Document:

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                                                                   EXHIBIT 10.34

                               FARMOUT AGREEMENT
                                 By and Between
                              CHEVRON U.S.A. INC.
                                  (Farmoutor)

                                      AND

                           ENERGY PARTNERS, LTD. and
                            WHELESS ANDERSON L.L.C.
                                  (Farmoutee)

                                    Covering
                            NORTH FLANK BAY MARCHAND
                               OFFSHORE LOUISIANA

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                                FARMOUT AGREEMENT

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
        SECTION                                                                                PAGE
        -------                                                                                ----
<S>     <C>                                                                                    <C>
        1.        FARMOUT LEASE & FARMOUT PREMISES; FARMOUT WELLS                                1
        2.        PHASE I                                                                        1
        3.        PHASE II                                                                       1
        4.        TRANSFER OF WELL RIGHTS                                                        2
        5.        OBLIGATION WELLS                                                               2
        6.        AFE PROPOSALS BY FARMOUTEE                                                     3
                  AFE PROPOSALS BY FARMOUTOR                                                     3
        7.        ELECTIONS AND OWNERSHIP                                                        3
        8.        SUBSTITUTE WELLS                                                               4
        9.        FARMOUTOR'S TAKEOVER RIGHTS                                                    5
       10.        PROSPECT EVALUATION                                                            6
       11.        CHEVRON RESERVE AREAS                                                          6
       12.        PHASE I-- PHASE II TIME PERIODS                                                7
       13.        ADDITIONAL OPPORTUNITIES                                                       8
       14.        EXTENSION                                                                      9
       15.        TRANSFER OF INTEREST                                                           9
       16.        PAYOUT                                                                        10
       17.        TRANSFER OF OPERATORSHIP                                                      11
       18.        JOINT OPERATING AGREEMENT                                                     11
       19.        STATE DEMANDS                                                                 12
       20.        CONFIDENTIALITY OBLIGATION                                                    12
       21.        GEOLOGICAL AND INFORMATION REQUIREMENTS                                       12
       22.        REPORTS AND STATEMENTS                                                        12
       23.        CESSATION OF PRODUCTION                                                       14
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<TABLE>
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<S>    <C>                                                                                      <C>
       24.        CONTRACT OPERATING AND PROCESSING FEES                                        14
       25.        OTHER AGREEMENTS                                                              21
       26.        RENTALS, MINIMUM ROYALTIES                                                    21
       27.        PARTNERSHIP OR JOINT VENTURE                                                  21
       28.        TAX MATTERS                                                                   21
       29.        INDEMNIFICATION                                                               21
       30.        COMPLIANCE                                                                    21
       31.        INSURANCE                                                                     22
       32.        OIL POLLUTION ACT OF 1990                                                     22
       33.        PRIOR OBLIGATIONS MAINTAINED                                                  22
       34.        NO LIENS OR ENCUMBRANCES                                                      22
       35.        PAYMENT OF DEBTS, CHARGES                                                     22
       36.        BREACH                                                                        22
       37.        RIGHTS AND REMEDIES                                                           22
       38.        NO WAIVER                                                                     23
       39         AUDIT RIGHTS                                                                  23
       40.        FURTHER ASSIGNMENTS                                                           23
       41.        NOTICES                                                                       23
       42.        NO PLEDGES                                                                    23
       43.        AMENDMENTS                                                                    24
       44.        CALL ON PRODUCTION                                                            24
       45.        GAS PLANT PROCESSING                                                          27
       46.        PLURALS AND HEADINGS                                                          27
       47.        TERM                                                                          27
</TABLE>

<TABLE>

<S>     <C>                    <C>
        Exhibit "A" -          Farmout Lease Plat and Lease Schedule
        Exhibit "A-I", "A-II"  Farmout Premises
        Exhibit "B" -          Model Form Joint Operating Agreement and Accounting Procedures
        Exhibit "C" -          Geological and Information Requirements
        Exhibit "D" -          Compliance Provisions
        Exhibit "E" -          Tax Partnership Provisions
        Exhibit "2" -          Exploration Agreement
        Exhibit "3" -          Letter of Intent
</TABLE>

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                                FARMOUT AGREEMENT

                 THIS AGREEMENT, made and entered into AUGUST 21, 2000, BUT
EFFECTIVE MAY 3, 2000 (the "Effective Date") by and between CHEVRON U.S.A. INC.,
("CUSA") a Pennsylvania corporation, hereinafter sometimes referred to as
"Farmoutor", or "Chevron", and ENERGY PARTNERS, LTD. ("EPL") and WHELESS
ANDERSON L.L.C., (W-A), hereinafter sometimes referred to jointly as
"Farmoutee":

                                   WITNESSETH:

For and in consideration of the mutual advantages and benefits accruing to the
parties hereto, the sufficiency Of which is hereby acknowledged, the parties
hereto agree that this document (the "Agreement") shall constitute the agreement
between Farmoutor and Farmoutee concerning the drilling of the well(s)
hereinafter described on the "Farmout Leases" and within the "Farmout Premises"
hereinafter identified.

1.                FARMOUT LEASES and FARMOUT PREMISES

Farmoutor owns leasehold rights and interests in the North Flank of Bay Marchand
Block 2 Field, Onshore and Offshore Louisiana, under certain oil and gas leases.
The leases, which cover and affect portions of said Block, shall hereinafter be
referred to as the "Farmout Leases", and that portion of the Farmout Leases
covered by the provisions of this Agreement shall hereinafter be referred to as
the "Farmout Premises". The Farmout Leases are more fully described and
identified in Exhibit "A" plat and schedule, which is attached hereto and made a
part hereof for all purposes. Exhibit A-I describes and represents the area and
boundaries of the Farmout Premises attributable to the Phase I period. The
boundaries of the Farmout Premises attributable to the Phase II period will be
an area, which will be defined by Farmoutee as required in Article 12.d. below,
represented by and described in a map which will be attached as Exhibit A-II. In
any conflict between this Agreement and any of its exhibits, this Agreement
shall prevail.

                 FARMOUT WELLS

"Farmout Wells", for purposes herein, are defined as those well operations
conducted within the Farmout Premises which are proposed and approved under the
terms of this Agreement and drilled by either the Farmoutee or Farmoutor,
including Phase I obligation wells, Phase II obligation wells, Chevron Reserve
Area wells (when proposed by Farmoutor for participation by Farmoutee and under
which EPL or W-A bears a share of the costs and risks for that well or wells) or
any other wells made expressly subject to the terms and conditions of this
Agreement. The aerial limit associated with or attributable to any Farmout Well
shall be a forty (40) acre square centered on that well, unless other wise
provided for herein or mutually agreed. Well operations proposed by Farmoutee
will exclude cased-hole or through tubing plug back operations (including
electric line work, snubbing, well stimulation, coiled tubing, slick line) or
any operations proposed for development of proven reserves, reserved solely for
Chevron, unless such operations are otherwise mutually agreed upon.

2.                PHASE I

Phase I is defined as the period beginning simultaneously with the effective
date of the Letter of Intent entered into between the Parties which is dated May
3, 2000 ("LOI"), as amended, and ends September 5, 2000. The LOI is attached
hereto and made a part of this Agreement as Exhibit 3. During the Phase I
period, Farmoutee shall begin prospect generation efforts within the Farmout
Premises. Also during the Phase I period, Farmoutee assumes the obligation to
commence drilling operations for two (2) wells, as more fully specified in
Article 5 below.

3.                PHASE II

EPL and W-A independently and separately have the option to either (i) withdraw
from and relinquish all rights to the Agreement, or (ii) if Farmoutee is in
compliance with the obligations and requirements and has met all of the other
conditions of the Agreement, advance and proceed independently or jointly into
Phase II of the Agreement, by formal notice to Farmoutor by September 15, 2000.
While EPL and W-A hold independent election rights until September 15, 2000,
should either party elect not to proceed to Phase II, the consenting party shall
assume the Farmoutee position in this Agreement and proceed to Phase II, and the
party electing not to proceed does, by such election, assign and deliver all
rights it held in this Agreement and the LOI prior to such election to the
consenting party, less any rights previously earned. However, should EPL elect
to not proceed to Phase II and W-A proceed independently, the W-A working
interest right to participate and bear costs and the distinct right to own

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in production shall be maintained at the interests set forth in that certain
Exploration Agreement and Assignment of Interest by and between the Farmoutees
dated June 9, 2000, but effective May 3, 2000, which W-A represents is an
undivided 20.0% of 8/8 of Farmoutee's rights and interest to participate in and
bear cost for Farmout Well operations, and Farmoutor shall assume the role of
operator for the conduct of all operations hereunder, notwithstanding any other
provisions herein. In the event of any conflict between this Agreement and that
certain Exploration Agreement and Assignment of Interest by and between the
Farmoutees dated June 9, 2000, but effective May 3, 2000, this Agreement shall
prevail. Exploration Agreement is attached hereto and made a part of this
Agreement as Exhibit 2.

Subject to the other provisions of this Agreement, should both EPL and W-A
independently elect to proceed to Phase II, each party hereto, including
Farmoutor where it participates in and bears well costs, as between themselves,
is bound to and liable for its proportionate share of the well costs under this
Agreement based on each party's interest, elections and obligations provided by
the terms and provisions of this Agreement. The parties acknowledge that this
well cost bearing limitation does not bear upon the solidary obligations for
liquidated damages under Article 12 (h) or of indemnity under Article 29.

The parties mutually agree that the period of time, which shall commence at end
of Phase I and terminate no later than August 15, 2001 for the continuation of
the prospect generation/identification effort and prospect-deliverable process,
as specified in Articles 10 and 12, with the Farmoutee's timely election to
advance to Phase II, is identified herein as Phase II. During the Phase II
period, Farmoutee is obligated to commence drilling operations for six (6)
wells, as more fully specified in Articles 7 and 12 below.

4.                TRANSFER OF WELL RIGHTS

During any time EPL is acting as operator of a Farmout Well and is engaged in
the drilling, completion or connecting of any well under the terms of this
Agreement, EPL and W-A shall own, and Farmoutor hereby transfers to EPL and W-A,
the farmout working interest portion of all of Farmoutor's right, title, and
interest in and to the operating rights and/or working interest in such well and
its appurtenances, if any, and such forty (40) acre square surrounding such well
and EPL, for operating purposes, shall have exclusive charge, control, and
supervision of such well. If Farmoutee does not earn an interest in any well
drilled or in the operating rights in the Farmout Premises associated with that
Farmout Well(s) pursuant hereto, this Agreement will terminate as to each forty
(40) acre square surrounding such Farmout Well to all depths drilled, when no
substitute well is timely commenced, without further notice or demand from
Farmoutor, and Farmoutor will own (and EPL and W-A will and do hereby retransfer
to Farmoutor) all right, title and interest in and to the operating rights
and/or working interest in the well(s) and appurtenances, if any, and such forty
(40) acre square surrounding such well, which were transferred by Farmoutor to
EPL and W-A, pursuant to this Article 4.

5.                OBLIGATION WELLS

                  5.1         PHASE I COMMENCEMENT

                  Pursuant to the LOI, Farmoutee obtained Chevron's approval to
commence and drilled the first two (2) identified farmout obligation wells: (i)
SL 1365 No. CX68 well; or (ii) SL 1365 No. CX55 well ("Phase I Obligation
Well(s)"). EPL was designated as Operator, made, at its cost, all regulatory
filings to become Operator and did, at the costs and risks recited in Article
5.2, drill or cause the Phase I Obligation Well(s) to be drilled, and completed
for production to the "CX" Platform. Each Phase I Obligation Well was drilled,
located on a legal location, acceptable to Farmoutor, within the boundaries of
SL 1365, Bay Marchand Block 1, Offshore Louisiana, with the target objective
penetrating (I) the 7600' K sand; and (II) the 7600' V Sands, respectively, and
completed in the target sands for each well. The SL 1365 No. CX68 well was
completed for production on June 17, 2000 and the SL 1365 No. CX55 well was
completed for production on July 8, 2000. Farmoutee shall be entitled to an
assignment of the Earned Area, as defined hereinafter, for each such well upon
the connection of such well for production to the "CX" platform and shall, at
such time, redesignate Chevron as well operator at the cost of Farmoutee.

                 5.2          COSTS AND RISKS

                 Except as may otherwise herein be provided or agreed, the
drilling of the Phase I and Phase II obligation wells and all other wells
drilled hereunder, their plugging and abandonment, if a dry hole, or the
completion and equipping for production, if a producer, and the cleaning and
restoration of each well site (including the removal of any structures
constructed or used by Farmoutee for drilling or operations hereunder), shall be
performed at Farmoutee's sole cost, risk, and expense. The parties acknowledge
that the costs of drilling, completing and connecting each of the two Phase 1
farmout obligation wells were or are to be shared as Chevron 40%, EPL 40% and
W-A 20% and that the ownership in production, from first production and the
bearing of operating costs and risks thereafter, is and shall be, until any
escalation of the Chevron interest after Payout, Chevron 49%, EPL 34% and W-A
17%.

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                 5.3          PHASE I REQUIREMENTS MET

The two Phase I Obligation Wells have been drilled and completed as commercially
productive wells and upon connection for production, will have satisfied the
two-well drilling obligation requirement of Phase I of this Agreement and the
LOI, entitling Farmoutee to an assignment in conformity with the terms of the
LOI and this Agreement.

