenues After Effective Date. Seller shall be responsible
for the payment of all costs, liabilities and expenses incurred in the ownership
and operation of the Units prior to the Closing Date and not yet paid or
satisfied. Buyer shall be responsible, as operator, for payment (at Closing or
thereafter if not reflected on the Preliminary Closing Settlement Statement) of
all costs, liabilities and expenses incurred in the ownership and operation of
the Units after the Closing Date, such costs to be charged to the various
working interest owners as appropriate. Such costs and expenses shall include
any necessary and reasonable expenses incurred by Seller in the operation,
protection or maintenance of the Units. All hydrocarbons produced from the Units
prior to the Effective Date, all oil stock balances held in the tanks as of the
Effective Date, and all proceeds from the sale thereof shall be the property of
Seller. All hydrocarbons from the Subject Property produced after the Effective
Date shall for accounting purposes be credited to the Buyer. Seller shall remit
production proceeds, if any, received by Seller from sale of hydrocarbons
belonging to Buyer, less expenses which Buyer is responsible for paying pursuant
to this section, to Buyer immediately upon receipt. To the extent possible,
adjustments shall be made to the Purchase Price to account for such costs and
revenues in the Preliminary Settlement Closing Statement or if not liquidated by
such date, they shall be addressed in the Final Settlement
Statement.

     

    
      
        
        

      

      
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    11.       Assumed
Obligations and Indemnification.

     

    (a)          
 Assumed
Obligations.

     

    (i)            Buyer
shall not assume, be obligated to or be liable for any liabilities of Seller,
whether known or unknown, absolute or contingent, including without limitation,
any demands, obligations or expenses of any kind whatsoever occurring, arising
out of or relating to Seller’s (or Seller’s predecessors in title) interest in
the Units prior to the Closing Date including, but not limited to, any
Environmental Defect or breach of Environmental Laws (defined below) existing
prior to the Closing Date, tax, securities law, personal injury and royalty and
other contractual liabilities. “Environmental Laws” means all applicable local,
state, and federal laws, rules, regulations, and orders regulating or otherwise
pertaining to (a) the use, generation, migration, storage, removal, treatment,
remedy, discharge, release, transportation, disposal, or cleanup of pollutants,
contamination, hazardous wastes, hazardous substances, hazardous materials,
toxic substances or toxic pollutants, (b) surface waters, ground waters, ambient
air and any other environmental medium on or off any Lease or (c) the
environment or health and safety-related matters, including the following as
from time to time amended and all others whether similar or dissimilar: the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials
Transportation Act, as amended, the Toxic Substance Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, and all regulations
promulgated pursuant thereto; provided, however, Buyer shall assume liabilities
and expenses relating to any breach of Environmental Laws not existing prior to
the Closing Date.

     

    (ii)           Seller
has provided Buyer with copies of all Contracts and Leases related to the
Subject Property and Buyer understands and agrees that the Subject Property is
subject to all such Contracts and Leases. Buyer shall assume and be responsible
for its proportionate share of all obligations arising under such Contracts and
Leases as of the Closing Date. RELP shall assume all rights and duties of the
operator of the Units and Wells that are presently operated by SPI, including
but not limited to all necessary filings with state agencies to properly
effectuate such transfer.

     

    (iii)          Buyer
and Seller agree to execute and deliver from time to time such further
instruments and to perform such other acts as may be reasonably necessary to
effectuate the purposes of this Agreement.

     

    (b)         
Seller’s Indemnification. Except as specifically
provided otherwise herein, Seller agrees to indemnify and hold harmless Buyer,
its officers, directors, employees and agents, from all claims, losses, costs,
liabilities and expenses (including reasonable attorneys’ fees and costs)
arising out of or resulting from the Seller’s ownership or operation of the
Units prior to the Closing Date, including any material title defects, breach of
Environmental Laws prior to the Closing Date and attributable to activities on
or related to the Units held by the Seller prior to the Closing Date as well as
any tax, securities law, personal injury and royalty and other contractual
liabilities, (specifically including any claims made against the Units as a
result of the Steinocher suit); provided, however, that the Seller’s
indemnification obligations hereunder shall be limited solely to obligations
relating to such claims, losses, costs, liabilities and expenses arising out of
or resulting from Seller’s ownership, leasing, operation, or other activities on
the Units (specifically including the Steinocher suit) prior to the Closing Date
or any breach of Environmental Laws prior to the Closing Date.

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    (c)           Methods
of Seller’s Indemnification. Buyer shall notify Seller
promptly upon its determination that Seller has incurred indemnification
obligations under Section 11(b). Such notice shall specify the dollar amount of
the indemnification obligations. Seller shall then have 60 days to pay the
indemnification obligation (or if it selects (ii) below to commence to pay the
indemnification obligation) to Buyer using one of the following
methods:

    

    (i)       
    a single cash payment in the amount of the
indemnification obligations (the “Cash Payment”) from Seller to
Buyer;

    

    (ii)           a
deduction by Buyer of an amount equal to the amount of the indemnification
obligations from payment due to Seller as a result of Seller’s Carried Working
Interest; provided, however, (i) such indemnification obligations are less than
$50,000 and (ii) the amount due to Seller as a result of Seller’s Carried
Working Interest over the previous three calendar months is greater than or
equal to the amount of such indemnification obligations; or

    

    (iii)          an
increase in B&E WI by amending Section 4(a) of this Agreement to include the
amount of the indemnification obligations in the numerator, which numerator
includes the sum of the Purchase Price plus the Buyer paid Expenditures and
subtracting the amount of the indemnification obligations from the denominator
which denominator includes $23,000,000 plus the Buyer and the Seller paid
Expenditures, with both the addition and the subtraction discussed above being
deemed to have occurred at the Closing Date. In connection with the
indemnification method described in Section 11(c)(iii), there will be a
corresponding deduction of Seller’s Working Interest in the same amount as the
increase in Buyer’s Working Interest.

    
      
         

      

      
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    (d)           Notification. As soon
as reasonably practical after obtaining knowledge thereof, the indemnified Party
shall notify the indemnifying Party of any claim or demand which the indemnified
Party has determined has given or could give rise to a claim for indemnification
under this Section 11. Such notice shall specify the agreement, representation
or warranty with respect to which the claim is made, the facts giving rise to
the claim and the alleged basis for the claim, and the amount (to the extent
then determinable) of liability for which indemnity is asserted. In the event
any action, suit or proceeding is brought with respect to which a Party may be
liable under this Section 11, the defense of the action, suit or proceeding
(including all settlement negotiations and arbitration, trial, appeal, or other
proceeding) shall be at the discretion of and conducted by the indemnifying
Party. If an indemnified Party shall settle any such action, suit or proceeding
without the written consent of the indemnifying Party (which consent shall not
be unreasonably withheld), the right of the indemnified Party to make any claim
against the indemnifying Party on account of such settlement shall be deemed
conclusively denied. An indemnified Party shall have the right to be represented
by its own counsel at its own expense in any such action, suit or proceeding,
and if an indemnified Party is named as the defendant in any action, suit or
proceeding, it shall be entitled to have its own counsel and defend such action,
suit or proceeding with respect to itself at its own expense. Subject to the
foregoing provisions of this Section 11, neither Party shall, without the other
Party’s written consent, settle, compromise, confess judgment or permit judgment
by default in any action, suit or proceeding if such action would create or
attach liability or obligation to the other Party. The Parties agree to make
available to each other, and to their respective counsel and accountants, all
information and documents reasonably available to them which relate to any
action, suit or proceeding, and the Parties agree to render to each other such
assistance as they may reasonably require of each other in order to ensure the
proper and adequate defense of any such action, suit or proceeding.

    

    
      12.     
Miscellaneous.

    

    

    (a)           Names. As soon as reasonably
practical after the Closing Date, but in no event later than the earlier of 1.)
90 days after the Closing Date or 2.) the date imposed by the Texas Railroad
Commission, Buyer shall remove the name of Seller, and all variations thereof,
from the physical location of the Wells and Equipment.

    

    (b)           Expenses. All fees, costs and expenses
incurred by Buyer or Seller in negotiating this Agreement shall be paid by the
party incurring the same, including without limitation, legal and accounting
fees, costs and expenses.

    

    (c)           Entire
Agreement. This
Agreement, the documents to be executed hereunder, and the exhibits attached
hereto constitute the entire agreement between the Parties pertaining to the
subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties pertaining
to the subject matter hereof. No supplement, amendment, alteration, modification
or waiver of this Agreement shall be binding unless executed in writing by the
Parties and specifically referencing this Agreement.

    

    (d)           Waiver. No waiver of any provision
of this Agreement shall be deemed or shall constitute a waiver of any other
provision (whether or not similar). Further, no waiver shall constitute a
continuing waiver unless otherwise expressly provided in
writing.

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

    (e)           Publicity. Neither Seller nor Buyer
will issue any public announcement or press release concerning this transaction
without the written consent of the other Party, except as required by law and in
such case with prior written agreement between the Parties on the wording of the
announcement or press release; provided, however, nothing herein shall limit or
prevent Seller and/or Buyer or their affiliates from disclosing this transaction
and information about the Units to partners and prospective partners in Buyer or
its affiliates or in any securities filings made by Buyer or its
affiliates.

    

    (f)           Construction. The captions in this
Agreement are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Agreement.
The Parties acknowledge that they have participated jointly in the negotiation
and drafting of this Agreement and as such the Parties agree that if an
ambiguity or question of intent or interpretation arises hereunder, this
Agreement shall not be considered or construed more strictly against one Party
than another on the grounds of authorship.

    

    (g)           Third
Party Beneficiaries.
Nothing in this Agreement shall provide any benefit to any Third Party or
entitle any Third Party to any claim, cause of action, remedy or right of any
kind, it being the intention of the Parties that this Agreement shall otherwise
not be construed as a Third Party beneficiary contract.

    

    (h)           Assignment. Seller may not assign its
rights hereunder without the written consent of Buyer, which consent may not be
unreasonably withheld. It shall not be unreasonable for Buyer to withhold
consent if it determines, in good faith, that adequate protections do not exist
to guarantee the proper and timely performance of all of the obligations
hereunder. Upon request, Buyer shall be provided with such information
sufficient to permit evaluation of the financial responsibility of any proposed
assignee.

    

    (i) 
          Governing
Law. This
Agreement, other documents delivered pursuant hereto all disputes and the legal
relations between the Parties shall be governed and construed in accordance with
the laws of the State of Texas, without giving effect to principles of conflicts
of laws that would result in the application of the laws of anther jurisdiction.
The Parties agree to venue in Dallas County, Texas for all disagreements,
differences or claims made by the Buyer and/or the Seller.