                 5.4          PHASE II COMMENCEMENT

Upon acceptance of this Agreement, Farmoutee agrees, in order to satisfy the
drilling obligation requirements of the Phase II period of the farmout
agreement, to propose and commence good faith and prudent operations for a
minimum of six (6) wells: (a) the first three (3) Phase II farmout obligation
wells will be proposed to Chevron for approval by November 15, 2000 on prospects
identified in the evaluation process and be spudded by the well operator, during
and within the first six (6) months of Phase 11 but no later than March 18, 2001
and (b) propose, drill and complete the last three (3) Phase II farmout
obligation wells before the end of the Phase II period on prospects identified
in the evaluation process. The last three (3) Phase II farmout obligation wells
will be proposed and planned under a thirty (30) day continuous drilling program
That is, the fourth sequential well shall be commenced promptly within thirty
(30) days following the completion of the operations of the third sequential
Phase II farmout obligation well and each Phase II obligation well commenced
thereafter shall be commenced within thirty (30) days of the last drilling or
abandonment operations for the preceding well. The thirty day continuous
drilling obligation shall not extend the obligation for the completion of
drilling operations on the last three (3) Phase II farmout obligation wells
before the end of the Phase II period on prospects identified in the evaluation
process. Failure to timely commence any of the final three Phase II obligation
well shall terminate this Agreement as to any and all unearned rights. During
Phase I or Phase II, Farmoutee will not be limited to, and may propose, any
number of additional wells beyond the required number of obligation wells but
any Farmout Well shall always be subject to the express consent and approval of
Chevron of the well plan and the Chevron right of election to participate. The
parties agree that the Phase II wells are an independent obligation to the Phase
I wells.

6.                AFE PROPOSALS BY EPL

At least twenty (20) days prior to the commencement of any operation proposed
by EPL, EPL will present to Farmoutor, for its approval of the well plan, a
well proposal, including well cost estimate in the form of an AFE and well
procedures to cover the drilling, completion, equipping, and hook-up for each
operation. No operation shall commence until the well plan is approved by
Farmoutor, regardless of the Farmoutor election rights under Article 7. Each
party in receipt of the well proposal from EPL shall have twenty (20) days (or
48 hours if a drilling rig is on location accumulating standby charges) after
AFE receipt (or until commencement of well operations) to provide EPL with
written election with respect to each such AFE. W-A shall hold the right to
make a well proposal through EPL but EPL shall prepare and distribute the well
plan and AFE.

                  AFE PROPOSALS BY FARMOUTOR

At least twenty (20) days prior to the commencement of any operation proposed by
Farmoutor, FARMOUTOR will present to Farmoutee, a well proposal, including well
cost estimate in the form of an AFE and well procedures to cover the drilling,
completion, equipping and hook-up for any of the Phase I, Phase II Wells or
other wells proposed by Farmoutor in the Farmout Premises or the Chevron Reserve
Area (where Farmoutor may at its discretion offer Farmoutee a participation
election). Each party in receipt of the well proposal from Farmoutor shall have
twenty (20) days for any wells proposed within the Farmout Premises, or ten (10)
days for any Farmout Wells proposed within the Chevron Reserve Areas (or 48
hours if a drilling rig is on location accumulating standby charges) after AFE
receipt (or until commencement of well operations) to provide Farmoutor with
written election with respect to each such AFE. Farmoutor does not hold the
right to formally propose Phase I or Phase II obligation wells but shall hold
the right to make formal well proposals under Article 12(f). W-A shall hold the
right to make a well proposal through Farmoutor but Farmoutor shall prepare and
distribute the well plan and AFE.

7.                ELECTIONS AND OWNERSHIP

a. Upon receipt by Farmoutor from Farmoutee or issuance by EPL of any well cost
estimate as an AFE, Farmoutor shall hold a right for ten (10) days to make an
election to participate in any of the Farmout Well at a participation or
investment rate of either 0%, 25.0% or 40.0% working interest. Should Farmoutor
elect a 0%, Farmoutor shall not bear any drilling, completion, connection or
equipping costs or risks but shall hold a 15% working interest (as a carried
interest of 15% of 100%) ir. production and the Earned Area from first
production. If the investment election by Farmoutor is 25.0%, Farmoutor shall
pay and bear 25% of 100% of the costs and risks of such operation, however
Farmoutor's ownership interest in the production from any such well(s) and the

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Earned Area, including the 15% carried interest, from first production until
Payout as defined below, is equivalent to a 36.25% combined working interest.
(That is 25% of 100% plus a carried interest of 15% of Farmoutee's 75% share of
the costs and risks of such operation.) If the investment election by Farmoutor
is 40.0%, Farmoutor shall pay and bear 40% of 100% of the costs and risks of
such operation, however Farmoutor's ownership interest in the production from
any such well(s) and the Earned Area, including the 15% carried interest, from
first production until Payout as defined below, is equivalent to a 49% combined
working interest. (That is 40% of 100%, plus a carried interest of 15% of
Farmoutee's 60% share of the costs and risks of such operation.) The interest of
Farmoutor as to each Earned Area is subject to escalation at Payout. For
interests after Payout, see Article 16 hereof. The parties agree that Farmoutor
elected to and did participate in the costs and risks of drilling, completing
and connecting the two Phase I farmout obligation wells under a 40% working
interest in the SL 1365 No. CX68 well and a 40% working interest in the SL 1365
No. CX55 well, rendering to Farmoutor a 49% working interest from and after
first production in each such well, the Earned Area and the production
therefrom.

b. The 15% carried interest shall bear only upon the operations conducted
through the drilling, completion, equipping and hook-up for production of any
earning well and thereafter Farmoutor shall bear its costs and risks in accord
with its working interest in the Earned Area. That is, Farmoutee shall bear all
cost and expense, attributable to its cost bearing working interest, through and
to first production.

c. Any election by either EPL or W-A, where both have elected to proceed to
Phase II, to not participate in any Phase II obligation well proposals made by
either EPL or W-A shall exclude the non-participating party from and releases
all rights in or to such well, its productive acreage and any production
therefrom. Subject to the Chevron Reserve Areas rights, an election by Farmoutor
to not participate in an obligation well proposal shall NOT exclude such well or
any acreage capable of being earned from this Agreement but shall limit
Farmoutor to its 15% carried working interest rights, as to the Earned Area and
production therefrom.

d. An election by Farmoutor to participate in a well shall override the cost and
risk bearing provisions of Article 5.2 hereof under which Farmoutee bears all
costs and risks of drilling, completing and connecting, if a commercial producer
or plugging and abandonment, if a dry hole, and Farmoutor shall, to the extent
of its election to participate in and bear costs, be responsible for and bear
its proportionate share of all costs and expenses associated with the drilling,
completing, connecting and operating of any such well, as well as the plugging
and abandonment, if a dry hole, or the completion and equipping for production,
if a producer, and the cleaning and restoration of each well site (including the
removal of any structures constructed or used for drilling or operations
hereunder. Such election to participate in cost and risk bearing by Farmoutor
reduces the working interest available to Farmoutee for earning but the 15%
carried interest and payout escalation remain in place as otherwise provided in
the terms of this Agreement.

e. Elections for any subsequent operations, meaning those commenced after
drilling, completion for production and hook-up for production, in any Earned
Area, regardless of whether proposed before or after Payout, as defined
hereafter, in any Farmout Well in or to its Earned Area shall be made pursuant
to the Operating Agreement provided for under Article 18, under the working
interest ownership in that Earned Area at the time the operation is proposed,
without any carry by Farmoutee for the benefit of Farmoutor but subject to any
appropriate penalty provision for a nonconsent.

8.                SUBSTITUTE WELL(S)

                  8.1               COMMENCEMENT

                  a. If a Farmout Well fails to reach the Stratigraphic
Objective and a substitute well is not proposed, approved and commenced within
sixty (60) days of last operations, that well shall count toward the Phase II
well obligations, if drilled diligently and in good faith to reach Stratigraphic
Objective.

                  b. If any well drilled during said Phase I or Phase II, after
having reached the Stratigraphic Objective, is not deemed as qualifiable as
commercially productive under the MMS rules and orders for OCS lease or by
mutual agreement of all participating parties in that well for any State or
private leases and is abandoned by Farmoutee with Farmoutor's approval,
Farmoutee will have not earned any interest in the Farmout Premises or the
Farmout Leases as a result of that operation. However, Farmoutee will continue
to have the right to earn interests by conducting additional operations within
the remaining term of this Agreement. No Farmout Well may be abandoned without
the prior consent of Farmoutor.

                  8.2               SUCCESSIVE SUBSTITUTE WELLS

                  Until Farmoutee earns an interest in the operating rights in
the Farmout Premises and for so long as Farmoutee complies with the terms
hereof, Farmoutee shall have the continuing right to drill successive substitute
wells in the Farmout Premises, for so long as Farmoutee complies with the
applicable time periods and provisions of Article 8.1 relative to the drilling
of the first such substitute well. All provisions of this Agreement relating to
the said obligation wells or any Farmout Wells shall also, unless clearly
inappropriate, be applicable to each such substitute well.

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9.                FARMOUTOR'S TAKEOVER RIGHTS

                  9.1               TIMING; OWNERSHIP

No Farmout well drilled by Farmoutee pursuant to this Agreement shall be
abandoned by Farmoutee without Farmoutee's first giving Farmoutor written notice
thereof, together with a copy of the final electric log and copies of all other
wireline logs, sidewall core analyses and other information required to be
provided to Farmoutor under this Agreement. Within thirty (30) days (inclusive
of weekends and holidays) after Farmoutor's receipt of such notice and logs or
twenty-four (24) hours, if the rig having drilled said well is on location and a
decision has been made by Farmoutee to immediately plug and abandon the well,
Farmoutor may notify Farmoutee that it elects to take over the well for such
further operations it may wish to conduct. If Farmoutor elects to take over such
well, Farmoutor shall, at its sole risk and expense, thereupon take immediate
possession of the well and of the materials and equipment owned or controlled by
Farmoutee located at the well site in connection with Farmoutor's further
operations testing, deepening, or evaluating the well. If Farmoutor elects not
to take over the well, Farmoutee shall proceed to immediately plug and abandon
such well if the rig is on location or within thirty (30) days of receipt of
Farmoutor's election, proceed to plug and abandon such well at the costs of the
participating parties in such well. If Farmoutor drills the Farmout Well, as
well operator, and a decision is made to plug and abandon such well, Farmoutor
shall hold the same right as above and obligations under this Article 9 but
shall timely notify Farmoutee of its election to take over the well.

                  If, within the time provided, Farmoutor elects to take over
the well, Farmoutee shall, except as hereinafter provided, have the same rights
and responsibilities as if it had abandoned the well with Farmoutor's approval.
After taking over the well, Farmoutor shall own all operating rights and working
interest in the well and shall be responsible for and shall bear the entire
expense of further operations in connection with the well, including the cost of
completion and/or abandonment. In addition, Farmoutor shall own exclusively,
free and clear of this Agreement and of any assignment or operating agreement
entered into pursuant to this Agreement:

                  9.1.1 The well and all production therefrom, regardless of the
                  depth from which produced; and

                  9.1.2 The unearned portion and depths of the Farmout Premises.

                  Farmoutee shall, upon request from Farmoutor, furnish
                  Farmoutor with such documents (in recordable form) as may be
                  required to perfect title to such well taken over by
                  Farmoutor, and to the unearned portion and depths of the
                  Farmout Premises.

                  9.2               REIMBURSEMENT OF MATERIAL COSTS

                  If Farmoutor elects to take over a well drilled by Farmoutee
pursuant to Article 9.1 above, Farmoutor will reimburse Farmoutee a reasonable
salvage value or compensation for pipe and any other materials in the well that
could have been recovered by Farmoutee if Farmoutor had not taken over the well.
If the Farmoutor takes over a well, Farmoutor will also reasonably reimburse
Farmoutee for Farmoutee's unused materials utilized in subsequent operations by
Farmoutor.

                  9.3              DEFAULT ON NOTICE OBLIGATION

                  In the event Farmoutee abandons any well drilled on the
Farmout Lease without Farmoutor's prior approval, this Agreement shall
immediately terminate as to the unearned rights or unearned portions and
unearned depths of the Farmout Premises. As a result, Farmoutee shall forfeit
all rights hereunder as to such unearned portion and unearned depths of the
Farmout Lease. However, Farmoutee shall remain responsible for any and all costs
incurred in connection with or otherwise associated with Farmoutee's operations
on said abandoned well.

                  9.4               ABANDONMENT OBLIGATION

                  Should Farmoutor elect not to take over a well, Farmoutee
shall, at the cost and risk of the participating parties to the extent of that
participation by each, proceed to temporarily abandon any well it reentered but
shall permanently abandon any new drill, unless Farmoutor advises Farmoutee to
temporarily abandon such new drill well.

                  9.5               REIMBURSEMENT ON CAPROCK WELLS

                  Notwithstanding anything else to the contrary in this
Agreement, should Farmoutee drill any Farmoutor-approved Farmout Well that
encounters and identifies a caprock prospect (as defined in Article 11.2) and
Farmoutee elects to abandon that well, Farmoutor, or its designee, may take over
that well pursuant to the provisions hereof, but Farmoutor (or its designee) may
not complete said well in any caprock prospect unless it

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agrees to reimburse Farmoutee its share of the actual drilling costs for said
Farmout Well, in addition to any amounts owed under Article 9.2 hereof.

10.               PROSPECT EVALUATION.

a. Following the execution of the LOI, EPL executed a confidentiality agreement
for itself and any consultant covering Farmoutor's North Flank of Bay Marchand
Block 2 Field data and Farmoutee has committed a petroleum geologist and
petroleum engineer ("evaluation team") and commenced evaluation, at Farmoutor's
offices during Farmoutor's business hours, for the prospect generation of
certain portions of the North Flank of Bay Marchand Block 2 Field within the
Farmout Premises. FARMOUTEE agrees that the evaluation team will diligently
pursue the prospect opportunities of the North Flank of the Bay Marchand 2 Field
during Phase I but may terminate prospect generation after the earlier of two
months of good faith prospecting or by August 31, 2000, whichever is the later,
with notice to Farmoutor. Such termination shall also terminate this Agreement
as to any unearned rights or interests.

b. During the field evaluation process, FARMOUTEE agrees that the evaluation
team will interact and maintain regular and frequent discussions with and
communicate its progress to Farmoutor, advising Farmoutor of its prospect
generation efforts and identification of those prospect areas under evaluation.
At the conclusion of prospect generation at the end of Phase I, Farmoutee shall,
at no charge or cost to Farmoutor, provide originals of all notes, materials,
prospect maps or other information generated of any kind to Farmoutor for any
work or area or prospect not made subject to this Agreement.

c. No assignment of interest or transfer of rights in the Agreement or the
Farmout Premises or any Earned Area (as defined hereafter) may be made by
Farmoutee without the prior consent of Farmoutor, which consent shall not be
unreasonably withheld, however no further assignment may be made during Phase I.

d. Following the acceptance of the LOI by Farmoutee, and in order to commence
the technical evaluation and prospect generation process in Phase I, FARMOUTEE
agrees to make its own arrangements to gain access or obtain a use license to
certain speculative 3D seismic data covering certain areas of the North Flank
of Bay Marchand Block 2 Field and that it shall be denied access to such data by
Farmoutor until Farmoutor is satisfied that Farmoutee has obtained rights to
such license or the right of use to the data. Failure by FARMOUTEE to conclude
arrangements to gain access to the data will not effect the Phase I two-well
farmout obligation undertaken by Farmoutee and shall not extend FARMOUTEE's
prospecting rights period defined above or effect the rights and obligation to
the Phase II wells.

11.               CHEVRON RESERVE AREAS.

                  11.1 At any time during the term of this Agreement, certain
areas may be and are retained by Farmoutor by prospects, reservoirs, wells or
operations within the Farmout Leases from the Farmout Premises. Such retained
areas will be identified by Farmoutor and are removed, excluded and reserved
from the Farmout Premises as to all depths to and by Farmoutor; these areas
("Chevron Reserve Areas") are represented by the circles drawn on the Exhibit
A-1 plat, attached hereto and made a part of this AGREEMENT, which may be
amended or supplemented from time to time by Farmoutor, so long as such
amendment, supplement or modification does not impinge upon an Earned Area or
the Earning Area of an approved proposed operation. Except as approved in
writing by Farmoutor, no Farmout Well may be drilled or operations conducted in
or to any of the Chevron Reserve Areas, and no Farmout Well may be drilled nor
any wellbore used or completed within 750 feet of any of the Chevron Reserve
Areas. Any well proposal made by Farmoutee which would create a 40 acre square
around the wellbore and affect a Chevron Reserve Area, in any way, shall be
withdrawn by Farmoutee, at the request of Farmoutor, and shall not count as a
well proposal toward the obligation well count. No spacing limit shall apply to
any well proposed by Chevron for a Chevron Reserve Area.

                  11.2. For all purposes of this Agreement, Farmoutor further
reserves and excludes from the Farmout Premises and Farmoutee waives any right
to earn in the area and depths designated as the caprock prospect. The term
"caprock" is geologically defined as "Any rock formation located on the top or
side of a salt dome, containing anhydrite, gypsum, calcite or celestite,
including the layers of salt, pyrite, sulphur, dolomite, barite and other minor
minerals interbedded therewith, and also including the stratigraphic equivalent
of the intervals seen (1) from 6088'-6240'MD (6004'SS to 6164'SS) in the
California Co. S.L.1365 Well No.44, (2) from 8016'-8076'MD (-7981' to 8041' SS)
in the California Co. S.L.1365 Well No.7, and (3) from 6416'-6542'MD (-5234' SS
to -5328'SS) in the California Co. S.L.1365 Well No.L-5." In Bay Marchand
Field, the caprock interval is generally located 0-150' (vertically) above the
top of the salt.

                  11.3. Farmoutee agrees not to object to and not to interfere
with and Farmoutor expressly reserves and excludes, unless otherwise mutually
agreed, from the application of this Agreement, any operations conducted for the
caprock prospect, Chevron Reserve Area operations or Chevron 100% operations, or
other well operations proposed by Farmoutor or conducted pursuant and subject to
the terms of an existing agreement,

                                       6
<PAGE>   10

where such operations do not unreasonably interfere with Farmoutee's ability to
conduct operations hereunder. Farmoutor shall act as the ultimate arbiter of
precedence, in good faith, in any conflict between the two or three sets of
operations, however Chevron 100% operations shall be given priority unless
waived by Farmoutor. Farmoutor agrees to give Farmoutee advance notice of
planned drilling operations for the caprock prospect, Chevron Reserve Area
operations or Chevron 100% operations.

12.               PHASE I-PHASE II TIME PERIODS

a. Upon acceptance of this AGREEMENT, and from the date of its execution,
FARMOUTEE will, at its sole cost and risk, commence or continue a technical
evaluation and prospect generation process and may propose additional Phase I
wells covering certain identified areas within the Farmout Premises, but
excluding Chevron Reserve Areas of the North Flank of Bay Marchand Block 2 Field
and the caprock, for a period ending September 5, 2000 (identified in Article 2
as Phase I). FARMOUTEE may terminate the Phase I evaluation at any time prior to
September 5, 2000 with notice to Farmoutor, but such early termination of the
right to earn shall not relieve FARMOUTEE of any other prior obligations or
requirements with respect to Phase I of the Agreement.

b. At the end of the Phase I period, FARMOUTEE, subject to Article 3, has the
option to either (i) terminate the farmout agreement as to any unearned or
remaining rights, or (ii) if FARMOUTEE is in compliance with all of the
obligations and requirements of and has met all of the other conditions of the
farmout, advance into Phase II of the farmout by formal notice to Farmoutor
received by September 15, 2000.

c. Phase II of this Agreement shall commence with an election to proceed
received by Farmoutor prior to September 15, 2000 and shall terminate on or no
later than August 15, 2001.

d. If FARMOUTEE timely elects to proceed with Phase II requirements of the
Farmoutor or before September 15, 2000, FARMOUTEE, will present to Farmoutor for
further approval and acceptance by Farmoutor, within ten (10) days of receipt by
Farmoutor of Farmoutee's election, an Exhibit A-ll map that, as the outcome of
the evaluation process, identifies and outlines (i) specific prospect areas with
(ii) a selection of any existing wellbores, which FARMOUTEE seeks to utilize to
initiate and propose wells for development and (iii) general project plans for
the well operations to be proposed in the Phase II process for the six Phase II
obligation wells. Farmoutor will identify and outline any revisions to the
Chevron Reserve Area boundaries applicable to the Phase II period and approve or
object to Farmoutee's map, prospect areas, wellbores and plans, within ten (10)
business days of receipt of Farmoutee's Exhibit A-11 map, prospect areas,
wellbores and plans.

e. Farmoutor's prior approval is required before FARMOUTEE shall hold any use or
other rights for such specific prospect areas, or selection of wellbores, which,
when and if approved, will be made available to FARMOUTEE during Phase II in
order for FARMOUTEE to proceed with well proposals. Farmoutor may, at its sole
discretion, approve or withhold such use rights to individual wellbores or
wells. The Exhibit A-11 map, once approved by Farmoutor, describing specific
prospect areas will become and represent the Farmout Premises for the Phase II
period. No alteration of Exhibit A-11, once approved by Farmoutor, may be made
without the express consent of Farmoutor.

f. After execution of the Agreement, FARMOUTEE may propose additional Phase I
wells within the Farmout Premises, excluding the Chevron Reserve Areas and
caprock prospect, during Phase I period. During the Phase II period, Farmoutee
is obligated and agrees to propose no later than November 15, 2000 mutually
agreeable well plans and drilling schedule and to drill or cause to drill as
provided in Article 5.4, if approved by Chevron, six (6) obligation wells
("Phase II Obligation Wells") to be located within the specific prospect areas
as described in Article 12.d. above, and, at its election, commence operations
for new drills or utilize wellbores from the selection of existing wellbores as
outlined in Article 12.d. above in a mutually agreed upon order and sequence to
be approved by Chevron. Once approved by Chevron the order and sequence of the
Phase II obligation wells may be changed only by mutual consent of all parties
to this Agreement.

g. Farmoutor may propose additional wells within the boundaries of Farmout
Premises attributable to Phase I or Phase II (or Wells within the Chevron
Reserve Areas for its sole account or it may propose wells for a participation
election to Farmoutee by, or for the sole risk, of FARMOUTEE), and, if both EPL
and W-A elect to not participate in a well proposal offered to Farmoutee by
Farmoutor, by notifying Farmoutor within ten (10) days of receipt of Farmoutor's
well proposal, Farmoutor can and may, at its sole discretion and election, then
conduct well operations for its sole account or offer said additional well(s)
and prospects to other third parties, during Phase I and Phase II periods. Upon
such election not to participate by Farmoutee, such 40 acre area or other
productive aerial limits, as determined soley by Farmoutor, surrounding that
wellbore for such well proposal as to all depths shall immediately be released
from the Farmout Premises, with all rights thereto returning to Farmoutor. Any
such well proposal by Farmoutor is outside of and independent to the six (6)
Phase II well obligation. If either EPL or W-A elect not to participate under
this subpart (f.), the well proposed by Farmoutor shall not proceed without the
further express consent of Farmoutor and may be withdrawn by Farmoutor, with all
rights to that prospect and its 40 acre square returning to Farmoutor as a
release of that acreage under and from this Agreement. If either EPL or W-A, but
not both, elect to participate in the well proposed by Farmoutor, and if
Farmoutor's express consent is granted, Farmoutor may proceed with the well
operation with one participating party's interest and the Farmoutor

                                       7
<PAGE>   11

may assume the non-participating party's interest. Farmoutor shall act as
operator for any such well, and the participating party will participate in the
well under separate negotiated terms and interests that may or may not differ
from the terms and interests specified in the election provision (Article 7).
The non-participating party releases all rights in and to such prospect and will
have no rights to earn in and will never benefit from any production associated
with such well.

h. FARMOUTEE shall hold no right to propose operations under which it may earn
additional acreage after either the early termination of the right to earn under
this Agreement or after the end of the Phase II period. All Phase II farmout
obligation wells must be commenced by August 15, 2001. Any subsequent or
additional wells exclusive of obligation wells required under Phase I or Phase
II and proposed by FARMOUTEE, operations of which are to be commenced during
Phase II, if well plans are approved by Farmoutor, shall be spudded no later
than three (3) months after either the early termination of the right to earn
under the Agreement or the end of the Phase II period on August 15, 2001 (i.e.,
by November 15, 2001). The termination of the right to earn under the Agreement,
for all purposes, is deemed the end of the right to propose operations for the
purposes of earning an interest in any Earned Area but will not relieve
FARMOUTEE or Farmoutor of any obligations arising prior to such termination of
the right to earn. Farmoutee shall, however, remain obligated to complete
operations for subsequent or additional wells in which either EPL or W-A have
elected to participate and that have already been proposed and approved by
Farmoutor, where such approval was granted prior to August 15, 2001. Appropriate
and applicable provisions of this Agreement shall survive the termination of the
rights to propose and earn.

i. While any party may propose certain well operations during Phase I or Phase
II, no well operation proposed for conduct by either W-A or EPL may be commenced
nor acreage be made available or made subject to the Agreement, without the
express consent of Farmoutor, which consent may be withheld for any reason. Such
consent, if granted, shall be made subject to the other terms and provisions of
this Agreement.

j. If Farmoutee elects to proceed into Phase II, the failure by the FARMOUTEE(s)
electing to proceed timely commence and prudently and in good faith drill any of
the first three Phase II farmout obligation wells will subject FARMOUTEE to (i.)
a penalty and give rise to the immediate payment at the close of Phase II, as
liquidated damages, of $750,000.00 for each such well proposed by FARMOUTEE but
not commenced and diligently prosecuted, unless such well was not approved by
Farmoutor, and (ii.) the immediate termination of the rights to earn under the
Agreement. Termination by Farmoutor is unilateral and shall apply as to all
unearned rights.

k. Should EPL and W-A both elect to proceed to Phase II, EPL and
W-A shall be and remain solidarily liable for the payment and satisfaction of
any liquidated damages due under this Article 12. Failure to timely commence and
prudently and in good faith drill the fourth sequential Phase II farmout
obligation well as provided in Article 5.4 will subject FARMOUTEE to the
immediate termination of the right to earn under this Agreement. Termination
by Farmoutor is unilateral and shall apply as to all unearned rights. Any well
proposal made by Farmoutee as an obligation well but not approved by Farmoutor
shall not count toward the well count commitment.

13. ADDITIONAL OPPORTUNITIES

During the Phase I and II periods, it will be understood and is agreed that
FARMOUTEE will have the additional opportunity but will not be required to
propose or drill wells, other than the obligatory eight (8) farmout wells, in
prospective areas for the Farmout Premises, but excluding the Chevron Reserve
Areas and the caprock prospect, other Chevron 100% operations or operations
reserved by or made subject an existing agreement. Farmoutor shall hold all
rights of approval and election as to any obligation Farmout Well or any
additional well operations proposed by Farmoutee as a Farmout Well. Farmoutor
may propose any number of additional wells within the Farmout Premises
(including well proposals within the Chevron Reserve Areas for its sole account
or for participation by Farmoutee) during Phase I and Phase II periods but may
not propose obligation wells. Operations proposed by Farmoutor, as additional
wells within the Farmout Premises for participation by Farmoutee, exclusive of
the Chevron Reserve Areas and the caprock prospect, or under which a third party
may be entitled under an existing agreement bearing upon the Farmout Premises
shall entitle Farmoutee to an election bearing upon the farmout interest made
available by Farmoutor in keeping with Article 7. Farmoutor is under no
obligation to offer Farmoutee any election or right to any proposals made by
Farmoutor in the Chevron Reserve Areas or third party proposals for the caprock
prospect or any prospect or acreage returned to Farmoutor by the operation of
this Agreement. EPL will have the option to perform and conduct the well
operations for wells proposed by EPL. Farmoutor will retain the right to perform
and conduct the well operations for the wells proposed by Farmoutor or W-A, if
EPL elects not to proceed or elects not to participate in the well proposal. At
the conclusion of Phase II, Farmoutee's or Farmoutees' right to propose
operations terminates and all unearned rights to and in the Farmout Premises
shall immediately revert to full ownership and control of Farmoutor and are
released from this Agreement.