    

    (j) 
          Notices. All communications required
or permitted under this Agreement shall be in writing and may be sent by
facsimile. Such communication shall be deemed made when actually received, or if
mailed by registered or certified mail, postage prepaid, addressed as set forth
below, shall be deemed made three days after such mailing. Faxes will be deemed
to be received when reflected in the fax confirmation sheet. Either party may,
by written notice to the other, change the address for mailing such
notices.

    

    
      
        	
                Notices
      to Seller:

              	
                Sierra-Dean
      Production Company LP

              
	 
      	
                c/o
      SPI Operations LLC

              
	 
      	
                415
      West Wall St., Suite 625

              
	 
      	
                Midland,
      Texas 79701

              

      

    

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    

    
      
        	 
      	
                Phone:
      (432) 683-5959

              
	 
      	
                Fax:
      (432) 683-8588

              
	 
      	
                Attn:
      H. Patrick Seale

              
	 
      	 
      
	
                Notices
      to Buyer:

              	
                Reef
      Oil & Gas Income and Development Fund III, L.P.

              
	 
      	
                c/o
      Reef Oil & Gas Partners, L.P.

              
	 
      	
                1901
      N. Central Expressway, Suite 300

              
	 
      	
                Richardson,
      Texas 75080

              
	 
      	
                Phone:
      (972) 437-6792

              
	 
      	
                Fax:
      (972) 994-0369

              
	 
      	
                Attn:
      Michael J. Mauceli

              

      

    

    

    (k)           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 and the Parties
shall negotiate in good faith to modify this Agreement so as to effect their
original intent as closely as possible in an acceptable manner to the end that
the transactions contemplated hereby are fulfilled to the extent
possible.

    

    (1)           Time of
the Essence. Time
shall be of the essence with respect to all time periods and notice periods set
forth in this Agreement.

    

    (m)          Counterpart
Execution. This
Agreement may be executed in any number of counterparts, and each counterpart
hereof shall be effective as to each Party that executes the same whether or not
all of such parties execute the same counterpart. If counterparts of this
Agreement are executed, the signature pages from various counterparts may be
combined into one composite instrument for all purposes. All counterparts
together shall constitute only one Agreement, but each counterpart shall be
considered an original.

    

    (n)           Application
of Law other than Texas Law. To the extent a court or
arbitrator is compelled to apply the substantive laws of a state other than
Texas, any references in this Agreement to Texas law shall be replaced with the
equivalent provision in such other state’s law.

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    

    (o)          DTPA
Waiver.

    

    (a)           BUYER
HEREBY REPRESENTS AND ACKNOWLEDGES THAT IT IS A “BUSINESS CONSUMER” FOR THE
PURPOSES OF THE TEXAS DECEPTIVE TRADE PRACTICES CONSUMER PROTECTION ACT
(SUBCHAPTER E OF CHAPTER 17 OF THE TEXAS BUSINESS AND COMMERCE CODE (THE “TEXAS
DTPA”)), THAT IT HAS ASSETS OF $5,000,000 OR MORE ACCORDING TO ITS MOST RECENT
FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, THAT IT HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL OF
ITS CHOICE IN ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY, AND THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION WITH RESPECT TO THE PARTIES TO AND THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT. BUYER HEREBY WAIVES THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE
PRACTICES CONSUMER PROTECTION ACT (OTHER THAN SECTION 17.555 THEREOF), AS FROM
TIME TO TIME AMENDED.

    

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

    

    (p)           Binding
Effect. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, and their successors and assigns.

    

    (q)           Incorporation
of Exhibits. All
exhibits and schedules referred to herein are attached hereto and are made a
part hereof by this reference.

    

    (r)        
   Survival. Except for the special
warranty of title which is incorporated in the Assignment, all other
indemnities, representations, warranties, covenants (including, without
limitation, Sections
4 and 9) and
provisions of this Agreement shall survive the Closing for a period of five
years after the Closing Date at which time all such indemnities,
representations, warranties and other provisions hereof shall expire, except
with respect to any claims which have been asserted in a written notice
delivered to the party against whom such claim is made within said five year
time period.

    

    (s)           Headings. The headings of the articles
and sections of this Agreement are for guidance and convenience of reference
only and shall not limit or otherwise affect any of the terms and provisions of
this Agreement.

    

    (t)      
     Amendment
and Waiver. This
Agreement may be altered, amended or waived only by a written agreement executed
by the Party to be charged. No waiver of any provision of this Agreement shall
be construed as a continuing waiver of the provision.

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    

    (u)           Prior
to the end of the Acquisition Period, this Agreement may be terminated in whole
or in part only upon the prior written agreement of both Buyer and
Seller.

    

    [THE
REMAINDER OF THIS PAGE IS

    INTENTIONALLY
LEFT BLANK.]

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    

    IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed below by
their duly authorized representatives as of the first date above
written.

    

    
      
        
          
            
              
                	 
      	
                        SELLER:

                      
	 
      	 
      
	 
      	
                        SIERRA-DEAN
      PRODUCTION COMPANY LP

                      
	 
      	 
      	 
      
	 
      	
                        By:   

                      	
                        SPI
      Operations LLC,

                        its
      General Partner

                      
	 
      	 
      	 
      
	 
      	 
      	
                        

                      
	 
      	 
      	
                        H.
      Patrick Seale, President

                      
	 
      	 
      	 
      
	 
      	
                        BUYER:

                      
	 
      	 
      
	 
      	
                        REEF
      OIL & GAS INCOME AND

                      
	 
      	
                        DEVELOPMENT
      FUND III, L.P.

                      
	 
      	 
      	 
      
	 
      	
                        By:

                      	
                        Reef
      Oil & Gas Partners, L.P.,

                      
	 
      	 
      	
                        its
      General Partner,

                      
	 
      	 
      	 
      
	 
      	 
      	
                        by
      Reef Oil & Gas Partners GP, LLC,

                      
	 
      	 
      	
                        its
      general partner

                      
	 
      	 
      	 
      
	 
      	 
      	
                        
                          

                        

                      
	 
      	 
      	
                        Michael
      J. Mauceli, Manager

                      
	 
      	 
      	 
      
	 
      	
                        FOR
      PURPOSES OF SECTIONS 8 AND 11(A)(II):

                      
	 
      	 
      
	 
      	
                        SPI
      OPERATIONS LLC

                      
	 
      	 
      	 
      
	 
      	
                        
                          

                        

                      
	 
      	
                        H.
      Patrick Seale, President

                      
	 
      	 
      	 
      
	 
      	
                        REEF
      EXPLORATION, LP by

                         

                        Reef
      Exploration GP, LLC, its general partner

                      
	 
      	 
      
	 
      	 
      	
                        
                          

                        

                      
	 
      	 
      	
                        Michael
      J. Mauceli,
Manager

                      

              

            

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    LIST OF
EXHIBITS

    

    
      
        	
                Exhibit

              	 
      	
                Description

              
	 
      	 
      	 
      
	
                A.

              	 
      	
                Leases

              
	 
      	 
      	 
      
	
                B.

              	 
      	
                Wells

              
	 
      	 
      	 
      
	
                C.

              	 
      	
                List
      of Contracts

              
	 
      	 
      	 
      
	
                D.

              	 
      	
                Equipment
      Interests

              
	 
      	 
      	 
      
	
                E.

              	 
      	
                There
      is no Exhibit “E”

              
	 
      	 
      	 
      
	
                F.

              	 
      	
                Quarterly
      Assignment

              
	 
      	 
      	 
      
	
                G.

              	 
      	
                Federal
      Tax Partnership Terms

              
	 
      	 
      	 
      
	
                H.

              	 
      	
                Joint
      Operating Agreement

              
	 
      	 
      	 
      
	
                I.

              	 
      	
                Assignment,
      Conveyance and Bill of
Sale

              

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
“A”

    

    Leases

    

    
      1.        Oil and
Gas Lease dated May 31, 1937, recorded in Vol. 1, page 625 of the Oil and Gas
Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as lessor,
to P.N. Wiggins, as lessee;

    

    

    
      2.        Oil and
Gas Lease dated April 5, 1937, recorded in Vol. 1 Page 435 of the Oil and Gas
Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as lessor,
to P.N. Wiggins, as lessee;

    

    

    
      3.        Oil and
Gas Lease dated January 3,1939, recorded in Vol. 2, Page 350 of the Oil and Gas
Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as lessor,
to Honolulu Oil Corporation, as lessee; and

    

    

    
      4.        Oil and
Gas Lease dated November 15, 1951, from Carrie Slaughter Dean to E. Constantin,
Jr., recorded in Vol. 10, Page 571 of the Oil and Gas Lease Records of Cochran
County, Texas.

    

    

    Buyer’s
Interest

    

    
      
        
          
            
              
                	
                        Lease

                      	 	
                        Working Interest

                      	 	 	
                        Net Revenue Interest

                      	 
	 
      	 	 	 	 	 	 
	
                        Leases
      insofar as they cover the Dean Unit

                      	 	 	41	%	 	 	35.875	%
	
                        Leases
      insofar as they cover the Dean “B” Unit

                      	 	 	41	%	 	 	32.87255	%
	
                        Lease
      No. 4 (Dean K Unit).

                      	 	 	50	%	 	 	34.375	%

              

            

          

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
“B”

    

    Wells

     

    Buyer’s
Interest

    

    
      
        
          	
                  Well

                	 	
                  Working Interest

                	 	 	
                  Net Revenue Interest

                	 
	 
      	 	 	 	 	 	 
	
                  Wells
      Situated in the Dean Unit

                	 	 	41	%	 	 	35.875	%
	
                  Wells
      Situated in the Dean “B” Unit

                	 	 	41	%	 	 	32.87255	%
	
                  Wells
      Situated in the Dean “K” Unit

                	 	 	50	%	 	 	34.375	%

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
“C”

    

    List of
Contracts

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	
                                  Contract

                                  File
      No.

                                	 	
                                  Type

                                	 	
                                  Date

                                  Executed

                                	 	
                                  Other
      Party

                                
	 
      	 	 
      	 	 
      	 	 
      
	
                                  032647-C

                                	 	
                                  Electric
      Service Agreement

                                	 	
                                  03/18/1966

                                	 	
                                  Southwestern
      Public Service Co.

                                
	
                                  69081

                                	 	
                                  Cooperative
      Waterflood Agreement

                                	 	
                                  08/02/1966

                                	 	
                                  Sun
      Oil Co.

                                
	
                                  69108

                                	 	
                                  Cooperative
      Waterflood Agreement

                                	 	
                                  08/03/1966

                                	 	
                                  Tidewater

                                
	
                                  73903

                                	 	
                                  Salt
      Water Disposal Agreement

                                	 	
                                  12/01/1969

                                	 	
                                  Amoco
      Production Co.

                                
	
                                  91036

                                	 	
                                  Cooperative
      Waterflood Agreement

                                	 	
                                  11/06/1974

                                	 	
                                  Great
      Western Drilling Co.

                                
	
                                  94821

                                	 	
                                  Casinghead
      Gas Contract

                                	 	
                                  01/01/1978

                                	 	
                                  Amoco
      Production Co.

                                
	
                                  1000261

                                	 	
                                  Injection
      Well & Water Sales Agreement

                                	 	
                                  04/29/1980

                                	 	
                                  Amoco
      Production Co.

                                
	
                                  032647-D

                                	 	
                                  Electric
      Service Agreement

                                	 	
                                  03/18/1966

                                	 	
                                  Southwestern
      Public Service Co.

                                
	
                                  84041

                                	 	
                                  Cooperative
      Waterflood Agreement

                                	 	
                                  04/01/1973

                                	 	
                                  Burk
      Royalty Company

                                
	
                                  73265

                                	 	
                                  Cooperative
      Waterflood Agreement

                                	 	
                                  01/13/1969

                                	 	
                                  Pennzoil
      (Gulf Oil Co.)

                                
	
                                  100262

                                	 	
                                  Cooperative
      Waterflood Agreement

                                	 	
                                  04/24/1980

                                	 	
                                  Crown
      Central Petroleum
Corp.

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    1.)        Contracts
a.) 032647-C, b.) 69081, c.) 69108, d.) 73903, e.) 91036, f.) 94821 and g.)
1000261 pertain to the Dean B Unit.

    

    2.)        Contracts
a.) 1000261, b.) 032647-D, c.) 84041, d.) 73265 and e.) 100262 pertain to the
Dean Unit.

    

    Buyer’s
Interest

    

    
      
        
          	
                  Contract

                	 	
                  Working Interest

                	 
	 
      	 	 	 
	
                  Contracts
      Related to the Dean Unit

                	 	 	41	%
	
                  Contracts
      Related to the Dean “B” Unit

                	 	 	41	%
	
                  Contracts
      Related to the Dean “K” Unit

                	 	 	50	%

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
“D”

    

    Equipment

    

    SLAUGHTER-DEAN PROJECT.
Cochran County, Texas

    

    Dean “B”
Unit

    

    Dean “B”
Unit Production Battery:

    
      	
            	
              ·

            	
              1 –
      21’x 32’ – 2,000 Bbl Oil Production Gun Barrel Tank (in
      service)

            

    

    
      	
            	
              ·

            	
              1 –
      21’x 24’ – 1,500 Bbl Oil Production Gun Barrel Tank (in
      service)

            

    

    
      	
            	
              ·

            	
              1 –
      5,000 Bbl Overflow Open-Top Tank with Net Covering (in
      service)

            

    

    
      	
            	
              ·

            	
              2 –
      500 Bbl Steel Oil Production Tanks (in
service)

            

    

    
      	
            	
              ·

            	
              1 –
      Oil LACT Unit – Tokheim 2” Model
2000

            

    

    
      	
            	
              ·

            	
              1–
      Vapor Recovery Unit (in service)

            

    

    
      	
            	
              ·

            	
              1 –
      6x10 Scrubber Vessel (in service)

            

    

    
      	
            	
              ·

            	
              1 –
      12x20 – 385 Bbl Vent Tank (in
service)

            

    

    
      	
            	
              ·

            	
              1 –
      8x24 Free Water Knockout (in
service)

            

    

    
      	
            	
              ·

            	
              1 –
      8’xl0’ Metal Safety & Alarm Building (in
  service)

            

    

    
      	
            	
              ·

            	
              2 –
      4x10 Sivalls In-Line Heaters (Ser. No.’s IH4820, IH4821) (out of
      service)

            

    

    
      	
               
      

            	
              ·

            	
              3 –
      8x20 3-Phase Production Heater Treater Separators (Ser. No.’s 82201,
      82409, 8844) (out of service)

            

    

    

    Dean “B”
Unit Water Injection Station:

    
      	
               
      

            	
              ·

            	
              2 –
      Ajax Vertical Quintiplex Saltwater Injection Waterflood Pumps with 250-Hp
      Motors (in service)

            

    

    
      	
               
      

            	
              ·

            	
              2 –
      80 gallon Manchester Air Compressors (Ser. No.’s 315155, 315215) (in
      service)

            

    

    
      	
               
      

            	
              ·

            	
              1 –
      25’x72’ Metal Water Injection Station Building with All Pump Controls
      & Manifolds (in service)

            

    

    

    Dean “B”
Unit Production Battery & Water Injections Station have cell phone driven
automatic alarm system designed to send alerts for Low Water Tank Levels, High
Water Tank Levels, High Oil Tank Levels, High Water Injections Station Pressures
and Low Water Injection Station Pressures.

    

    Dean
Unit

    

    Dean Unit
Production Battery:

    
      	
            	
              ·

            	
              1 –
      4x31 3-Phase Production Heater Treater Separator (in
    service)

            

    

    
      	
            	
              ·

            	
              1 –
      4x31 3-Phase Production Heater Treater Separator (out of
      service)

            

    

    
      	
            	
              ·

            	
              2 –
      500 Bbl Steel Oil Production Tanks (in
service)

            

    

    
      	
            	
              ·

            	
              1 –
      500 Bbl Steel Saltwater Tanks – Internally Coated (in
    service)

            

    

    
      	
            	
              ·

            	
              1 –
      12x20 – 385 Bbl Vent tank (in
service)

            

    

    
      	
            	
              ·

            	
              1 –
      5,000 Bbl Overflow Open-Top tank with net Covering (in
      service)

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
“D”, continued

    

    
      	
            	
              ·

            	
              1 –
      A.O. Smith 1.5 LACT Unit (out of
service)

            

    

    
      	
            	
              ·

            	
              1 –
      Vapor recovery Unit (in service)

            

    

    
      	
            	
              ·

            	
              1 –
      1,500 Bbl Oil Production Gun Barrel Tank (out of
  service)

            

    

    

    Dean Unit
Water Injection Station:

    
      	
               
      

            	
              ·

            	
              2 –
      Ajax Vertical Triplex Saltwater Injection Waterflood Pumps with 250–Hp
      Motors (in service)

            

    

    
      	
            	
              ·

            	
              2–30
      gallon Air Compressor (Ser. No. 870757) (in
  service)

            

    

    
      	
            	
              ·

            	
              1 –
      20’x50’ Metal Water Injection Station Building (in
  service)

            

    

    
      	
            	
              ·

            	
              1 –
      8’xl0’ Metal Building with All Pump Controls & Manifolds (in
      service)

            

    

    

    Dean “K”
Unit

    

    Dean “K”
Unit Production Battery:

    
      	
            	
              ·

            	
              1 –
      3x10 3-Phase Horizontal Production Separator (in
  service)

            

    

    
      	
            	
              ·

            	
              2 –
      210 Bbl Steel Oil Production Tanks (in
service)

            

    

    

    Slaughter-Dean Project
Pumping Units-Dean & Dean “B” Units. Cochran County
Texas

    

    Dean
Unit

    

    
      	
            	
              ·

            	
              Dean
      #l – Lufkin 114D

            

    

    
      	
            	
              ·

            	
              Dean
      #3 – American D114

            

    

    
      	
            	
              ·

            	
              Dean
      #7 – American D114

            

    

    
      	
            	
              ·

            	
              Dean
      #9 – Lufkin 114D

            

    

    
      	
            	
              ·

            	
              Dean
      #11 – Lufkin 320D

            

    

    
      	
            	
              ·

            	
              Dean
      #14 – Bethlehem 114D

            

    

    
      	
            	
              ·

            	
              Dean
      #16 – National1228D

            

    

    
      	
            	
              ·

            	
              Dean
      #18 – Lufkin 160D

            

    

    
      	
            	
              ·

            	
              Dean
      #20 – American D320

            

    

    
      	
            	
              ·

            	
              Dean
      #22 – Continental Emsco D80

            

    

    
      	
            	
              ·

            	
              Dean
      #27 – Bethlehem 228D

            

    

    

    Dean “B”
Unit

    

    
      	
            	
              ·

            	
              #B-1
      – National 320

            

    

    
      	
            	
              ·

            	
              #B-3
      – Bethlehem 320

            

    

    
      	
            	
              ·

            	
              #B-5
      – National 320

            

    

    
      	
            	
              ·

            	
              #B-7
      – National 228

            

    

    
      	
            	
              ·

            	
              #B-9
      – American 320

            

    

    
      	
            	
              ·

            	
              #B-11
      – American 320

            

    

    
      	
            	
              ·

            	
              #B-13
      – American 640

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
“D”, continued

    

    
      
        	
              	
                ·

              	
                #B-14
      – American 320

              

      

      
        	
              	
                ·

              	
                #B-16
      – Bethlehem 320

              

      

      
        	
              	
                ·

              	
                #B-19
      – Lufkin 114

              

      

      
        	
              	
                ·

              	
                #B-22
      – Bethlehem 320

              

      

      
        	
              	
                ·

              	
                #B-25
      – Bethlehem 228

              

      

      
        	
              	
                ·

              	
                #B-27
      – T&A’d

              

      

      
        	
              	
                ·

              	
                #B-28
      – Bethlehem 80

              

      

      
        	
              	
                ·

              	
                #B-30
      – American 640

              

      

      
        	
              	
                ·

              	
                #B-31
      – National 320

              

      

      
        	
              	
                ·

              	
                #B-33
      – Parkersburg 228

              

      

      
        	
              	
                ·

              	
                #B-37
      – National 320

              

      

      
        	
              	
                ·

              	
                #B-39
      – Bethlehem 114

              

      

      
        	
              	
                ·

              	
                #B-41
      – Continental Emsco 114

              

      

      
        	
              	
                ·

              	
                #B-44
      – Lufkin 114

              

      

      
        	
              	
                ·

              	
                #B-46
      – Bethlehem 114

              

      

      
        	
              	
                ·

              	
                #B-47
      – Continental Emsco 228

              

      

      
        	
              	
                ·

              	
                #B-49
      – American 320

              

      

      
        	
              	
                ·

              	
                #B-53
      – American 320

              

      

      
        	
              	
                ·

              	
                #B-55
      – Lufkin 114

              

      

      
        	
              	
                ·

              	
                #B-57
      – Cabot 228

              

      

      
        	
              	
                ·

              	
                #B-59
      – Continental Emsco 80

              

      

      
        	
              	
                ·

              	
                #B-61
      Cabot 80

              

      

      
        	