                                       8
<PAGE>   12

14.               EXTENSION

If FARMOUTEE has complied and performed in accordance with the terms of the
Agreement and if it is the mutual desire and intent of Farmoutor and any of the
other parties to allow the Agreement and continuous drilling program to
continue, those parties may, by mutual written consent and agreement evidenced
thirty (30) days prior to the end of the Phase II period, extend and renew the
Agreement, to be defined as the Phase III period, for the purpose of prospect
generation and to proceed with an additional continuous drilling program. The
parties must agree by August 15, 2001, upon a number of farmout obligation wells
to be drilled during the Phase III period as a part of the extension agreement
and the provisions will include an option, but no obligation, to consider and
renegotiate different farmout terms applicable to the Phase III period, If the
extension is sought by Farmoutor and other parties to this Agreement, the formal
Phase III obligations must be undertaken by October 15, 2001 or the rights to
further negotiate the extension shall lapse.

15.               TRANSFER OF INTEREST

                  15.1.            Earning.

                  Upon meeting all of the terms and conditions to earn any
interest hereunder, FARMOUTEE would earn, once and effective from and after
production in paying quantities is commenced and established after connection
for production by FARMOUTEE at its cost and risk for any share it is obligated
to bear, a working interest pursuant to the elections made under Article 7
within a defined geographic area, not to exceed a 40-acre square around the well
bore, in and limited to those certain portions of commercially productive
reservoir sands encountered by the drilling and completion of the two (2) Phase
I Farmout Wells and those certain other Farmout Wells (FARMOUTEE-operated wells,
with Farmoutor's consent or participation, or Farmoutor-operated wells with
FARMOUTEE's participation), from the top of the most shallow commercially
productive reservoir, as mutually determined, to the base of the deepest
commercially productive reservoir, as mutually determined. Subject to the other
provisions hereof, FARMOUTEE agrees to pay and bear 100% less Farmoutor's
participation interest election made under Article 7 of the drilling costs of
the two (2) Phase I Farmout Wells, and all other proposed Farmout Wells in which
it participates, through completion and hook-up or abandonment, if a dry hole,
after which, with production in paying quantities and hook-up, FARMOUTEE shall
earn and hold as a working interest 85% of the interest made available to
Farmoutee under Article 7 (i.e. 65% of, Farmoutee's 100%, 75% or 60% interest in
or obligation to the drilling costs, being 100% less Farmoutor's participation
interest election made under Article 7) in the production from the Phase I or
Phase II Farmout Wells Earned Area and other proposed Farmout Wells as to that
applicable Earned Area' (defined below) and Farmoutor will reserve, own and
retain as a working interest 15.0% of the interest made available to Farmoutee
under Article 7 (i.e. 15% of Farmoutee's 100%, 75% or 60% interest in or
obligation for the drilling costs plus any Farmoutor's participation interest
election to bear in the drilling cost made under Article 7) in the production
from the Earned Area.

                  It is understood and agreed that the earned interests of each
Farmoutee will be assigned in the proportions set forth in and by virtue of that
certain Exploration Agreement and Assignment of Interest by and between the
Farmoutees dated June 9, 2000, but effective May 3, 2000. In the event of any
conflict between this Agreement and that certain Exploration Agreement and
Assignment of Interest by and between the Farmoutees dated June 9, 2000, but
effective May 3, 2000, this Agreement shall prevail.

                  15.2.            Earned Area.

The "Earned Area(s)" shall be defined as consisting of a 40-acre square
surrounding the well bore as it traverses the entire length of the welibore (a
maximum areal configuration of four (4)10-acre squares with the wellbore
situated in the center) encompassing that portion of each reservoir, penetrated
by, sidetracked or completed for production in paying quantities if the portion,
of those reservoirs do not encroach upon Chevron Reserve Areas, from the
stratigraphic equivalent of the most shallow productive reservoir in which
FARMOUTEE earns operating rights down to the stratigraphic equivalent of the
deepest productive reservoir encountered in that well operation, only insofar as
said area, extent and depths are restricted to and bounded by the limits of the
fault block associated with the productive reservoir encountered by the well
operation. If the well proposal and well plan as proposed by Farmoutee pursuant
to Article 6 is approved by Farmoutor and if the well is drilled in accordance
with the well proposal and well plan and results in the Earned Area encroaching
on a portion of a Chevron Reserve Area, the Earned Area shall include the
portion of acreage within the Chevron Reserve Area. Productive reservoir as used
in this Article 15 or elsewhere herein is defined as a sand or zone mutually
agreed by the participating parties and Farmoutor as capable of production in
paying quantities. Earned Areas shall be made the subject of a mutually
acceptable operating agreement required under Article 18 from the date of first
production.

                  15.3.            Assignments/Sublease.

                  a. Once a Farmout Well is completed as capable of producing in
                  paying quantities and connected to production facilities for
                  the purposes of production, an acknowledgment of no

                                       9
<PAGE>   13

                  outstanding debts or obligations, of any kind, against and
                  that all accounts are current for, the well, the Farmout
                  Premises and the lease is delivered by FARMOUTEE and all other
                  obligations of the farmout are met, an assignment or sublease
                  of rights in any earned interest to the Earned Area, in a form
                  similar to that attached as Exhibit "G" hereto, will be
                  submitted to FARMOUTEE, within 90 days of the last of such
                  events, covering solely the Earned Area to be described as and
                  limited to the stratigraphic equivalent of the productive
                  reservoir in the most shallow depth or interval in which
                  FARMOUTEE earns such rights down to the stratigraphic
                  equivalent of the deepest productive reservoir encountered in
                  that well operation. FARMOUTEE shall, at its cost and expense,
                  be solely responsible for the timely filing with and obtaining
                  the approval of any such assignment by the State Mineral Board
                  or MMS and all costs associated therewith. The parties agree
                  to execute any instruments necessary to carry out the terms of
                  the AGREEMENT.

                  b. If requested by Farmoutor, Farmoutee shall also provide
                  Farmoutor with a sworn affidavit that no delinquent debts,
                  charges, or liens affect or burden the Farmout Lease as a
                  result of Farmoutee's operations on said well but Farmoutee
                  shall, at all times, seek to maintain the Farmout Premises,
                  the Farmout Wells and any appurtenances thereto lien free.
                  Within ninety (90) days after Farmoutor's receipt of such
                  notice and affidavit, and if Farmoutee is in compliance with
                  all the requirements of this Agreement, Farmoutor will assign,
                  sublease, transfer and deliver to Farmoutee the earned working
                  interest in the operating rights interests consistent with
                  Article 15.3 part (a), to the extent of the interest earned
                  hereunder.

16.               PAYOUT

                  16.1. Escalation. At Payout, as defined below, Farmoutor's
interest shall escalate from fifteen 15% percent to a working interest of
thirty-five (35%) percent of the interest made available to Farmoutee under
Article 7 (i.e. 35% of Farmoutee's 100%, 75% or 60% interest in or obligation
for the drilling costs plus any Farmoutor's participation interest election to
bear in the drilling cost made under Article 7) . The initial carried interest
and any escalation to a thirty five percent working interest shall be in
addition to any participating or invested working interest, if any, made by the
election by Farmoutor, as provided in Section 7, to participate in an operation,
and FARMOUTEE would and shall thereafter own a 65.0% working interest in the
interest made available by Farmoutor for farmout in each of the farmout wells.
If the investment election under Article 7 by Farmoutor is 0%, Farmoutor shall
not pay and bear any of the costs and risks of such operation until payout,
however, after payout, Farmoutor's ownership interest in the production and
costs from any such obligation well(s) or other Farmout Well and the Earned Area
will be equivalent to a 35% working interest. (That is an interest of 35% of
Farmoutee's 100% share of the costs and risks of such operation.) If the
investment election under Article 7 by Farmoutor is 25.0%, Farmoutor shall pay
and bear 25% of the costs and risks of such operation, however, after payout,
Farmoutor's ownership interest in the production and costs from any such
obligation well(s) or other Farmout Well and the Earned Area will be equivalent
to a 51.25% combined working interest. (That is 25% of 100% plus a working
interest of 35% of Farmoutee's 75% share of the costs and risks of such
operation.). If the investment election under Article 7 by Farmoutor is 40.0%,
Farmoutor shall pay and bear 40% of the costs and risks of such operation,
however, after payout, Farmoutor's ownership interest in the production and
costs from any such obligation well(s) or other Farmout Well and the Earned Area
is equivalent to a 61% combined working interest. (That is 40% of 100% plus a
working interest of 35% of Farmoutee's 60% share of the costs and risks of such
operation.)

                  16.2. Payout. "Payout" is defined as that point in time when
gross production proceeds received by Farmoutee from its working interest in the
any obligation well or substitute well or other Farmout Well, less its share of
operating expenses, lessor's royalties, additional tax royalties, facility use
fees, processing fees, monthly well contract operating fees, transportation
fees, severance taxes and production taxes equals Farmoutee's share of costs of
drilling, testing, sidetracking, reworking and completing such well for
production and operating said well, including but not limited to cost of
facilities and other equipment individually associated with such well. Wells
shall not be pooled to account for Payout and Farmoutee shall be limited to
recovery of well costs solely from that well. Payout is on a well by well basis
but the costs of any subsequent operations in the well prior to Payout shall be
debited against the Payout account at Farmoutee's interest after hook-up and the
FARMOUTEE's proceeds of production credited thereto.

                  16.3. No Warranty. The transfer of any interest in the Farmout
Premises pursuant to this Agreement shall be made by Farmoutor without express
or implied warranty of any kind, but shall grant and convey full subrogation to
the rights of the party or parties making the transfer.

                                       10
<PAGE>   14

                  16.4 No New Lease Burdens. Until Farmoutee earns an interest
under this Agreement, or until the right to earn any portion of the Farmout
Premises pursuant to this Agreement terminates, Farmoutor agrees not to create
any additional lease burdens on the Farmout Premises. It is provided, however,
that Farmoutee shall pay or otherwise discharge any burdens created by Farmoutee
which affect the Farmout Lease.

                  16.5 Approvals. In the event that the transfer of any interest
in and to the Farmout Lease requires approval of the lessor or of any federal
agency having jurisdiction, the obligation so to transfer shall be subject to
Farmoutee's obtaining the pertinent approval. Farmoutor agrees to assist
Farmoutee in any reasonable way necessary to help Farmoutee secure such
approvals.

                  16.6 Proportionate Reduction. If the lease interest
transferred to Farmoutee pursuant to this Agreement covers less than the full
mineral interest, then the interests reserved to Farmoutor in any such transfer
shall be reduced proportionately as to any production affected thereby.

                  16.7 Farmoutor's Interest. Farmoutor's carried working
interest shall be free and clear of all cost through the completion, inspection
and testing of the connection of the well for production and sales into the
sales line. Said interest shall be computed and paid at the same time and in the
same manner as royalties are computed and paid to the lessor under the Farmout
Lease. With first commercial production, Farmoutor shall thereafter bear and pay
its proportionate working interest share of costs, subject to any elections made
pursuant to the operating agreement.

                  16.8 Retained Rights -- No Unreasonable Interference. Any
transfer of interests made pursuant to this Agreement or affecting rights or
interests earned or delivered under this Agreement shall provide that Farmoutor
or its designee shall retain all rights necessary to drill to, produce from, and
operate in and to all unearned operating right depths on the Farmout Lease, and
that each party agrees not to interfere unreasonably with the operations of the
other.

                  16.9 Accounting Matters. As to the Farmout Lease, all costs
and expenses which are accruing or incurred pursuant to this Agreement and under
any transfer of interest in the Farmout Lease executed pursuant hereto, if any,
shall be determined and accounted for in accordance with the Accounting
Procedure attached hereto as Exhibit "B" and made a part hereof for all
purposes.

17.               TRANSFER OF OPERATORSHIP

Any drilling, completion and hook-up operations will be performed and conducted
by EPL, as operator, under competitive contracts with qualified independent
drillers; and all regulatory approvals for such operations will be obtained
under permit of EPL. Connection and tie-in to a third party pipeline or facility
will be preformed by Farmoutee, at the cost and risk of Farmoutee, to the extent
of its working interest in the cost of drilling, completing and connecting the
well for production. Hook-up to or on any Chevron platform shall mean tying the
riser to the platform but the final hook-up to production facilities and any
re-piping upon a Chevron platform shall be done by Chevron, at the cost and risk
of Farmoutee to the extent of its working interest for the cost of drilling,
completing and connecting the well for production, unless otherwise agreed. Once
the well has established production in paying quantities, and once the well is
hooked-up by FARMOUTEE for production, the production operations will be
transferred to Farmoutor, and Farmoutor will be re-designated operator of all
such Farmout Wells, at FARMOUTEE's cost for such re-designation. If any Farmout
Well or operation conducted by FARMOUTEE is a dry hole or does not reach Payout
from the zones of the Earned Area, FARMOUTEE shall offer all of its interest and
ownership the well and the Earned Area of that well to Farmoutor free of charge,
cost and burdens. If such well and its Earned Area interest are not accepted by
Farmoutor within thirty (30) days of that offer, Farmoutee, at the working
interest owners sole cost, shall promptly either temporarily abandon any well
re-entered by Farmoutee, which well pre-existed this Agreement, or permanently
plug and abandon any new drill, unless instructed otherwise by Farmoutor. Any
such abandonment work shall be conducted in accordance with all regulatory
requirements, within sixty (60) days of Farmoutor's non-acceptance of such
well. For any Farmout Well completed as a producer and connected for production
and which reaches Payout, the abandonment obligations for any Earned Area or
that well shall be borne in accord with the working interest in the well at the
time the abandonment is conducted, as an operation under the operating
agreement, but Farmoutor shall hold a takeover election for such well under the
same terms as Article 9.