              	
                ·

              	
                #B-63
      – Lufkin 160

              

      

      
        	
              	
                ·

              	
                #B-70
      – Cabot 228

              

      

      
        	
              	
                ·

              	
                #B-72
      – Continental Emsco 320

              

      

      
        	
              	
                ·

              	
                #B-74
      – Bethlehem 114

              

      

      
        	
              	
                ·

              	
                #B-76
      – Continental Emsco 320

              

      

      
        	
              	
                ·

              	
                #B-78
      – Continental Emsco 80

              

      

      
        	
              	
                ·

              	
                #B-82
      – Lufkin Mark II 228

              

      

      
        	
              	
                ·

              	
                #B-84
      – Lufkin 228

              

      

      
        	
              	
                ·

              	
                #B-88
      – Continental Emsco 80

              

      

      
        	
              	
                ·

              	
                #B-92
      – Bethlehem 114

              

      

      
        	
              	
                ·

              	
                #B-99
      – Continental Emsco 114

              

      

      
        	
              	
                ·

              	
                #B-102
      – T&A’d

              

      

      
        	
              	
                ·

              	
                #B-104
      – Bethlehem 114

              

      

      
        	
              	
                ·

              	
                #B-106
      – American 160

              

      

      
        	
              	
                ·

              	
                #B-110
      – National 320

              

      

      
        	
              	
                ·

              	
                #B-119
      – Bethlehem 114

              

      

      
        	
              	
                ·

              	
                #B-123
      – Continental Emsco 80

              

      

      
        	
              	
                ·

              	
                #B-129
      – Lufkin 114

              

      

      
        	
              	
                ·

              	
                #B-130
      – Continental Emsco 80

              

      

      
        	
              	
                ·

              	
                #B-132
      – American 114

              

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
“D”, continued

    

    
      	
            	
              ·

            	
              #B-133
      – American 80

            

    

    
      	
            	
              ·

            	
              #B-135
      – Lufkin 160

            

    

    
      	
            	
              ·

            	
              #B-137
      – Bethlehem 80

            

    

    
      	
            	
              ·

            	
              #B-139
      – T&A’d

            

    

    
      	
            	
              ·

            	
              #B-141
      – American 114

            

    

    
      	
            	
              ·

            	
              #B-143
      – Lufkin Mark II 114

            

    

    
      	
            	
              ·

            	
              #B-147
      – National 320

            

    

    
      	
            	
              ·

            	
              #B-149
      – Continental Emsco 160

            

    

    
      	
            	
              ·

            	
              #B-151
      – Bethlehem 114

            

    

    
      	
            	
              ·

            	
              #B-153
      – Lufkin 114

            

    

    
      	
            	
              ·

            	
              #B-154
      – American 114

            

    

    
      	
            	
              ·

            	
              #B-157
      – National 320

            

    

    
      	
            	
              ·

            	
              #B-158
      – National 320

            

    

    
      	
            	
              ·

            	
              #B-159
      – National 320

            

    

    
      	
            	
              ·

            	
              #B-160
      – National 320

            

    

    

    Dean “K”
Unit

    

    
      	
            	
              ·

            	
              Dean
      #K-6 – Lufkin 114D

            

    

    

    Buyer’s
Interest

    

    
      
        
          	
                  Equipment

                	 	
                  Working Interest

                	 
	 
      	 	 	 
	
                  Equipment
      Related to the Dean Unit

                	 	 	41	%
	
                  Equipment
      Related to the Dean “B” Unit

                	 	 	41	%
	
                  Equipment
      Related to the Dean “K” Unit

                	 	 	50	%

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
“F”

    

    ASSIGNMENT

    

    
      
        	
                STATE
      OF TEXAS

              	
                )

              
	 
      	
                          KNOW
      ALL MEN BY THESE PRESENTS:

              
	
                COUNTY OF COCHRAN     

              	
                )

              

      

    

    

    I.

    

    THAT,
SIERRA-DEAN PRODUCTION COMPANY, LP, a Texas limited partnership, whose general
partner is SPI Operations, LLC, whose principal address is 415 West Wall Street,
Midland, Texas 79701, (“ASSIGNOR”), for and in consideration of the sum of ONE
HUNDRED DOLLARS AND NO CENTS ($100.00), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, has
SOLD, TRANSFERRED AND CONVEYED and, subject to the terms and provisions
contained herein, does hereby SELL, TRANSFER, ASSIGN, AND CONVEY unto REEF OIL
& GAS INCOME AND DEVELOPMENT FUND III, L.P., a Texas limited partnership,
whose general partner is Reef Oil & Gas Partners, GP, LLC, whose principal
address is 1901 North Central Expressway, Suite 300, Richardson, Texas 75080,
(“ASSIGNEE”), the following interests in and to the properties described below
in this Paragraph I (collectively called the “Assets”): 1.) a __% of 8/8ths
interest in and to the Assets insofar as they are located within the confines
of, are appurtenant to or affect the “Dean Unit” or the “Dean B Unit” (as the
“Dean Unit” and the “Dean B Unit” are described on Exhibit
B hereto) and 2.) a ____%
of 8/8ths right, title and interest in and to the Assets insofar as they are
located within the confines of, are appurtenant to or affect the “Dean K Unit”
(as the “Dean K Unit” is described on Exhibit B):

    

    
      	
               
      

            	
              A.

            	
              The
      oil and gas leases specifically described on Exhibit “A” attached
      hereto and made a part hereof (the
“Leases”);

            

    

    

    
      	
               
      

            	
              B.

            	
              All
      presently existing and effective unitization, pooling and communitization
      agreements, declarations and orders (including, but not limited to, all
      units and pooled areas formed pursuant to orders, regulations, rules or
      other actions of a federal, state or other governmental agency having
      jurisdiction) and the properties or units created
  thereby;

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              C.

            	
              The
      contracts and agreements listed in Exhibit
      “C”
      attached hereto (the “Contracts”).
      In the event there are other agreements or contracts necessary or
      desirable with respect to the operations being conducted on the Units, at
      its option, Buyer shall be entitled to the benefits of such contracts or
      agreements; and

            

    

    

    
      	
               
      

            	
              D.

            	
              All
      oil and gas wells (including any currently held contractual right to a
      reversionary or after payout interest in any well), water wells, salt
      water disposal wells, injection wells, and all personal property,
      equipment, structures and fixtures (including, but not limited to tanks,
      pumps, pipelines, flowlines and waterlines) as of the Effective Date and
      used or obtained solely in connection with the production, treatment, sale
      or disposal of hydrocarbons or produced water therefrom or attributable
      thereto (hereinafter the “Other
Property”).

            

    

    II.

    

    This
Assignment is expressly made subject to the terms and conditions of purchase
contained in that certain Purchase and Sale Agreement by and between Sierra-Dean
Production Company, LP and Reef Oil & Gas Income and Development Fund III,
L.P., dated January 7, 2008 (hereinafter the “Purchase and Sale Agreement”), in
which Reef Oil & Gas Income and Development Fund III, L.P. obtained title to
the Assets, including but not limited to the oil and gas leases specifically
described in Exhibit A. ASSIGNOR and ASSIGNEE agree that ASSIGNOR will retain an
interest in the properties described in Paragraph IA, IB, IC and ID (hereinafter
“Assignor’s Retained Interest”) after the Effective Date. Under the terms of the
Purchase and Sale Agreement, ASSIGNEE has the right to acquire additional
interests in and to Assignor’s Retained Interest. ASSIGNEE has the right to
acquire additional interests in and to Assignor’s Retained Interest and any
future assignment or grant of a lien or security interest by ASSIGNOR in and to
Assignor’s Retained Interest shall be subject to the terms and conditions of the
Purchase and Sale Agreement.

    

    III.

    

    A.           This
Assignment and the terms and obligations contained herein shall be binding upon
and shall inure to the benefit of ASSIGNOR and ASSIGNEE and their respective
heirs, successors and assigns, and shall constitute covenants running with the
land. All provisions herein are solely and exclusively for the benefit of ASSIGNOR and ASSIGNEE and their successors
and assigns, and no other person shall be deemed a beneficiary or have standing
to require the satisfaction of their terms.

    

    B.           ASSIGNOR
binds itself, its successors and assigns to warrant and defend all and singular
the interests assigned and described herein to ASSIGNEE, its successors and
assigns, forever against every person whomsoever lawfully claiming such
interests, or any part of such interests, by, through and under ASSIGNOR but not
otherwise.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IV.

    

    This
instrument may be executed by ASSIGNOR and ASSIGNEE in duplicate
originals, but they shall constitute but one assignment.

    

    EXECUTED
on the dates contained in the acknowledgments of this instrument, but to be
effective for all purposes as of  _________________ at 7:00 a.m. at
the location of the Assets (hereinafter the “Effective Date”).

     

    
      
        
          	 	
                  “ASSIGNOR”

                
	 	
                  SIERRA-DEAN
      PRODUCTION COMPANY LP

                
	 	 
      	 
      
	 	
                  By:

                	
                   
       SPI Operations, LLC,

                
	 	 
      	
                   
       Its General Partner

                
	 	 
      	 
      
	 	
                  By: 

                	
                    

                
	 	 
      	
                   
       H. Patrick Seale, President

                
	 	 
      	 
      
	 	
                  “ASSIGNEE”

                
	 	
                  REEF
      OIL & GAS INCOME AND

                
	 	
                  DEVELOPMENT
      FUND III, L.P.

                
	 	 
      	 
      
	 	
                  By:

                	
                   
       Reef Oil & Gas Partners, L.P,

                
	 	 
      	
                   
       Its General Partner

                
	 	 
      	 
      
	 	
                  By:

                	
                   
       Reef Oil & Gas Partners, GP, LLC,

                
	 	 
      	
                    
      Its General Partner

                
	 	 
      	 
      
	 	
                  By:. 

                	
                    

                
	 	 
      	
                    
      Michael J. Mauceli,
Manager

                

        

      

    

     

    
      
        
          	
                  STATE
      OF TEXAS

                	
                  )

                
	 	 
	
                  COUNTY OF DALLAS     

                	
                  )

                

        

      

    

    

    On this
______ day of January, 2008, before me appeared H. Patrick Seale, to me
personally known, who acknowledged to me that he is the President of SPI
OPERATIONS LLC, General Partner of SIERRA-DEAN PRODUCTION COMPANY, LP, a Texas
limited partnership, and that he signed the foregoing instrument on behalf of
said Limited Partnership as the free act and deed of said Limited
Partnership.

    

    
      
        
          
            	 
      	 
      	 
      
	 
      	
                    NOTARY
      PUBLIC

                  	 
      

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      
        
          	
                  STATE
      OF TEXAS

                	
                  )

                
	 	 
	
                  COUNTY OF DALLAS     

                	
                  )

                

        

      

    

    

    On this
______ day of ______________, 2008 before me appeared Michael J. Mauceli, to me
personally known, who acknowledged to me that he is the Manager of REEF OIL
& GAS PARTNERS, GP, LLC, the General Partner of REEF OIL & GAS PARTNERS,
L.P., the General Partner of REEF OIL & GAS INCOME AND DEVELOPMENT FUND III,
L.P., a Texas Limited Partnership, and that he signed the foregoing instrument
in behalf of the Limited Partnership as the free act and deed of said Limited
Partnership.

    
      

      
        
          
            
              	 
      	 
      	 
      
	 
      	
                      NOTARY
      PUBLIC

                    	 
      

            

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
“A”

    

    Attached
to and made a part of that certain Assignment, effective _____________________
by and between Sierra-Dean Production Company, LP, Assignor and Reef Oil &
Gas Income and Development Fund III, L.P., Assignee.

    

    The
Leases

    

    1.           Oil
and Gas Lease dated May 31, 1937, recorded in Vol. 1, page 625 of the Oil and
Gas Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as
lessor, to P.N. Wiggins, as lessee;

    

    2.           Oil
and Gas Lease dated April 5, 1937, recorded in Vol. 1, page 435 of the Oil and
Gas Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as
lessor, to P.N. Wiggins, as lessee;

    

    3.           Oil
and Gas Lease dated January 3, 1939, recorded in Vol. 2, page 350 of the Oil and
Gas Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as
lessor, to Honolulu Oil Corporation, as lessee; and

    

    4.           Oil
and Gas Lease dated November 15, 1951, from Carrie Slaughter Dean to E.
Constantin, Jr. recorded in Vol. 10, page 571 of the Oil and Gas Lease Records
of Cochran County, Texas.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
“B”

     

    Attached
to and made a part of that certain Assignment by and between Sierra – Dean
Production Company,
L.P., Assignor, and Reef Oil & Gas Income & Development Fund III,
Assignee, effective___________________.

     

    
      	
              1.

            	
              Description of lands
      subject to this Assignment:

            

    

     

    
      	
               
      

            	
              Dean
      Unit:

            

    

     

    Labors 1,
12 and 13, League 89, Lipscomb County School Land and Labors 1, 2, 12 and 13,
League 90, Lipscomb County School Land, Cochran County, Texas.

     

    Dean “B”
Unit:

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	
                                      Tract 3
      -

                                    	
                                      E/2
      S/2 W/2 W/2 W/2 of League 91

                                    
	
                                      Tract 4
      -

                                    	
                                      E/2
      W/2 W/2 of League 91

                                    
	
                                      Tract 5
      -

                                    	
                                      E/2
      W/2 of League 91; Labors 3, 4, 5, 6, 8, 9, 16, 18, S/2 of Labor 15 and the
      West 1,543.79 acres, less the west 480 acres thereof of League 90 and the
      Northwest 35.4 acres of the west 441.75 acres of the East 3⁄4 of
      League 89

                                    
	
                                      Tract 6
      -

                                    	
                                      West
      480 acres of League 90

                                    
	
                                      Tract 7
      -

                                    	
                                      Labor
      7, League 90

                                    
	
                                      Tract 8
      -

                                    	
                                      Labor
      10, League 90

                                    
	
                                      Tract 9
      -

                                    	
                                      N/2
      and SE/4 of Labor 17, League 90

                                    
	
                                      Tract 10
      -

                                    	
                                      N/2
      of Labor 15, League 90

                                    
	
                                      Tract 11
      -

                                    	
                                      NW/35.4
      acres of Labor 5, League 89

                                    
	
                                      Tract 12
      -

                                    	
                                      SW/4
      of Labor 17, League
90

                                    

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    All
located in Lipscomb County School Land, Cochran County, Texas.

     

    Dean “K”
Unit

     

    W/2 N/2
W/2 W/2 of League 91, Lipscomb County School Land, containing 276.94 acres, more
or less.

     

    2.        
   Restrictions,
if any, as to depths, formations, or substances:

     

    Dean “B”
Unit

     

    Tract 3:    Surface to
5200 feet only;

    Tract 4:    Surface to
5750 feet only;

    Tract 7:    Surface to
5500 feet only;

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
“C”

     

    Attached
to and made part of that certain Purchase and Sale Agreement effective
__________________________, by and between
Sierra-Dean Production Company, LP and Reef Oil & Gas Income and Development
Fund III, L.P.

     

    List of
Contracts

     

    
      
        
          
            
              
                
                  
                    
                      	
                              Contract

                              File No.

                            	 	
                              Type

                            	 	
                              Date

                              Executed

                            	 	
                              Other Party

                            
	 	 	 	 	 	 	 
	
                              032647-C

                            	 	
                              Electric
      Service Agreement

                            	 	
                              03/18/1966

                            	 	
                              Southwestern
      Public Service Co.

                            
	
                              69081

                            	 	
                              Cooperative
      Waterflood Agreement

                            	 	
                              08/02/1966

                            	 	
                              Sun
      Oil Co.

                            
	
                              69108

                            	 	
                              Cooperative
      Waterflood Agreement

                            	 	
                              08/03/1966

                            	 	
                              Tidewater

                            
	
                              73903

                            	 	
                              Salt
      Water Disposal Agreement

                            	 	
                              12/01/1969

                            	 	
                              Amoco
      Production Co.

                            
	
                              91036

                            	 	
                              Cooperative
      Waterflood Agreement

                            	 	
                              11/06/1974

                            	 	
                              Great
      Western Drilling Co.

                            
	
                              94821

                            	 	
                              Casinghead
      Gas Contract

                            	 	
                              01/01/1978

                            	 	
                              Amoco
      Production Co.

                            
	
                              1000261

                            	 	
                              Injection
      Well & Water Sales Agreement

                            	 	
                              04/29/1980

                            	 	
                              Amoco
      Production Co.

                            
	
                              032647-D

                            	 	
                              Electric
      Service Agreement

                            	 	
                              03/18/1966

                            	 	
                              Southwestern
      Public Service Co.

                            
	
                              84041

                            	 	
                              Cooperative
      Waterflood Agreement

                            	 	
                              04/01/1973

                            	 	
                              Burk
      Royalty Company

                            
	
                              73265

                            	 	
                              Cooperative
      Waterflood Agreement

                            	 	
                              01/13/1969

                            	 	
                              Pennzoil
      (Gulf Oil Co.)

                            
	
                              100262

                            	 	
                              Cooperative
      Waterflood Agreement

                            	 	
                              04/24/1980

                            	 	
                              Crown
      Central Petroleum
Corp.

                            

                    

                  

                

              

            

          

        

      

    

     

    1.)    Contracts a.)
032647-C, b.) 69081, c.) 69108, d.) 73903, e.) 91036, f.) 94821 and g.) 1000261
pertain to the Dean B Unit.

     

    2.)    Contracts a.)
1000261, b.) 032647-D, c.) 84041, d.) 73265 and e.) 100262 pertain to the Dean
Unit.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    AGREEMENT

    

    This
Agreement (“Agreement”) is entered into this 8th day of January 2008, by and
between Sierra-Dean Production Company LP, a Texas limited partnership
(“Seller”) and Reef Oil & Gas Income and Development Fund III, L.P., a Texas
limited partnership (“Buyer”). The Buyer and Seller may be collectively referred
to herein as the “Parties” and individually as a “Party.”

    

    WHEREAS,
the Parties intend to enter into that certain Purchase and Sale Agreement dated
January 7, 2008 (the “PSA”), whereby Seller is selling certain interests to
Buyer in the Dean, Dean B and Dean K Units, Cochran County, Texas, as are more
fully described in the PSA (the “Units”); and

    

    WHEREAS,
the Parties acknowledge that the Purchase Price, as defined in the PSA, was
based upon the representation by Seller that it owns its interests in the leases
comprising the Dean Unit at an 87.5% net revenue interest, whereas, Seller, in
fact, owns only an 80% net revenue interest in its interest in such leases, with
the difference being referred to hereinafter as the “NRI Deficit” and that it is
not economically feasible for Buyer to enter into the PSA without an economic
remedy to compensate it for the NRI Deficit; and

    

    WHEREAS,
the Parties desire to sign the PSA and close the transaction contemplated
thereby, and have agreed that the “NRI Deficit” shall
be remedied by the terms of this Agreement and not pursuant to the terms of the
PSA.

    

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

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

    1.           Capitalized
terms in this Agreement that are not defined herein shall have the meaning as
defined in the PSA.

    

    2.           In
order to provide the Buyer the same monthly revenue from production from the
Dean Unit as it would be entitled to if Seller had owned its interest in the
Dean Unit at a 87.5% net revenue interest, each month an amount will be deducted
from Seller’s
gross revenue from production from the Units and paid to Buyer equal to the
difference that occurs when you subtract the amount of Buyer’s revenue from the
Dean Unit, calculated by multiplying the gross revenue by the B & E WI times
80% from the amount Buyer would have received that month had Seller owned the
interest in the Dean Unit at an 87.5% net revenue interest, calculated by
multiplying the gross revenue by the B & E WI times 87.5% (the “NRI Deficit
Payment”). By way of example, upon closing the PSA, Seller will assign to Buyer
a 41% working interest and a 32.8% net revenue interest (41% x 80% NRI). The NRI
Deficit Payment for the first month will be calculated by subtracting the amount
payable to Buyer being 32.8% times the gross revenue from the Dean Unit from the
amount Buyer should have received, calculated by multiplying the gross revenue
from the Dean Unit by 35.875% (41% x 87.5%, NRI). The NRI Deficit Payment shall
be calculated and paid each month during the five (5) year Acquisition Period
based upon the Buyer’s actual B & E WI for such month.

    

    3.           RELP,
as Operator under the Joint Operating Agreement, and any successor operator, is
hereby authorized by Seller to deduct the NRI Deficit Payment from Seller’s
gross revenue from production from the Units and remit said monies on a monthly
basis to Buyer.

    

    4.           Upon
payment of the NRI Deficit Payment for production from the last month of the
Acquisition Period, the NRI Deficit Payments shall cease.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    5.           Within
ninety (90) days after the date the Acquisition Period terminates, Seller shall
be obligated to compensate Buyer for the ongoing loss to Buyer due to the NRI
Deficit by paying to Buyer a sum equal to the difference between the value of
the B & E WI in the Dean Unit at an 80% NRI (B & E WI x 80% x value of
Dean Unit) and the value of the B & E WI in the Dean Unit at an 87.5% NRI (B
& E WI x 87.5% x value of Dean Unit) (the “Final NRI Deficit
Payment”). To
determine the Dean Unit values, the Parties shall engage the services of a
qualified appraiser to be selected by Buyer, after consultation with Seller, to
conduct an appropriate evaluation of the Units. Said evaluation shall be
conducted promptly, and the firm will be required to issue a written report
setting forth the then current value of each Unit (the “Evaluation Report”).
Seller will pay the cost of said appraisal.