18.               JOINT OPERATING AGREEMENT

The parties agree to and do simultaneously herewith execute the Joint Operating
Agreement and COPAS Accounting Procedure attached hereto as Exhibit "F". Such
operating agreement will be effective from the date of

                                       11
<PAGE>   15

first production for earliest producer between the two Phase I wells, and any
Earned Area shall be added to coverage under the Joint Operating Agreement
effective from and after first production for that Earned Area.

19.               STATE DEMANDS

It is further understood and agreed that in and during the Phase I and Phase II
periods, Farmoutor will prioritize for, and direct FARMOUTEE to, review and
technically evaluate certain State leased lands within the Farmout Premises
that may be targeted by the Fact Finding Committee of the State of Louisiana
Mineral Board as non-producing areas ("demand areas"), which, without production
or drilling, may result in a demand for the release of certain Farmoutor-leased
lands. FARMOUTEE, in its interaction with Farmoutor, agrees to address and
assign as a first priority the geologic and technical evaluation of those
certain demand areas for prospect generation and further development and
production enhancement of those non-producing areas in an attempt to preclude a
demand for a release of acreage within certain State leased lands. FARMOUTEE
consents to the release of any farmout acreage required by the State or deemed
necessary by Farmoutor in the Bay Marchand 2 Field as the sole right of
Farmoutor and without the need of notice, whether or not such acreage is or is
not included as farmout acreage within the Farmout Premises.

20.               CONFIDENTIALITY OBLIGATION

All evaluation analysis and results, including any notes or reports prepared for
or by FARMOUTEE, shall remain strictly confidential and may not be disclosed by
FARMOUTEE, without the express consent of Farmoutor. The parties agree that
FARMOUTEE will not be and is not entitled to earn and shall not hold any rights
to any prospect by undertaking the field study, but may only earn those rights
or interests by the drilling and completion and hookup of the farmout wells
described herein. All evaluation analysis and results, including any notes or
reports prepared for or by FARMOUTEE and which result in an Earned Area shall be
owned by the Farmoutor and the participating parties in that earning well and
shall be made subject to the operating agreement provisions. All evaluation
analysis and results, including any notes or reports prepared for or by
FARMOUTEE but which do not result in an Earned Area shall remain the property of
Farmoutor and shall be delivered to Farmoutor at the end of Phase II, unless a
Phase III extension is timely executed. This confidentiality obligation shall
survive the termination of the right to propose and earn for any data retained
solely for the account of the Farmoutor.

21.               GEOLOGICAL AND INFORMATION REQUIREMENTS

Farmoutee shall comply with the requirements of Exhibit "C", and supplement,
attached hereto and made a part hereof for all purposes, and at Farmoutee's cost
and expense to the extent of its interest in the costs of drilling completing,
equipping and connecting the well, shall furnish Farmoutor the materials therein
specified for all wells drilled on the Farmout Lease. Farmoutor shall be
entitled to receive all such materials pertaining to any well(s) drilled on the
Farmout Lease, while this Agreement and any rights earned hereunder continue in
force and effect.

22.               REPORTS AND STATEMENTS

                  22.1              NOTICE OF COMMENCEMENT

                                    Prior to moving any drilling equipment for
purposes of drilling a well under this Agreement, Farmoutee shall give a 36-hour
written/verbal notice to:

                                                Chevron U.S.A. Inc.
                                                Attention: Phillip T. Durrett
                                                935 Gravier Street
                                                New Orleans, LA 70112
                                                Telephone: 504-592-6065
                                                Facsimile:

                  22.2              INVENTORY OF MATERIAL AND EQUIPMENT

Upon receipt of a transfer of an interest in and to the operating rights in and
to the Farmout Lease pursuant to this agreement, Farmoutee shall furnish
Farmoutor an inventory of the material and equipment in and associated with the
well(s) by which Farmoutee earned such interest and an itemized statement of the
costs of drilling, testing, completing, and equipping such well for production.
Monthly thereafter, Farmoutee shall furnish each Farmoutor with a statement of
the quantity of oil and/or gas produced from such well and the amount of
proceeds realized from the sale thereof and the status of the payout account of
such well(s).

                                       12
<PAGE>   16

                  One copy of said inventory and statements shall be forwarded
to each of the following parties:

                                   Land Manager
                                   Chevron U.S.A. Inc.
                                   935 Gravier Street
                                   New Orleans, LA 70112

                                   Manager, Joint Interest Accounting
                                   Chevron U.S.A. Inc.
                                   P.O. Box J
                                   Concord, CA 94524

                  22.3 OTHER NOTICES AND REPORTS

                                   22.3.1 Monthly Reports. For each well drilled
by Farmoutee hereunder, Farmoutee will forward to Farmoutor, at the address
listed below, the well costs report (3.1.1), but Farmoutor shall furnish
Farmoutee, at the last address known, each month from the date of initial
production those reports required hereunder as 3.1.2 and 3.1.3:

                                   22.3.1.1 Well Costs. The final and total well
                  costs, including drilling, testing, completion and hook-up
                  costs.

                                   22.3.1.2 Evidence of Royalty Payment. Copies
                  of State royalty checks for each month's production.

                                   22.3.1.3 Regulatory Reports. Copies of any
                  and all reports required by the regulatory body or bodies
                  having jurisdiction, including, but not limited to, copies of
                  monthly producer's reports or operator's reports on wells
                  producing oil and/or gas.

                                   22.3.1.4.1 Report on Well Status. Farmoutee
                                   shall furnish Farmoutor a monthly statement
                                   for all wells drilled or being drilled by
                                   Farmoutee pursuant to the terms hereof, the
                                   status of all such wells and current
                                   production information for all producing
                                   wells, including, but not limited to,
                                   volumes, values, and proceeds realized.

                                   22.3.1.4.2 Payout Statements. Farmoutor shall
                                   furnish Farmoutee monthly statements showing
                                   a comparison of the revenues and expenses
                                   associated with activity in or on the Farmout
                                   Premises, on a well by well basis during the
                                   Payout period for each Farmout Well.

                  Such costs, copies, statements, reports and notices shall be
                  mailed to Farmoutor at the following addresses:

                                              Land Manager
                                              Chevron U.S.A. Inc.
                                              935 Gravier Street
                                              New Orleans, LA 70112

                                              Manager, Joint Interest Accounting
                                              Chevron U.S.A. Inc.
                                              P.O. Box J
                                              Concord, CA 94524

                  Such costs, copies, statements, reports and notices shall be
                  mailed to Farmoutee at the following addresses:

                                              Energy Partners, Ltd.
                                              201 St. Charles Avenue, Suite 3400
                                              New Orleans, LA 70170
                                              Attention: Mr. L. Keith Vincent

                                              Wheless Anderson L.L.C.
                                              333 Texas Street
                                              Shreveport, LA 71101
                                              Attention: Mr. R. E. Bounds, Jr.

                                       13
<PAGE>   17

         22.3.2. Notice of Hearings. Farmoutee shall hold the responsibility to
         cause and bear the cost of any filing of any application with any
         regulatory body or bodies having jurisdiction for the issuance of any
         orders which would have the effect of establishing drilling,
         development or production units including all or a portion of the
         Farmout Lease, shall give Farmoutor fifteen (15) days' written notice
         prior to the filing of any application with any regulatory body or
         bodies having jurisdiction for the issuance of any orders which would
         have the effect of establishing drilling, development or production
         units including all or a portion of the Farmout Lease and withhold such
         filing until approved by Farmoutor.

23.      CESSATION OF PRODUCTION

Should production in paying quantities cease from any Earned Area for a period
of greater than one hundred eighty (180) days without any operations commenced
to re-establish commercial production therefrom, any party may propose
abandonment at the cost of the participating parties, and, following
abandonment, Farmoutee shall, immediately or upon demand from Farmoutor,
re-assign, in the same form as delivered to Farmoutee, all right title and
interest in and to such Earned Area to Farmoutor, free of cost and burden.

24.      TERMS FOR CONTRACT OPERATIONS AND PROCESSING

         24.1 Farmoutee shall conduct, in accord with the other provisions
         hereof, certain drilling, workover, recompletion, facility construction
         and other non-production operations associated with any wells it
         completes for production pursuant to this Agreement. In order to
         facilitate Farmoutee's accomplishment of its obligations hereunder,
         Farmoutor agrees, at the cost of Farmoutee, to file all documents,
         including Designations of Operatorship, necessary for Farmoutee to
         conduct said operations.

         24.2.    Farmoutor shall contract operate the wells completed
                  for production under this Agreement and shall contract operate
                  and process the production from said wells subject to capacity
                  availability and pursuant to the terms of this Section 24.
                  Farmoutee commits, subject to any rights of termination
                  arising under the Production Handling and Field Processing
                  Agreement contemplated by the parties under Article 24.4, its
                  share of production to this Agreement for its term for
                  processing, subject to the other terms hereof or until
                  released by Farmoutor.

         24.3.    Subject to Section 24.5, the terms for Contract Operations, as
                  defined under 24.7, shall include the following provisions:

                  24.3.1. Notwithstanding the terms and conditions of the
         Operating Agreement and its Accounting Procedure, Farmoutor shall bear
         all costs and expenses of the Contract Operations except as expressly
         provided otherwise in this Section 24, and, as compensation for the
         Contract Operations, Farmoutor shall charge Farmoutee and Farmoutee
         shall pay its operating interest share, or participating interest if
         different, of the Contract Fee defined under 24.8.

                  24.3.2. The Contract Fee shall be subject to an annual
         escalation effective April 1st each year. The adjustment shall be
         computed by multiplying the Contract Fee then currently in use by the
         percentage increase recommended by COPAS each year. The adjusted
         Contract Fee shall be the Contract Fee currently in use, plus the
         computed adjustment. If any dispute arises over acceptance of any
         adjustment to the Contract Fee requested and if such dispute remains
         unresolved for one hundred twenty (120) days, Farmoutor shall
         thereafter have the right to suspend the Contract Operations until
         Farmoutee pays the Contract Fee in use prior to such dispute plus at
         least 75% of the disputed adjustment, and the Parties shall diligently
         strive to resolve such dispute in good faith as soon as possible.

                  24.3.3. The Contract Fee does include Farmoutor's extra
         overhead for performing and accounting for the Contract Operations;
         provided, however, that Farmoutor's basic overhead as operator under
         the Accounting Procedure applicable to the Operating Agreement shall be
         an additional charge under the Operating Agreement.

                  24.3.4.  The Contract Fee includes recovery of Farmoutor's
                           existing investment in facilities, equipment and
                           pipelines as of the Effective Date and no separate
                           investment recovery charge shall be made against
                           Farmoutee for same. The parties agree that no rights
                           of ownership in or to Farmoutor's facilities or
                           equipment or

14
<PAGE>   18

                           pipelines arise or are delivered with or by the
                           payment of the Contract Fee by Farmoutee.

                  24.3.5. THE CONTRACT FEE DOES NOT INCLUDE ANY COSTS AND
         EXPENSES OF ANY AND ALL ADVERSE EVENTS ARISING OUT OF THE CONTRACT
         OPERATIONS, AND ALL SUCH COSTS AND EXPENSES (INCLUDING BUT NOT LIMITED
         TO AWARDED DAMAGES, FINES, PENALTIES, JUDGMENTS AND COSTS OF DEFENSE)
         SHALL BE CHARGED TO THE WELL (OR EQUALLY TO EACH WELL) SERVED BY THE
         SPECIFIC CONTRACT OPERATIONS OUT OF WHICH SUCH ADVERSE EVENT AROSE AND
         ALL SAID COSTS AND EXPENSES SO CHARGED TO SAID WELL OR WELLS SHALL BE
         PAID AND BORNE BY THE PARTIES IN PROPORTION TO THEIR OPERATING
         INTERESTS, OR PARTICIPATING INTERESTS IF DIFFERENT, IN SAID WELL OR
         WELLS. EACH PARTY SHALL BE GIVEN PROMPT BUT REASONABLE NOTICE UNDER THE
         CIRCUMSTANCES OF THE OCCURRENCE OF ANY AND ALL ADVERSE EVENT
         POTENTIALLY CHARGEABLE IN WHOLE OR PART TO SUCH PARTY AND EACH SUCH
         PARTY SHALL HAVE THE OPPORTUNITY TO PROMPTLY PARTICIPATE IN THE DEFENSE
         AND THE RESOLUTION OF SAME. NO SETTLEMENT OR COMPROMISE SHALL BE
         ENTERED INTO WHICH CAUSES ANY PARTY TO ASSUME OR BEAR ANY OBLIGATION OR
         MAKE ANY PAYMENT WITHOUT SUCH PARTY'S WRITTEN CONSENT. ADVERSE EVENTS,
         FOR THE PURPOSES OF THIS ARTICLE 24.3.5, ARE INTENDED TO COVER DEATHS,
         INJURIES, ILLNESSES, ACCIDENTS, FIRES, EXPLOSIONS, RUPTURES, SPILLS,
         POLLUTION, INSTANCES OF NON-COMPLIANCE, AND OTHER LIKE EVENTS AND THEIR
         INCURRED LOSSES AND DAMAGES.