    

    6.           Seller
shall pay to Buyer the Final NRI Deficit Payment within thirty (30) days of
receipt of the Evaluation Report.

    

    7.           The
payment of the Final NRI Deficit Payment may be paid, at Seller’s option, to
Buyer in cash or by assignment to Buyer of additional interests in the Units,
equivalent in value to the Final NRI Deficit Payment, as said values are set
forth in the Evaluation Report.

    

    8.           In
the event Seller re-acquires Buyer’s interests pursuant to Article 4 (h) of the
PSA, the NRI Deficit Payments shall cease effective with the last day of
production payable to Buyer, and Seller shall have no obligation to Buyer
pursuant to Article 5 hereof.

    

    9.           A
copy of the Assignment attached hereto shall be executed by Seller and delivered
to Buyer at Closing pursuant to Article 8(b)(i) of the PSA in lieu of the form
attached as Exhibit I to the PSA. The form of Assignment attached hereto shall
also be utilized to make assignments of Monthly Earned Working Interest pursuant
to Article 4(f) of the PSA in lieu of the form attached as Exhibit F to the
PSA.

    

    10.         This
Agreement shall be considered a supplement to the PSA entered into solely for
the purposes set forth herein and shall control in the event of any conflict
with the PSA.

     

    This
Agreement is executed this 8th
day of January 2008.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    “SELLER”

                                  
	
                                    SIERRA-DEAN
      PRODUCTION COMPANY LP

                                  
	 
      	 
      
	
                                    By:

                                  	
                                    SPI
      Operations, LLC

                                  
	 
      	
                                    Its
      General Partner.

                                  
	 
      	 
      
	
                                    By:

                                  	
                                    

                                  
	 
      	
                                    H.
      Patrick Seale, President

                                  
	 
      	 
      
	
                                    “BUYER”

                                  
	
                                    REEF
      OIL & GAS INCOME AND

                                  
	
                                    DEVELOPMENT
      FUND III, L.P.

                                  
	 
      	 
      
	
                                    By:

                                  	
                                    Reef
      Oil & Gas Partners, LP,

                                  
	 
      	
                                    Its
      General Partner

                                  
	 
      	 
      
	
                                    By:

                                  	
                                    Reef
      Oil & Gas Partners, GP, LLC,

                                  
	 
      	
                                    Its
      General Partner

                                  
	 
      	 
      
	
                                    By:

                                  	
                                    

                                  
	 
      	
                                    Michael
      J. Mauceli,
Manager

                                  

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    ASSIGNMENT

    

    
      
        
          	
                  STATE
      OF TEXAS

                	
                  )

                	 
      
	 
      	 
      	
                  KNOW
      ALL MEN BY THESE PRESENTS:

                
	
                  COUNTY
      OF COCHRAN

                	
                  )

                	 
      

        

      

    

    

    I.

    

    THAT,
SIERRA-DEAN PRODUCTION COMPANY, LP, a Texas limited partnership, whose general
partner is SPI Operations, LLC, whose principal address is 415 West Wall Street,
Midland, Texas 79701, (“ASSIGNOR”), for and in consideration of the sum of ONE
HUNDRED DOLLARS AND NO CENTS ($100.00), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, has
SOLD, TRANSFERRED AND CONVEYED and, subject to the terms and provisions
contained herein, does hereby SELL, TRANSFER, ASSIGN, AND CONVEY unto REEF OIL
& GAS INCOME AND DEVELOPMENT FUND III, L.P., a Texas limited partnership,
whose general partner is Reef Oil & Gas Partners, GP, LLC, whose principal
address is 1901 North Central Expressway, Suite 300, Richardson, Texas 75080,
(“ASSIGNEE”), interests in and to the properties described below in this
Paragraph I (collectively called the “Assets”) as follows: 1.) a 41% of 8/8ths
interest in and to the Assets insofar as they are located within the confines
of, are appurtenant to or affect the “Dean Unit”, a 41% of 8/8ths interest in
and to the Assets insofar as they are located within the confines of, are
appurtenant to or affect the “Dean B Unit” (as the “Dean Unit” and the “Dean B
Unit” are described on Exhibit
B hereto) and 2.) a 50% of 8/8ths interest in and to the Assets insofar
as they are located within the confines of, are appurtenant to or affect the
“Dean K Unit” (as the “Dean K Unit” is described on Exhibit B):

    

    THE
ASSETS

    

    
      	
            	
              A. 

            	
              The
      oil and gas leases specifically described on Exhibit “A” attached
      hereto and made a part hereof;

            

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    
      	
            	
              B. 

            	
              All
      presently existing and effective unitization, pooling and communitization
      agreements, declarations and orders (including, but not limited to, all
      units and pooled areas formed pursuant to orders, regulations, rules or
      other actions of a federal, state or other governmental agency having
      jurisdiction) and the properties or units created
  thereby;

            

    

     

    
      	
            	
              C.

            	
              The
      contracts and agreements listed in Exhibit
      “C” attached hereto
      (the “Contracts”). In the event there are other
      agreements or contracts necessary or desirable with respect to the
      operations being conducted on the Units, at its option, Buyer shall be
      entitled to the benefits of such contracts or agreements;
    and

            

    

     

    
      	
            	
              D. 

            	
              All
      oil and gas wells (including any currently held contractual right to a
      reversionary or after payout interest in any well), water wells, salt
      water disposal wells, injection wells, and all personal property,
      equipment, structures and fixtures (including, but not limited to tanks,
      pumps, pipelines, flowlines and waterlines) as of the Effective Date and
      used or obtained solely in connection with the production, treatment, sale
      or disposal of hydrocarbons or produced water therefrom or attributable
      thereto.

            

    

    

    II.

    

    ASSIGNOR
and ASSIGNEE agree that ASSIGNOR will retain an interest in the Assets
(hereinafter “Assignor’s Retained Interest”) after the Effective Date. This
Assignment is expressly made subject to the terms and conditions of purchase
contained in that certain Purchase and Sale Agreement by and between Assignor
and Assignee dated January 7, 2008 (hereinafter the “Purchase and Sale
Agreement”), pursuant to which Assignee acquired its interest in the Assets, and
the terms and conditions contained in that certain Agreement by and between
Assignor and Assignee dated January 8, 2008 (the “Agreement”) whereby Assignor
is obligated to make payments to Assignee to be deducted from revenues
attributable to Assignor’s Retained Interest. Under the terms of the Purchase
and Sale Agreement, ASSIGNEE has the right to acquire additional interests in
and to Assignor’s Retained
Interest. Any future assignment or grant of a lien or security interest by
ASSIGNOR in and to Assignor’s Retained Interest shall be subject to the terms
and conditions of the Purchase and Sale Agreement and the
Agreement.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    III.

    

    A.           This
Assignment and the terms and obligations contained herein shall be binding upon
and shall inure to the benefit of ASSIGNOR and ASSIGNEE and their respective
heirs, successors and assigns, and shall constitute covenants running with the
land. All provisions herein are solely and exclusively for the benefit of ASSIGNOR and ASSIGNEE and their successors
and assigns, and no other person shall be deemed a beneficiary or have standing
to require the satisfaction of their terms.

    

    B.           ASSIGNOR
binds itself, its successors and assigns, to warrant and defend all and singular
the interests assigned and described herein to ASSIGNEE, its successors and
assigns, forever against every person whomsoever lawfully claiming such
interests, or any part of such interests, by, through and under ASSIGNOR but not
otherwise.

    

    EXECUTED
on the dates contained in the acknowledgments of this instrument, but to be
effective for all purposes as of December 1, 2007 at 7:00 a.m. at the location
of the Assets (hereinafter the “Effective
Date”).

    

    
      
        
          
            
              
                
                  
                    	
                            “ASSIGNOR”

                          
	
                            SIERRA-DEAN
      PRODUCTION COMPANY LP

                          
	 
      	 
      
	
                            By:

                          	
                            SPI
      Operations, LLC

                          
	 
      	
                            Its
      General Partner

                          
	 
      	 
      
	
                            By:

                          	
                            

                          
	 
      	
                            H.
      Patrick Seale,
President

                          

                  

                

              

            

          

        

      

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
      
        
          
            
              
                
                  
                    
                      	
                              “ASSIGNEE”

                            
	
                              REEF
      OIL & GAS INCOME AND

                            
	
                              DEVELOPMENT
      FUND III, L.P.

                            
	 
      	 
      
	
                              By:

                            	
                              Reef
      Oil & Gas Partners, LP,

                            
	 
      	
                              Its
      General Partner

                            
	 
      	 
      
	
                              By:

                            	
                              Reef
      Oil & Gas Partners, GP, LLC,

                            
	 
      	
                              Its
      General Partner

                            
	 
      	 
      
	
                              By:

                            	
                              

                            
	 
      	
                              Michael
      J. Mauceli, Manager

                            

                    

                  

                   

                

              

            

          

        

      

    

    
      
        	
                STATE
      OF TEXAS

              	
                )

              
	 
      	 
      
	
                COUNTY
      OF DALLAS

              	
                )

              

      

    

    

    On this
8th day of
January, 2008, before me appeared H. Patrick Seale, to me personally known, who
acknowledged to me that he is the President of SPI OPERATIONS LLC, General
Partner of SIERRA-DEAN PRODUCTION COMPANY, LP, a Texas Limited Partnership, and
that he signed the foregoing instrument on behalf of said Limited Partnership as
the free act and deed of said Limited Partnership.

    

    
      
        
          
            
              
                	
                        

                      	 	
                        
                          

                        

                      
	 	
                        NOTARY
      PUBLIC

                      

              

            

          

        

      

    

    

    
      
        	
                STATE
      OF TEXAS

              	
                )

              
	 
      	 
      
	
                COUNTY
      OF DALLAS

              	
                )

              

      

    

    

    On this
8th day
of January, 2008, before me appeared Michael J. Mauceli, to me personally known,
who acknowledged to me that he is the Manager of REEF OIL & GAS PARTNERS,
GP, LLC, the General Partner of REEF OIL & GAS PARTNERS, L.P., the General
Partner of REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P., a Texas
Limited Partnership, and that he signed the foregoing instrument on behalf of
the Limited Partnership as the free act and deed of said Limited
Partnership.