                  24.3.6. The Contract Fee is based on Farmoutor's current
         practices and methods in place in the Farmout Leases for operation of
         its own wells and production in a manner similar to the Contract
         Operations and on current conditions assuming normal cost escalations
         under normal market conditions, all as of the Effective Date. Given the
         foregoing, Farmoutor, under certain demonstrable economic hardships,
         shall have the option to notify Farmoutee of the particulars (including
         but not limited to the nature of the hardship and an estimate of the
         associated costs, expenses and economic circumstances supporting such
         claim), and enter into good faith negotiations to amend the terms in
         this Agreement to provide for continued Contract Operations and
         compensate Farmoutor for additional costs and expenses; however, in no
         event shall Farmoutor be entitled to recover more than Farmoutee's pro
         rata share of same given the ownership of the production benefiting, or
         to benefit, therefrom. If the Parties are unable to agree upon and
         enter into such a mutually acceptable amendment, each Party shall have
         the right to terminate the Contract Operations by and upon six (6)
         month's prior written notice to the other Party; provided, however, any
         and all obligations accrued prior to such termination shall remain in
         force and effect until performed, fulfilled and satisfied. Those
         certain circumstances are as follows:

                  24.3.6.1. Additional costs and expenses are, or would have to
         be, incurred in order to bring the Contract Operations into compliance
         with, or to modify the Contract Operations as necessary to be in
         compliance with, applicable laws, orders, permits, rules, regulations
         and governmental requirements. Farmoutor considers its processes and
         methods to be utilized to perform the Contract Operations to be in
         compliance with applicable laws, orders, rules, regulations and
         requirements existing as of Effective Date, but Farmoutor does not
         represent or warrant the same because of the volume and complexity of
         such laws, orders, rules, regulations and governmental requirements
         taken together with the varying interpretations within government and
         industry.

                  24.3.6.2. Additional costs and expenses are, or would have to
         be, incurred in the event of any unusual fluctuation in a market or a
         change in the regulations causes or results in a greater than normal
         escalation of prices for chemicals, materials, goods, services and/or
         labor.

                  24.3.6.3. Additional costs and expenses are, or would have to
         be, incurred because a well or production therefrom is of an unfit
         quality for performance of the Contract Operations.

                  24.3.6.4. Additional costs and expenses in excess of $50,000
         per occasion or situation are, or would have to be, incurred in order
         to mitigate or eliminate circumstances, arising for reasons other than
         those itemized hereinabove, which prevent or limit performance of the
         Contract Operations without incurring such additional costs and
         expenses.

                  24.3.6.5. It becomes uneconomic for the Farmoutor to continue
         to perform the Contract Operations.

                  24.3.7. Notwithstanding anything contained herein or elsewhere
         in this Agreement, if Farmoutor is rendered unable to perform the
         Contract Operations by reason of, due

15
<PAGE>   19

         to or to the extent of any laws, orders, permits, rules, regulations
         and requirements promulgated by any commission or governmental agency
         of the United States or of the State of Louisiana or subdivision
         thereof in which operations are being conducted, or any governmental
         demand or requisition, or of the action, judgment, or decree of any
         court of law, or floods, storms, lightning, earthquake, washouts, high
         water, fires, acts of God or public enemies, wars, blockades,
         epidemics, riots, insurrections, strikes, labor troubles, accidents,
         explosions, freezing of wells or facilities, bursting of pipes or
         vessels, breakdowns, repairs, modifications or installations of
         equipment, failures of manufacturers to deliver material or carriers to
         transport the same, or any similar cause, which forbids or prevents the
         performance of all or any part of such work or acts to be performed by
         Farmoutor under Section 7.3 of this Agreement, such performance of the
         Contract Operations shall be suspended for the period of continuance
         upon receipt of notice by the other party. It is, however, expressly
         agreed and understood that promptness of performance of the Contract
         Operations is of the essence of the Contract Operations and that
         reasonable efforts will be made to avoid delay or suspension of any
         work or acts to be performed under Section 7.3 of this Agreement;
         provided, however, Farmoutor shall not be required to incur costs in
         excess of $50,000 per occasion or situation nor to settle any labor
         dispute against its best interests in order to restore the Contract
         Operations.

                  24.3.8. In the event that any facilities, equipment, piping or
         property in, on, upstream or downstream of the Farmout Premises are
         wholly or partially destroyed or damaged or become obsolete so as to
         render same unfit for performance or continuance of the Contract
         Operations or are not replaced at the election of the Farmoutor,
         Farmoutor shall be under no obligation to incur costs or expenses in
         excess of $50,000 per occasion or situation to repair or replace same
         or to continue performance or continuance of the Contract Operations.

         24.4. The parties agree to enter into a Production Handling and Field
         Processing Agreement, to be made effective from and with the date of
         first production from the Farmout Premises, by November 1, 2000,
         however, the terms of this Article 24 shall apply until replaced and
         superceded. Retroactive adjustments shall be made if required. Subject
         to Section 24.5, the terms for Processing shall include the following
         provisions:

                  24.4.1. Farmoutor agrees to provide Farmoutee with Processing
         capacity for Farmoutee's production from the Farmout Premises to the
         extent that excess processing capacity exists and until said excess
         capacity is needed for any other purpose, providing that, prior to
         restricting Farmoutee's access to any excess processing capacity, the
         Parties agree to meet in good faith and attempt to determine if any
         mutually acceptable options are available (e.g., purchase or leasing of
         capacity or facilities, etc.) that would allow Farmoutee to continue to
         access all or a portion of Farmoutor's excess processing capacity.

         In the event curtailment of Processing is required below capacity made
         available to Farmoutee at the time of hook-up, curtailments of sales
         volumes shall be made ratably between the Parties upstream of the
         constraint(s) or limitation(s) from which such curtailment arises and
         such curtailment shall be based on the capabilities of wells which are
         upstream of the constraint(s) or limitation(s) from which such
         curtailment arises. Such well capabilities shall be determined based
         upon equivalent barrels of production according to the most recent well
         tests. As used in this Agreement, six (6) MCF of natural gas shall be
         considered equivalent to one (1) barrel of oil or condensate when
         calculating equivalent barrels of production.

                  24.4.2. Said Processing capacity shall not be required to be
         provided to Farmoutee by Farmoutor in case of force majeure or in any
         instance where facilities costs are necessary to provide and guarantee
         said capacity and said costs would exceed $50,000.00 per instance of
         installation, repair, upgrade or modification, or if it becomes
         uneconomic for Farmoutor to continue to provide said capacity.

                  24.4.3. Farmoutee may, at its own cost and expense to be
         recovered through Payout without penalty, add facilities to ensure
         sufficient throughput capacity for the Earned Areas and/or the Farmout
         Well if Farmoutor approves any such additions or modifications on or to
         its facilities, equipment or piping. Farmoutor shall not unreasonably
         withhold such approval.

                  24.4.4. Notwithstanding the terms and conditions of the
         Operating Agreement and its Accounting Procedure, Farmoutor shall bear
         all costs and expenses of the Processing, except as expressly provided
         otherwise in this Section 24, and, as compensation for the Processing,
         Farmoutor shall charge to Farmoutee and Farmoutee shall pay the
         Processing Fees to Farmoutor defined under 24.6.

16
<PAGE>   20

                  24.4.5. The Processing Fees are subject to annual escalation
         effective April 1st each year. The adjustment shall be computed by
         multiplying the Processing Fees then currently in use by the percentage
         increase recommended by COPAS each year. The adjusted Processing Fees
         shall be the Processing Fees currently in use, plus the computed
         adjustment. If any dispute arises over acceptance of any adjustment to
         the Processing Fees requested and if such dispute remains unresolved
         for one hundred twenty (120) days Farmoutor shall thereafter have the
         right to suspend the Processing until Farmoutee pays the Processing
         Fees in use prior to such dispute plus at least 75% of the disputed
         adjustment, and the Parties shall diligently strive to resolve such
         dispute in good faith as soon as possible.

                  24.4.6. The Processing Fees do include Farmoutor's extra
         overhead for performing and accounting for the Processing; provided,
         however, that Farmoutor's basic overhead as operator under the
         Accounting Procedure applicable to the Operating Agreement shall be an
         additional charge under the Operating Agreement.

                  24.4.7. The Processing Fees includes recovery of Farmoutor's
         existing investment in facilities, equipment and pipelines as of the
         Effective Date and no separate investment recovery charge shall be made
         against Farmoutee for same. The parties agree that no rights of
         ownership in or to Farmoutor's facilities or equipment or pipelines
         arise or are delivered with or by the payment of the Processing Fees by
         Farmoutee.

                  24.4.8. THE PROCESSING FEES DO NOT INCLUDE ANY COSTS AND
         EXPENSES OF ANY AND ALL ADVERSE EVENTS ARISING OUT OF THE PROCESSING
         AND ALL SUCH COSTS AND EXPENSES (INCLUDING BUT NOT LIMITED TO AWARDED
         DAMAGES, FINES, PENALTIES, JUDGMENTS AND COSTS OF DEFENSE) SHALL BE
         CHARGED TO THE WELL (OR EQUALLY TO EACH WELL) SERVED BY THE SPECIFIC
         PROCESSING OUT OF WHICH SUCH ADVERSE EVENT AROSE AND ALL SAID COSTS AND
         EXPENSES SO CHARGED TO SAID WELL OR WELLS SHALL BE PAID AND BORNE BY
         THE PARTIES IN PROPORTION TO THEIR OPERATING INTERESTS, OR
         PARTICIPATING INTERESTS IF DIFFERENT, IN SAID WELL OR WELLS. EACH PARTY
         SHALL BE GIVEN PROMPT BUT REASONABLE NOTICE UNDER THE CIRCUMSTANCES OF
         THE OCCURRENCE OF ANY AND ALL ADVERSE EVENT POTENTIALLY CHARGEABLE IN
         WHOLE OR PART TO SUCH PARTY AND EACH SUCH PARTY SHALL HAVE THE
         OPPORTUNITY TO PROMPTLY PARTICIPATE IN THE DEFENSE AND THE RESOLUTION
         OF SAME. NO SETTLEMENT OR COMPROMISE SHALL BE ENTERED INTO WHICH CAUSES
         ANY PARTY TO ASSUME OR BEAR ANY OBLIGATION OR MAKE ANY PAYMENT WITHOUT
         SUCH PARTY'S WRITTEN CONSENT. ADVERSE EVENTS, FOR THE PURPOSES OF THIS
         ARTICLE 24.4.8, ARE INTENDED TO COVER DEATHS, INJURIES, ILLNESSES,
         ACCIDENTS, FIRES, EXPLOSIONS, RUPTURES, SPILLS, POLLUTION, INSTANCES OF
         NON-COMPLIANCE, AND OTHER LIKE EVENTS AND THEIR INCURRED LOSSES AND
         DAMAGES.

                  24.4.9. The Processing Fees are based on Farmoutor's current
         practices and methods in place for processing its own production from
         the Farmout Premises through its existing facilities in a manner
         similar to the Processing and on current conditions assuming normal
         cost escalations under normal market conditions, all as of the
         Effective Date. Given the foregoing, the Farmoutor, under certain
         demonstrable economic hardships, shall have the option to notify
         Farmoutee of the particulars (including but not limited to the nature
         of the hardship and an estimate of the associated costs, expenses and
         economic circumstances supporting such claim), and enter into good
         faith negotiations to amend this Agreement to provide for continued
         Processing and to compensate Farmoutor for additional costs and
         expenses; however, in no event shall Farmoutor be entitled to recover
         more than Farmoutee's pro rata share of same given the ownership of the
         production benefiting, or to benefit, therefrom. If the Parties are
         unable to agree upon and enter into such a mutually acceptable
         amendment, each Party shall have the right to terminate performance of
         the Processing, irrespective of any other provisions hereof, by and
         upon six (6) month's prior written notice to the other Party; provided,
         however, any and all obligations accrued prior to such termination
         shall remain in force and effect until performed, fulfilled and
         satisfied. Those certain circumstances are as follows:

                  24.4.9.1. Additional costs and expenses are, or would have to
         be, incurred in order to bring the Processing into compliance with, or
         to modify the Processing as necessary to be in compliance with,
         applicable laws, orders, permits, rules, regulations and governmental
         requirements. Farmoutor considers the facilities, equipment, processes
         and methods to be utilized to perform the Processing to be in
         compliance with applicable laws, orders, rules, regulations and
         requirements existing as of the Effective Date, but the Farmoutor does
         not represent or warrant the same because of the volume and complexity
         of such laws, orders, rules,

17
<PAGE>   21

         regulations and governmental requirements taken together with the
         varying interpretations within government and industry.

                  24.4.9.2. Additional costs and expenses are, or would have to
         be, incurred if treating of oil, condensate or produced water becomes
         necessary in the future in order to deliver Farmoutee's production to
         Chevron Pipe Line Company or other regulated common carrier pipelines
         and facilities. The Parties acknowledge that treating of oil,
         condensate and produced water are not included in the Processing or the
         Processing Fees.

                  24.4.9.3. Additional costs and expenses are, or would have to
         be, incurred in the event of any unusual fluctuation in a market or a
         change in the regulations causes or results in a greater than normal
         escalation of prices for chemicals, materials, goods, services and/or
         labor.

                  24.4.9.4. Additional costs and expenses are, or would have to
         be, incurred because the production is of an unfit quality for
         performance of the Processing through existing pipelines, facilities
         and equipment.

                  24.4.9.5. Additional costs and expenses in excess of $50,000
         per occasion or situation are, or would have to be, incurred in order
         to mitigate or eliminate circumstances, arising after initial
         commencement of the Processing for reasons other than those itemized
         hereinabove, which prevent or limit performance of the Processing
         without further modifications, additions, installations, repairs,
         restorations and/or replacements of facilities, equipment or piping by
         the Farmoutor costing in excess of $50,000 per occasion or situation.

                  24.4.9.6. It becomes uneconomic for the Farmoutor to continue
         to perform the Processing.

                  24.4.10. Notwithstanding anything contained herein or
         elsewhere in this Agreement, if Farmoutor is rendered unable to perform
         the Processing or Farmoutee is rendered unable to deliver its
         production to Farmoutor for Processing by reason of, due to or to the
         extent of any laws, orders, permits, rules, regulations and
         requirements promulgated by any commission or governmental agency of
         the United States or of the State of Louisiana or subdivision thereof
         in which operations are being conducted, or any governmental demand or
         requisition, or of the action, judgment, or decree of any court of law,
         or floods, storms, lightning, earthquake, washouts, high water, fires,
         acts of God or public enemies, wars, blockades, epidemics, riots,
         insurrections, strikes, labor troubles, accidents, explosions, freezing
         of wells or facilities, bursting of pipes or vessels, breakdowns,
         repairs, modifications or installations of equipment, failures of
         manufacturers to deliver material or carriers to transport the same, or
         any similar cause, which forbids or prevents the performance of all or
         any part of such work or acts to be performed by any party or parties
         under Section 24.4 of this Agreement, such performance of the
         Processing or delivering of the Production to the Farmoutor for
         Processing shall be suspended for the period of continuance upon
         receipt of notice by the other party. It is, however, expressly agreed
         and understood that promptness of performance of the Processing is of
         the essence of the Processing and that reasonable efforts will be made
         to avoid delay or suspension of any work or acts to be performed under
         Section 24.4 of this Agreement; provided, however, neither Party shall
         be required to make any repairs, restorations, replacements,
         modifications, additions nor installations of facilities, equipment or
         piping costing in excess of $50,000 per occasion or situation nor to
         settle any labor dispute against its best interests in order to restore
         the Processing.

                  24.4.11. In the event that any facilities, equipment, piping
         or property in, on, upstream or downstream of the Farmout Premises are
         wholly or partially destroyed or damaged or become obsolete so as to
         render same unfit for performance or continuance of the Processing or
         are not replaced at the election of the Farmoutor, no party or parties
         to this Agreement shall be under any obligation to incur cost in excess
         of $50,000 per occasion or situation to repair or replace same or to
         continue performance or continuance of the Processing.

                  24.4.12. Farmoutee shall bear in kind its direct and
         reasonably allocated operating rights interest, or participating
         interest if    different, share of shrinkage, loss, fuel, including
         but not limited to compressor fuel, and emergency or temporary flare
         resulting from, consumed, released or lost by, during or in direct
         connection or association with the Processing. Farmoutee shall bear
         and pay Farmoutor at the NYMEX index price for the month the gas was
         consumed (or at the price provided for in Article 44, if Farmoutor has
         exercised its call rights) for any such natural gas so used on
         Farmoutee's behalf in the event that Farmoutee's produced natural gas
         volumes are insufficient to bear same in kind.

                  24.4.13. Gas and liquid hydrocarbon production and produced
         water from the Earned Areas shall be commingled with other production
         at facilities existing in or adjacent to

18
<PAGE>   22

         the Farmout Premises for delivery to Chevron Pipe Line Company or other
         regulated common carrier pipelines and facilities for transportation to
         market and for further treating and handling.

                  24.4.14. Whether (a) paid and borne by Farmoutee (and/or its
         purchaser other than Farmoutor) or (b) paid by Farmoutor and billed to
         and paid by Farmoutee or deducted from Farmoutee's proceeds under this
         Agreement, Farmoutee (rather than Farmoutor) shall bear any and all
         cost of transportation and any treating charges or other charges or
         penalties incurred against Farmoutee or Farmoutee's share of production
         downstream of delivery to Chevron Pipe Line Company or other regulated
         common carrier pipelines and facilities.

                  24.4.15. Farmoutee and Farmoutor shall, proportionately, bear
         and be responsible for any increase in (or credited with any decrease
         to) Farmoutor's revenues caused by Farmoutee's share of production due
         to changes in the "per unit" price (inclusive of transportation costs)
         received by Farmoutor for its share of production as a result of the
         commingled processing and transportation of production from Farmout
         Wells and other production.

                  24.4.16. From time to time as necessary for prudent and
         efficient performance of the Processing, Farmoutor shall remove and
         dispose of sand, sediments and scale (hereafter "Sand") accumulating in
         the Farmoutor's equipment and piping as a result of performance of the
         Processing. Said removal and disposal shall be performed at the expense
         of the Parties hereto as allocated to the well (or equally to wells)
         served thereby since the date last cleaned out and in accordance with
         each Party's operating interest, or participating interest if
         different, in said well or wells. Notwithstanding the foregoing,
         removal and disposal of such Sand with non-exempt levels of naturally
         occurring radioactive material ("NORM") which requires removal,
         handling or disposal by methods more costly than removal, handling or
         disposal of Sand with exempt NORM levels shall be performed at the
         expense of the parties hereto as to the well (or equally to wells)
         served thereby since the date last cleaned out and in accordance with
         each Party's operating interest, or participating interest if
         different, from only said well or wells which produced Sand with such
         non-exempt levels of NORM. For purposes of this subsection, the terms
         "non-exempt" and "exempt" shall be used as defined under the provisions
         of La. Rev. State. 33.XV:1404.

                  24. 5 Commencing four (4) years after the Effective Date, each
         Party shall have the right to terminate Contract Operations by and upon
         six (6) month's prior written notice to the other Party; provided,
         however, that such matters shall thereafter be handled under the terms
         of this Agreement (less this Section 24) and the Operating Agreement,
         and further provided that any and all obligations accrued prior to such
         termination shall remain in force and effect until performed, fulfilled
         and satisfied.

                  24. 6 Processing and Processing Fees

         Subject to the further terms and limitations of Section 24 and the
         replacement of this Article 24.6 by the provisions of that certain
         contemplated Production Handling and Field Processing agreement
         referred to in Article 24.4, the Processing is the field handling and
         field processing of Farmoutee's production from the Earned Area
         through Farmoutor's facilities, equipment and pipelines existing as of
         the Effective Date in or adjacent to the Farmout Premises upstream of
         delivery to Chevron Pipe Line Company or other regulated common
         carrier pipelines and facilities, and without any additions,
         modifications or improvements thereto, all in a manner similar to the
         processing of Farmoutor's production from the Farmout Leases through
         same as of the Effective Date. The Processing and the Processing Fees
         do and shall not include any hydrocarbon or produced water
         transportation for which a tariff does or should apply.

         Subject to the further terms and limitations of Section 24 (including
         but not limited to subject to annual COPAS escalation pursuant to
         Section 24), the Processing Fees are as follows:

                  24.6.1. $.10/MSCFG for Farmoutee's share of high pressure
         natural gas production volumes processed through Farmoutor's existing
         or future facilities and $.15/MSCFG for Farmoutee's share of all low
         pressure natural gas requiring compression and processed through
         Farmoutor's existing or future facilities. Farmoutor's share of such
         high and low pressure natural gas volumes shall include, but not be
         limited to, Farmoutee's allocated share of gas lift gas, fuel and flare
         processed by the Processing through Farmoutor's existing or future
         facilities.

                  24.6.2. $.40/barrel for Farmoutee's share of all liquid
         hydrocarbons processed by the Processing through Farmoutor's existing
         or future facilities and

                  24.6.3. $.10/barrel of Farmoutee's share of water processed by
         the Processing through Farmoutor's existing or future facilities.

19
<PAGE>   23

         24.7     CONTRACT OPERATIONS

         SUBJECT TO THE FURTHER TERMS AND LIMITATIONS OF SECTION 24, THE
         CONTRACT OPERATIONS ARE (i) NORMAL AND ROUTINE OPERATIONS AND MINOR
         MAINTENANCE, BUT LIMITED TO NORMAL AND ROUTINE OPERATIONS AND MINOR
         MAINTENANCE TYPICALLY AND ROUTINELY PERFORMED BY FARMOUTOR'S OPERATING
         PERSONNEL IN THE FIELD, OF EACH FARMOUT WELL AND ASSOCIATED PRODUCTION
         EQUIPMENT AFTER COMPLETION AND HOOK UP FOR PRODUCTION BY OR ON BEHALF
         OF FARMOUTEE INCLUDING, BUT NOT LIMITED TO, ROUTINE CHOKE CHANGES,
         ROUTINE WELL TESTS, ROUTINE WELL GAUGING, RELATED GAS AND LIQUID METER
         CALIBRATIONS, AND RELATED FIELD METERING SERVICES (LESS AND EXCEPT ANY
         DOWNHOLE WELL WORK AND LESS AND EXCEPT ANY WELLHEAD WORK OTHER THAN
         SAID ROUTINE CHOKE CHANGES AND GAUGING), (ii) MARINE AND AIR
         TRANSPORTATION FOR FARMOUTOR'S OPERATIONS PERSONNEL PERFORMING THE
         NORMAL AND ROUTINE OPERATIONS AND MINOR MAINTENANCE ITEMIZED IN ITEM
         (i) ABOVE, (iii) ADMINISTRATIVE WORK TYPICALLY DONE IN THE FIELD, AND
         (iv) FIELD SUPERVISION OF ITEMS (i) THROUGH (iii).

         24.8 CONTRACT FEE OR FEES

         SUBJECT TO THE FURTHER TERMS AND LIMITATIONS OF SECTION 24, THE
         CONTRACT FEE OR FEES ARE AS FOLLOWS:

                  24.8.1 $5,000.00 PER CALENDAR MONTH PER PRODUCING WELL,
         SUBJECT TO ANNUAL COPAS ESCALATION PURSUANT TO SECTION 7, FOR CONTRACT
         OPERATIONS OF EACH FARMOUT WELL PRODUCING FROM THE EARNED AREAS FOR ALL
         OR ANY PORTION OF SUCH APPLICABLE MONTH. $500.00 PER CALENDAR MONTH PER
         NON-PRODUCING WELL, SUBJECT TO ANNUAL COPAS ESCALATION PURSUANT TO
         SECTION 7, FOR CONTRACT OPERATIONS OF EACH FARMOUT WELL COMPLETED IN
         THE EARNED AREAS BY OR ON BEHALF OF FARMOUTEE PURSUANT TO THIS
         AGREEMENT, NON-PRODUCING FOR SUCH APPLICABLE MONTH, AND NOT PLUGGED AND
         ABANDONED (MEANING THE WELL ITSELF IS NOT ABANDONED AND PERMANENT
         CEMENT SURFACE PLUGS HAVE NOT BEEN SET) PRIOR TO THE END OF SUCH MONTH,
         EXCEPT THAT IN THE CASE OF EITHER (i) A FARMOUT WELL ON STRUCTURE
         HEREAFTER INSTALLED TO SERVE THE WELL OR (ii) A FARMOUT WELL ON A
         SINGLE WELL CAISSON, SAID FEE SHALL APPLY UNTIL THE WELL is PLUGGED AND
         ABANDONED, THE SURFACE LOCATION IS CLEARED, AND THE STRUCTURE OR
         CAISSON IS REMOVED.

         24.9     Notwithstanding anything contained herein or elsewhere in this
                  Agreement, if Farmoutor is rendered unable to perform the
                  Contract Operations by reason of, due to or to the extent of
                  any laws, orders, permits, rules, regulations and requirements
                  promulgated by any commission or governmental agency of the
                  United States or of the State of Louisiana or subdivision
                  thereof in which operations are being conducted, or any
                  governmental demand or requisition, or of the action,
                  judgment, or decree of any court of law, or floods, storms,
                  lightning, earthquake, washouts, high water, fires, acts of
                  God or public enemies, wars, blockades, epidemics, riots,
                  insurrections, strikes, labor troubles, accidents, explosions,
                  freezing of wells or facilities, bursting of pipes or vessels,
                  breakdowns, repairs, modifications or installations of
                  equipment, failures of manufacturers to deliver material or
                  carriers to transport the same, or any similar cause, which
                  forbids or prevents the performance of all or any part of such
                  work or acts to be performed by Farmoutor under Section 7.3 of
                  this Agreement, such performance of the Contract Operations
                  shall be suspended for the period of continuance upon receipt
                  of notice by the other party. It is, however, expressly agreed
                  and understood that promptness of performance of the Contract
                  Operations is of the essence of the Contract Operations and
                  that reasonable efforts will be made to avoid delay or
                  suspension of any work or acts to be performed under Section
                  7.3 of this Agreement; provided, however, Farmoutor shall not
                  be required to incur costs in excess of $30,000 per occasion
                  or situation nor to settle any labor dispute against its best
                  interests in order to restore the Contract Operations.

         In the event that any facilities, equipment, piping or property in, on,
         upstream or downstream of the Farmout Area are wholly or partially
         destroyed or damaged or become obsolete so as to render same unfit for
         performance or continuance of the Contract Operations or are not
         replaced at the election of the Farmoutor, Farmoutor shall be under no
         obligation to incur costs or expenses in excess of $30,000 per occasion
         or situation to repair or replace same or to continue performance or
         continuance of the Contract Operations.

20
<PAGE>   24

25.      OTHER AGREEMENTS.

This AGREEMENT will be and is accepted as subordinate and subject to and
contingent upon the terms of any and all applicable oil and gas leases,
applicable farmout agreements, joint operating agreements, workover agreements,
joint venture, confidentiality, seismic license or other existing agreements and
an anticipated third party caprock farmout agreement within the North Flank of
Bay Marchand Block 2 Field, as of the date of this AGREEMENT.