    

    
      
        
          
            
              
                	
                        

                      	 	
                        
                          

                            

                          

                        

                      
	 	
                        NOTARY
      PUBLIC

                      

              

            

          

        

      

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    EXHIBIT
“A”

    

    Attached
to and made a part of that certain Assignment, effective December 1, 2007 by and
between Sierra-Dean Production Company, LP, Assignor and Reef Oil & Gas
Income and Development Fund III, L.P., Assignee.

    

    The
Leases

    

    1.           Oil
and Gas Lease dated May 31, 1937, recorded in Vol. 1, page 625 of the Oil and
Gas Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as
lessor, to P.N. Wiggins, as lessee;

    

    2.           Oil
and Gas Lease dated April 5, 1937, recorded in Vol. 1, page 435 of the Oil and
Gas Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as
lessor, to P.N. Wiggins, as lessee;

    

    3.           Oil
and Gas Lease dated January 3, 1939, recorded in Vol. 2, page 350 of the Oil and
Gas Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as
lessor, to Honolulu Oil Corporation, as lessee; and

    

    4.           Oil
and Gas Lease dated November 15, 1951, from Carrie Slaughter Dean to E.
Constantin, Jr. recorded in Vol. 10, page 571 of the Oil and Gas Lease Records
of Cochran County, Texas.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

    EXHIBIT
“B”

     

    Attached to and made a part of
that certain Assignment by and between Sierra - Dean Production Company, L.P.,
Assignor, and Reef Oil & Gas Income & Development Fund III, Assignee,
effective December 1, 2007.

     

    
      	
              1. 

            	
              Description of lands
      subject to this Assignment:

            

    

    

    Dean
Unit:

    

    Labors 1,
12 and 13, League 89, Lipscomb County School Land and Labors 1, 2, 12 and 13,
League 90, Lipscomb County School Land, Cochran County, Texas.

    

    Dean “B”
Unit:

    

    
      
        
          
            	
                    Tract 3 -

                  	 	
                    E/2
      S/2 W/2 W/2 W/2 of League 91

                  
	
                    Tract 4 -

                  	 	
                    E/2
      W/2 W/2 of League 91

                  
	
                    Tract 5 -

                  	 	
                    E/2
      W/2 of League 91; Labors 3, 4, 5, 6, 8, 9, 16, 18, S/2 of Labor 15 and the
      West 1,543.79 acres, less the west 480 acres thereof of League 90 and the
      Northwest 35.4 acres of the west 441.75 acres of the East 3/4 of League
      89

                  
	
                    Tract 6 -

                  	 	
                    West
      480 acres of League 90

                  
	
                    Tract 7 -

                  	 	
                    Labor
      7, League 90

                  
	
                    Tract 8 -

                  	 	
                    Labor
      10, League 90

                  
	
                    Tract 9 -

                  	 	
                    N/2
      and SE/4 of Labor 17, League 90

                  
	
                    Tract 10 -

                  	 	
                    N/2
      of Labor 15, League 90

                  
	
                    Tract 11 -

                  	 	
                    NW/35.4
      acres of Labor 5, League 89

                  
	
                    Tract 12 -

                  	 	
                    SW/4
      of Labor 17, League
90

                  

          

        

      

    

    

    All
located in Lipscomb County School Land, Cochran County, Texas.

    

    Dean “K”
Unit

    

    W/2 N/2
W/2 W/2 of League 91, Lipscomb County School Land, containing 276.94 acres, more
or less.

    

    
      	
              2. 

            	
              Restrictions, if any,
      as to depths, formations, or
substances:

            

    

    

    Dean “B”
Unit

     

    
      
        	
                Tract 3:

              	 	
                Surface
      to 5200 feet only;

              
	
                Tract 4:

              	 	
                Surface
      to 5750 feet only;

              
	
                Tract 7:

              	 	
                Surface
      to 5500 feet only;

              

      

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    EXHIBIT
“C”

    

    Attached
to and made part of that certain Assignment, effective December 1, 2007, by and
between Sierra-Dean Production Company, LP and Reef Oil & Gas Income and
Development Fund III, L.P.

    

    List of
Contracts

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	
                                        Contract

                                        File
      No.

                                      	 	
                                        Type

                                      	 	
                                        Date

                                        Executed

                                      	 	
                                        Other
      Party

                                      	 
	 	 	 	 	 	 	 	 
	
                                        032647-C

                                      	 	
                                        Electric
      Service Agreement

                                      	 	
                                        03/18/1966

                                      	 	
                                        Southwestern
      Public Service Co.

                                      	 
	
                                        69081

                                      	 	
                                        Cooperative
      Waterflood Agreement

                                      	 	
                                        08/02/1966

                                      	 	
                                        Sun
      Oil Co.

                                      	 
	
                                        69108

                                      	 	
                                        Cooperative
      Waterflood Agreement

                                      	 	
                                        08/03/1966

                                      	 	
                                        Tidewater

                                      	 
	
                                        73903

                                      	 	
                                        Salt
      Water Disposal Agreement

                                      	 	
                                        12/01/1969

                                      	 	
                                        Amoco
      Production Co.

                                      	 
	
                                        91036

                                      	 	
                                        Cooperative
      Waterflood Agreement

                                      	 	
                                        11/06/1974

                                      	 	
                                        Great
      Western Drilling Co.

                                      	 
	
                                        94821

                                      	 	
                                        Casinghead
      Gas Contract

                                      	 	
                                        01/01/1978

                                      	 	
                                        Amoco
      Production Co.

                                      	 
	
                                        1000261

                                      	 	
                                        Injection
      Well & Water Sales Agreement

                                      	 	
                                        04/29/1980

                                      	 	
                                        Amoco
      Production Co.

                                      	 
	
                                        032647-D

                                      	 	
                                        Electric
      Service Agreement

                                      	 	
                                        03/18/1966

                                      	 	
                                        Southwestern
      Public Service Co.

                                      	 
	
                                        84041

                                      	 	
                                        Cooperative
      Waterflood Agreement

                                      	 	
                                        04/01/1973

                                      	 	
                                        Burk
      Royalty Company

                                      	 
	
                                        73265

                                      	 	
                                        Cooperative
      Waterflood Agreement

                                      	 	
                                        01/13/1969

                                      	 	
                                        Pennzoil
      (Gulf Oil Co.)

                                      	 
	
                                        100262

                                      	 	
                                        Cooperative
      Waterflood Agreement

                                      	 	
                                        04/24/1980

                                      	 	
                                        Crown
      Central Petroleum Corp.

                                      	 

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    1.)           Contracts
a.) 032647-C, b.) 69081, c.) 69108, d.) 73903, e.) 91036, f.) 94821 and g.)
1000261 pertain to the Dean B Unit.

    

    2.)           Contracts
a.) 1000261, b.) 032647-D, c.) 84041, d.) 73265 and e.) 100262 pertain to the
Dean Unit.

    
      
         

      

      
        7ASSIGNMENT

    

    STATE OF
TEXAS )

    KNOW ALL
MEN BY THESE PRESENTS:    

    COUNTY OF
COCHRAN )

    

    I.

    

    THAT,
DAVRIC CORPORATION, a Nevada corporation, whose principal address is 980
American Pacific Drive, Suite 111, Henderson, Nevada 89014, (“ASSIGNOR”), for
and in consideration of the sum of ONE HUNDRED DOLLARS AND NO CENTS ($100.00),
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, has SOLD, TRANSFERRED AND CONVEYED and, subject to the
terms and provisions contained herein, does hereby SELL, TRANSFER, ASSIGN, AND
CONVEY unto REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P., a Texas
limited partnership, whose general partner is Reef Oil & Gas Partners, GP,
LLC, whose principal address is 1901 North Central Expressway, Suite 300,
Richardson, Texas 75080, (“ASSIGNEE”), the following interests in and to the
properties described below in this Paragraph I (collectively called the
“Assets”): 1.) an 11% of 8/8ths interest in and to the Assets insofar as they
are located within the confines of, are appurtenant to or affect the “Dean Unit”
or the “Dean B Unit” (as the “Dean Unit” and the “Dean B Unit” are described on
Exhibit B hereto):

    

    
      	
            	
              A.

            	
              The
      oil and gas leases specifically described on Exhibit “A” attached hereto
      and made a part hereof (the
“Leases”);

            

    

    

    
      	
            	
              B.

            	
              All
      presently existing and effective unitization, pooling and communitization
      agreements, declarations and orders (including, but not limited to, all
      units and pooled areas formed pursuant to orders, regulations, rules or
      other actions of a federal, state or other governmental agency having
      jurisdiction) and the properties or units created
  thereby;

            

    

    

    
      	
            	
              C.

            	
              The
      contracts and agreements listed in Exhibit
      “C” attached hereto (the “Contracts”). In the event there
      are other agreements or contracts necessary or desirable with respect to
      the operations being conducted on the Units, at its option, Assignee [RL1]
      shall be entitled to the benefits of such contracts or agreements;
      and

            

    

    

    
      	
            	
              D.

            	
              All
      oil and gas wells (including any currently held contractual right to
      a reversionary or after payout interest in any well), water wells, salt
      water disposal wells, injection wells, and all personal property,
      equipment, structures and fixtures (including, but not limited to tanks,
      pumps, pipelines, flowlines and waterlines) as of the Effective Date and
      used or obtained solely in connection with the production, treatment, sale
      or disposal of hydrocarbons or produced water therefrom or attributable
      thereto (hereinafter the “Other
Property”).

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    II.

    

    A.          
This Assignment and the terms and obligations contained herein shall be binding
upon and shall inure to the benefit of ASSIGNOR and ASSIGNEE and their respective
heirs, successors and assigns, and shall constitute covenants running with the
land. All provisions herein are solely and exclusively for the benefit of ASSIGNOR and ASSIGNEE and their successors
and assigns, and no other person shall be deemed a beneficiary or have standing
to require the satisfaction of their terms.

    

    B.            ASSIGNOR
binds itself, its successors and assigns to warrant and defend all and singular
the interests assigned and described herein to ASSIGNEE, its successors and
assigns, forever against every person whomsoever lawfully claiming such
interests, or any part of such interests, by, through and under ASSIGNOR but not
otherwise.

    

    III.

    

    This
instrument may be executed by ASSIGNOR and ASSIGNEE in duplicate
originals, but they shall constitute but one assignment.

    

    EXECUTED
on the dates contained in the acknowledgments of this instrument, but to be
effective for all purposes as of May 1, 2008 at 7:00 a.m. at the location of the
Assets (hereinafter the “Effective Date”).

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	 
      	
                                  “ASSIGNOR”

                                
	 
      	
                                  DAVRIC
      CORPORATION

                                
	 
      	 
      
	 
      	
                                  By:

                                	  
	 
      	 
      	
                                  Jerry
      E. Polls

                                
	 
      	 
      	
                                  President

                                
	 
      	 
      
	 
      	
                                  “ASSIGNEE”

                                
	 
      	
                                  REEF
      OIL & GAS INCOME

                                
	 
      	
                                  AND
      DEVELOPMENT FUND III,

                                
	 
      	
                                  L.P.

                                
	 
      	
                                  By:
      Reef Oil & Gas Partners, LP,

                                
	 
      	
                                  general
      partner

                                
	 
      	
                                  By:
      Reef Oil & Gas Partners, GP,

                                
	 
      	
                                  LLC,
      general partner

                                
	 
      	 
      
	 
      	
                                  By:

                                	
	 	 	
                                  Michael
      J. Mauceli

                                
	 	 	
                                  Manager 

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

       

      
         

        
          

        

      

      
         

      

    

    

    STATE OF
NEVADA                       )

     

    COUNTY OF
CLARK           )

    

    On this
15th day of July, 2008, before me appeared Jerry
E. Polis, to me personally known, who, being by me duly sworn, did say that he
is the President of DAVRIC CORPORATION, a Nevada corporation, and that the
foregoing instrument was signed in behalf of said Corporation as the free act
and deed of said Corporation[RL2].

    

    
      
        	
                 
      

              	
                

              
	
                

              	
                NOTARY
      PUBLIC

              

      

    

    

    STATE OF
TEXAS               )

    

    COUNTY OF
DALLAS        )

     

    On this
_______ day of ____________, 2008, before me appeared Michael J. Mauceli, to me
personally known, who, being by me duly sworn, did say that he is the Manager of
REEF OIL & GAS PARTNERS, GP, LLC, the General Partner of REEF OIL & GAS
PARTNERS, L.P., the General Partner of REEF OIL & GAS INCOME AND DEVELOPMENT
FUND III, L.P., a Texas Limited Partnership, and that the foregoing instrument
was signed in behalf of the Partnership as the free act and deed of said
Partnership.

     

    
      
        
          	 
      	 
      
	 
      	
                  NOTARY
      PUBLIC

                

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      STATE OF
NEVADA                      )

       

      COUNTY OF
CLARK            )

      

      On this ________ day of _____, 2008, before me appeared Jerry E.
Polis, to me personally known, who, being by me duly sworn, did say that he is
the President of DAVRIC CORPORATION, a Nevada corporation, and that the
foregoing instrument was signed in behalf of said Corporation as the free act
and deed of said Corporation.

      

      
        
          
            	  	  
	  	
                    NOTARY
      PUBLIC

                  

          

        

      

       

      STATE OF
TEXAS               )

    

    
      

      COUNTY OF
DALLAS        )

      
        

        On this
16th day of July, 2008, before me appeared Michael
J. Mauceli, to me personally known, who, being by me duly sworn, did say that he
is the Manager of REEF OIL & GAS PARTNERS, GP, LLC, the General Partner of
REEF OIL & GAS PARTNERS, L.P., the General Partner of REEF OIL & GAS
INCOME AND DEVELOPMENT FUND III, L.P., a Texas Limited Partnership, and that the
foregoing instrument was signed in behalf of the Partnership as the free act and
deed of said Partnership.

         

      

      
        	 
      	
                

              
	 
      	
                NOTARY
      PUBLIC

              
	 	 
	 	
                

              

        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

    

    

    EXHIBIT
“A”

    

    Attached
to and made a part of that certain Assignment, dated May 1, 2008 by and between
Davric Corporation, Assignor and Reef Oil & Gas Income and Development Fund
III, L.P., Assignee

    

    Oil and
Gas Lease dated May 31, 1937, recorded in Vol. 1, page 625 of the Oil and Gas
Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as lessor,
to P.N. Wiggins, as lessee;

    

    Oil and
Gas Lease dated April 5, 1937, recorded in Vol. 1, page 435 of the Oil and Gas
Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as lessor,
to P.N. Wiggins, as lessee;

    

    Oil and
Gas Lease dated January 3, 1939, recorded in Vol. 2, page 350 of the Oil and Gas
Lease Records of Cochran County, Texas, from Carrie Slaughter Dean, as lessor,
to Honolulu Oil Corporation, as lessee; and

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
“B”

    

    Attached
to and made a part of that certain Assignment by and between Davric

    Corporation,
Assignor, and Reef Oil & Gas Income & Development Fund III,
Assignee,

    effective
May 1, 2008.

    

    1.          
Description of lands
subject to this agreement:

    

    Dean Unit:

    

    Labors 1,
12 and 13, League 89, Lipscomb County School Land and Labors 1, 2, 12 and 13,
League 90, Lipscomb County School Land, Cochran County, Texas.

    

    Dean “B”
Unit:

    

    
      	
            	
              Tract
      3 -

            	
              E/2
      S/2 W/2 W/2 W/2 of League 91

            

    

    
      	
            	
              Tract
      4 -

            	
              E/2
      W/2 W/2 of League 91

            

    

    
      	
            	
              Tract
      5 -

            	
              E/2
      W/2 of League 91; Labors 3, 4, 5, 6, 8, 9, 16, 18, S/2 of Labor 15 and the
      West 1,543.79 acres, less the west 480 acres thereof of League 90 and the
      Northwest 35.4 acres of the west 441.75 acres of the East 3⁄4 of
      League 89

            

    

    
      	
            	
              Tract
      6 -

            	
              West
      480 acres of League 90

            

    

    
      	
            	
              Tract
      7 - 

            	
              Labor
      7, League 90

            

    

    
      	
            	
              Tract
      8 - 

            	
              Labor
      10, League 90

            

    

    
      	
            	
              Tract
      9 - 

            	
              N/2
      and SE/4 of Labor 17, League 90

            

    

    
      	
            	
              Tract
      10 - 

            	
              N/2
      of Labor 15, League 90

            

    

    
      	
            	
              Tract
      11 - 

            	
              NW/35.4
      acres of Labor 5, League 89

            

    

    
      	
            	
              Tract
      12 -

            	
              SW/4
      of Labor 17, League 90

            

    

    

    All
located in Lipscomb County School Land, Cochran County, Texas.

    

    2.           Restrictions, if any, as to
depths, formations, or substances:

    

    Dean “B”
Unit

    

    Tract
3:           Surface
to 5200 feet only;

    Tract
4:           Surface
to 5750 feet only;

    Tract
7:           Surface
to 5500 feet only;

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
“C”

    

    Attached
to and made part of that certain Purchase and Sale Agreement dated May 1, 2008,
by and between Davric Corporation, Assignor and Reef Oil & Gas Income and
Development Fund III, L.P, Assignee.

    

    List of
Contracts

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    Contract

                                  	 	 
      	 	
                                    Date

                                  	 	 
      	 
	
                                    File
      No.

                                  	 	
                                    Type

                                  	 	
                                    Executed

                                  	 	
                                    Other
      Party

                                  	 
	 
      	 	 
      	 	 
      	 	 
      	 
	
                                    032647-C

                                  	 	
                                    Electric
      Service Agreement

                                  	 	
                                    03/18/1966

                                  	 	
                                    Southwestern
      Public Service Co.

                                  	 
	
                                    69081

                                  	 	
                                    Cooperative
      Waterflood Agreement

                                  	 	
                                    08/02/1966

                                  	 	
                                    Sun
      Oil Co.

                                  	 
	
                                    69108

                                  	 	
                                    Cooperative
      Waterflood Agreement

                                  	 	
                                    08/03/1966

                                  	 	
                                    Tidewater

                                  	 
	
                                    73903

                                  	 	
                                    Cooperative
      Waterflood Agreement

                                  	 	
                                    12/01/1969

                                  	 	
                                    Amoco
      Production Co.

                                  	 
	
                                    91036

                                  	 	
                                    Salt
      Water Disposal Agreement

                                  	 	
                                    11/06/1974

                                  	 	
                                    Great
      Western Drilling Co.

                                  	 
	
                                    94821

                                  	 	
                                    Casinghead
      Gas Contract

                                  	 	
                                    01/01/1978

                                  	 	
                                    Amoco
      Production Co.

                                  	 
	
                                    1000261

                                  	 	
                                    Injection Well & Water Sales Agreement

                                  	 	
                                    04/29/1980

                                  	 	
                                    Amoco
      Production Co.

                                  	 
	
                                    032647-D

                                  	 	
                                    Electric
      Service Agreement

                                  	 	
                                    03/18/1966

                                  	 	
                                    Southwestern
      Public Service Co.

                                  	 
	
                                    84041

                                  	 	
                                    Cooperative
      Waterflood Agreement

                                  	 	
                                    04/01/1973

                                  	 	
                                    Burk
      Royalty Company

                                  	 
	
                                    73265

                                  	 	
                                    Cooperative
      Waterflood Agreement

                                  	 	
                                    01/13/1969

                                  	 	
                                    Pennzoil
      (Gulf Oil Co.)

                                  	 
	
                                    100262

                                  	 	
                                    Cooperative
      Waterflood Agreement

                                  	 	
                                    04/24/1980

                                  	 	
                                    Crown
      Central Petroleum Corp.

                                  	 

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    1.)
Contracts a.) 032647-C, b.) 69081, c.) 69108, d.) 73903, e.) 91036, f.) 94821
and g.) 1000261 pertain to the Dean B Unit.

    

    2.)
Contracts a.) 1000261, b.) 032647-D, c.) 84041, d.) 73265 and e.) 100262 pertain
to the Dean Unit.

    

    FILED AND
RECORDED

    OFFICIAL
PUBLIC RECORDS

    On: Jul
21, 2008 at 02:42P

     

    
      
        
          
            	
                    Receipt:

                  	
                       
      5988

                  
	
                    Document Number:

                  	
                    10691

                  
	
                    Amount:

                  	
                    39.00

                  

          

        

      

    

    

    By Connie
Jo Baker, Deputy

    

    
      	
              STATE OF TEXAS

            	
              COUNTY
      OF COCHRAN

            

    

    

    I hereby
certify that this instrument was FILED on this date and time stamped hereon by
the and was duly RECORDED in the OFFICIAL PUBLIC RECORDS OF COCHRAN COUNTY,
TEXAS in the volume and page as shown.

     

    
      
        
          
            
              	
                      Rita Tyson, County Clerk

                      Cochran
      county, Texas

                    	
                      

                    

            

          

        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        	
                                By

                              	
                                

                              	,
      Deputy

                      

                    

                  

                

              

            

          

        

      

    

    
    

     

    Any
provision herein which restricts the sale, rental or use of the described real
property because of color or race is invalid and unenforceable under federal
law.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00163-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00163-of-00352.parquet"}]]