26.      RENTALS, MINIMUM ROYALTIES AND ROYALTIES

Farmoutor shall be responsible to pay all rentals, minimum royalties and
royalties due against any Farmout Lease and any production from the Farmout
Premises. Should any party fail to bear its working interest share of such costs
or obligations, such party shall immediately transfer to Farmoutor all right,
title and interest in and to the Farmout Premises, free and clear of all cost,
obligation and burden. Attached as Exhibit A is a list of Farmout Leases which
describes all such rentals and minimum royalties associated with each Farmout
Lease.

27.      PARTNERSHIP OR JOINT VENTURE

         Anything herein to the contrary notwithstanding, the transfer by
Farmoutor of a portion of the Farmout Lease and interests therein, as
hereinabove provided, shall be considered as a contribution of leasehold
interests by Farmoutor to the pool of capital for the development of the mineral
interests by the parties only. It is not the purpose or intention of this
Agreement to create any partnership or mining partnership and neither this
Agreement nor the operations hereunder shall be construed or considered as
creating any such relation.

28.      TAX MATTERS

         As to all operations hereunder, the Parties elect not to be excluded
from the application of Subchapter K, Chapter 1, Subtitle A, Internal Revenue
Code of 1986, as amended, as permitted and authorized by Article 761 of said
Code and the regulations promulgated thereunder, and similar provisions of
applicable state law. The tax partnership shall be governed by Exhibit E,
attached hereto and made a part hereof for all purposes.

29.      INDEMNIFICATION.

As to and to the full extent of the operating rights interests and participating
interests in costs, risks, liabilities and/or expenses held or assumed pursuant
to this AGREEMENT, and any other costs, risks, liabilities and/or expenses which
FARMOUTEE has agreed to bear pursuant to this AGREEMENT, FARMOUTEE agree to
protect, defend, indemnify, and hold Farmoutor harmless from any and all claims,
losses, and expenses (including and without limitation all costs, demands,
damages, suits, judgments, liabilities, fines, penalties, damages, attorneys'
fees, costs of defense and all causes of action of whatsoever nature or
character) incurred by operation of Section 2702 of the Oil Pollution Act of
1990 ("OPS" 33 U.S.C. Sections 2710 et seq.) or arising in favor of any entity
or person, including without limitation, FARMOUTEE its employees, agents,
contractors, contractor's employees or otherwise, on account of illness,
disease, bodily injury or death, property loss or damage, environmental damage
or pollution in any way directly or indirectly arising out of or related to
operations and/or activities contemplated and/or performed, including but not
limited to acts or omissions, under this AGREEMENT or any agreement entered into
pursuant to this AGREEMENT on or after the date of this AGREEMENT, even though
caused by the negligence, fault or strict liability of Farmoutor, its employees,
or contractor's accept to the extent caused by gross negligence or willful
misconduct by Farmoutor or its employees. This indemnity extends to Farmoutor's
parent and affiliated corporations, their directors, officers, employees, agents
and contractors and their employees. In addition to these indemnities, EPL shall
carry policies of insurance sufficient to cover all of risks undertaken under
the AGREEMENT, including contractual indemnity and naming and waiving Farmoutor
as an additional assured under all such policies taken from insurers acceptable
to Farmoutor. If EPL and WAL both proceed to Phase II, EPL and WAL shall be
solidarily liable to Farmoutor for the indemnification provisions of this
paragraph.

30.      COMPLIANCE

All operations performed by Farmoutee, including but not limited to its
employees, agents or contractor(s), pursuant to this Agreement shall be
conducted in accordance with all the terms, provisions, and conditions of the
Farmout Lease and in compliance with all applicable laws, rules, regulations and
permits of state and federal governments, or any agency thereof. Without
limiting the generality of the foregoing, Farmoutee shall comply with all
provisions of Sections 202 (1) through (7), inclusive, of Executive Order 11246,
as revised, and the other requirements set forth in Exhibit "D", attached hereto
and made a part hereof for all purposes.

Farmoutor and Farmoutee agree that EPL is obligated to perform or cause the
performance of its operations in a diligent, skillful and workmanlike manner,
using equipment in good working order and fully trained personnel

21
<PAGE>   25

capable of carrying out, safely and prudently, the operations of EPL, however
the parties agree that any acts or incidences of noncompliance with any law or
regulatory scheme are and remain the primary responsibility of the well
operator. Farmoutee agrees to timely and fully address or resolve, under
reasonable commercial terms, if required, any safety or compliance concerns,
legitimately and in good faith, raised by Farmoutor, regarding the operations of
or by or for EPL.

31.      INSURANCE

         31.1     PROVISION OF CERTIFICATE

                  Farmoutee shall secure and maintain ample and adequate
         insurance protection as determined by Farmoutor in its sole discretion
         against all risks occasioned by its operations hereunder. Farmoutee
         shall commence no operations hereunder before Farmoutor receives from
         Farmoutee's insurer a "Certificate of Insurance". Said certificate
         shall describe the type, policy, limits, deductibles, and period of
         coverage of the policy, and shall state the party insured by
         Farmoutee's insurance.

         31.2     SPECIFIC INSURANCE OF FARMOUT RISKS

                  Farmoutee agrees to require its insurer to insert a provision
         in any policy included in the Certificate of Insurance specified in
         Section 31.1 to cover all of the obligations assumed by Farmoutee
         hereunder, including contractual indemnity.

32.      OIL POLLUTION ACT OF 1990

Farmoutee shall be responsible for and shall defend, indemnify and hold
Farmoutor harmless from any and all liability, claims, fines, penalties, causes
of action and damages incurred by operation of Section 2702 of the Oil Pollution
Act of 1990 ("OPA" 33 U.S.C. Sections 2710 et seq.) in any way, directly or
indirectly arising out of or resulting from Farmoutee's conduct of operations
under this Agreement.

33.      PRIOR OBLIGATIONS MAINTAINED

The termination of this Agreement, or the retransfer of interests held or earned
by Farmoutee, in whole or in part, for any reason whatsoever, shall not relieve
Farmoutee of any obligation heretofore incurred or which may subsequently occur
as a result of its acceptance of this Agreement, any operations hereunder, or
the noncompliance with any of the provisions of this Agreement. Farmoutee hereby
undertakes and agrees to indemnify Farmoutor and to hold Farmoutor free and
harmless from and against any obligation or liability incurred by Farmoutee
pursuant to the terms of this Agreement.

34:      NO LIENS OR ENCUMBRANCES

Farmoutee agrees to maintain the Farmout Lease, the lease premises, the well(s),
and all permanently installed equipment used in connection with its operations
hereunder free of debts, charges, liens, or other encumbrances.

35.      PAYMENT OF DEBTS, CHARGES

Farmoutee agrees to pay or satisfy all such debts and charges incurred in its
operations hereunder within thirty (30) days after such become due and payable.

36.      BREACH

Anything herein to the contrary notwithstanding, any failure by Farmoutee to
comply with any obligation hereunder shall be considered an active and material
breach of this Agreement, and in the event of any such failure Farmoutor shall
notify Farmoutee in writing of such failure and, unless remedied within thirty
(30) days, Farmoutor may terminate this Agreement in whole or in part by
notifying Farmoutee in writing of such termination, without prior notice or
demand being made upon Farmoutee and without the necessity of placing Farmoutee
in default; provided, however, the failure by Farmoutor to exercise at any time
or from time to time such right of termination shall not effect a waiver of any
breach or of Farmoutor's right subsequently to terminate this Agreement.

37:      RIGHTS AND REMEDIES

Except for the liquidated damages and termination provisions of this Agreement
for the failure of Farmoutee to drill obligation wells, no other provision shall
be construed as limiting Farmoutor's right and remedies (including damages or
specific performance) for matters other than the drilling of the obligation
wells.

22
<PAGE>   26

38.      NO WAIVER

Farmoutor's failure to enforce any of the provisions of this Agreement shall not
effect a waiver of any violation thereof nor preclude enforcement of that or any
other provisions hereof at that or any other time.

39.      AUDIT RIGHTS

On written notice, each party may examine, during normal business hours, the
accounts and records of the other party related to activities under this
Agreement for any calendar year to verify said parties compliance with the
financial obligations assumed in this Agreement. Such examinations shall be made
directly by the party requesting same at its expense or through an independent
accounting firm of the electing parties choice retained at its expense. If
performed, the party shall commence its audit of the accounts and records
generated pursuant to this Agreement (including but not limited to the audit of
the production and sales of all hydrocarbons received from or as a result of the
property) within twenty-four (24) months from the end of the calendar year
subject to such audit.

40.      FURTHER ASSIGNMENTS

         40.1     SUCCESSORS AND ASSIGNS; ASSIGNABILITY

         This Agreement, and the transfer or retransfer of an interest in and to
the Farmout Premises as herein provided, shall inure to the benefit of and be
binding upon the heirs, successors, sublessees, and assigns of the parties
hereto; provided, however, Farmoutee may not transfer, assign, or sublease, in
whole or in part, its interest in this Agreement or in its interests earned in
the Farmout Premises without Farmoutor's prior written consent. Any transferee,
assignee, or sublessee shall agree in writing to be bound by all of the terms
and provisions contained in this Agreement and shall assume all duties and
obligations set forth in and arising from this Agreement, and any such transfer,
assignment, or sublease shall so provide, provided such assignment shall not
relieve Farmoutee of any of its obligations and duties under this Agreement or
under the Farmout Lease, and Farmoutor shall look solely to Farmoutee for the
performance of obligations and duties under this Agreement.

         40.2     APPOINTMENT OF AGENT

         If at any time the interest of Farmoutor or Farmoutee is divided among
or is assigned to and owned by three or more co-owners or an entity in which
equity ownership is held by three or more co-owners, any party hereto may, at
its discretion, require such co-owners to designate in writing a trustee,
mandatary or agent with full authority and all rights necessary to settle,
compromise, dismiss, or release on behalf of such co-owners any loss, expense,
claim, damage, penalty, fine, lawsuit, or similar matter arising from operations
hereunder, including full authority to act for all said co-owners as insureds
under or with respect to any policy of insurance relevant to such matters.

41.      NOTICES

Except as otherwise herein provided, any notice required hereunder shall be
addressed to the parties hereto as follows:

                  Chevron U.S.A. Inc.
                  Attention: Land Manager
                  935 Gravier Street
                  New Orleans, LA 70112
                  Telephone: 504-592-6356
                  Fax: 504-592-6745

                  Energy Partners, Ltd.
                  201 St. Charles Avenue, Suite 3400
                  New Orleans, LA 70170
                  Attention: Mr. L. Keith Vincent

                  Wheless Anderson L.L.C.
                  333 Texas Street
                  Shreveport, LA 71101
                  Attention: Mr. R. E. Bounds, Jr.

42.      NO PLEDGES

23
<PAGE>   27

This Agreement and any interest or right earned hereunder shall not be made
subject to mortgage, pledge, or hypothecation by Farmoutee in any manner
whatsoever, without the prior written consent of Farmoutor. Any such action
shall constitute a serious breach of this Agreement and subject the offending
party to all rights or remedies at the disposal of Farmoutor, including specific
performance to remove such burden.

43.      AMENDMENTS

This Agreement shall not be modified or amended except by mutual Agreement of
the parties in writing, and no action or failure to act on the part of either
party hereto shall be construed as a modification or amendment to. or a waiver
of, any of the provisions of this Agreement.

44.      CALL ON PRODUCTION

         44.1 Reservation of Call

         Farmoutor hereby reserves the option (hereinafter referred to as
         Farmoutor's call on production) to purchase or designate the
         purchaser of all or any part of Farmoutee's share of the oil and gas,
         or either of them separately, which may be produced from the Farmout
         Premises or attributed or allocated to the Farmout Premises under any
         unitization, pooling, or similar agreement (the "Callable Production,"
         also sometimes referred to as "Callable Gas Production" or "Callable
         Oil Production"). Farmoutor shall have the right to exercise its call
         on production as provided herein at any time and from time to time
         during the life of the oil and gas lease(s) or other interest(s)
         assigned pursuant to this Agreement. As to Callable Gas Production,
         Farmoutor or its designee shall have the right to purchase the full
         stream of gas at or near the wellhead, if the gas is not processed, or
         the residue gas at the tailgate of the applicable processing plant, if
         the gas is to be processed. During any period when Farmoutor is
         exercising its right to purchase or designate the purchaser of
         Farmoutee's Callable Oil Production, Farmoutor also reserves the right
         to designate the transporter of such Callable Oil Production.

         44.2 Notification

         Farmoutee shall notify Farmoutor as soon as possible following a
         determination by Farmoutee that Farmoutee will have Callable Production
         available for sale. Such notice shall include Farmoutee's best estimate
         as to the quantity and quality of Callable Production that will be
         available and the location at which Farmoutee proposes to sell such
         production. Notices pertaining to Farmoutor's call on production shall
         be addressed as follows, unless Farmoutor has provided Farmoutee
         written notice of a change of address for call on production notices:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
For Natural Gas Production               For Oil Production
--------------------------------------------------------------------------------
<S>                                      <C>
Chevron U.S.A. Inc.                      Chevron U.S.A. Inc.
Attention: Land Manager                  Chevron Products Company
935 Gravier Street                       Crude Marketing Division
New Orleans, LA 70112                    Attention: Call On Production Notices
Facsimile: (504) 592-6356                P.O. Box 3976
                                         Houston, TX 77253-3976
With a copy to:                          Facsimile: (713) 754-2441

Chevron U.S.A. Inc.                      With a copy to:
Attention: Call On Production Notices
Midstream Unit                           Chevron U.S.A. Inc.
P.O. Box 2100                            Attention: Land Manager
Houston, TX 77252-2100                   935 Gravier Street
Facsimile: (713) 754-2536                New Orleans, LA 70112
                                         Facsimile: 504 592-6356
--------------------------------------------------------------------------------
</TABLE>

         44.3 Details of Notification Procedure and Determination of Price
         Applicable to Callable Gas Production-

         Farmoutee may include in its notice of the availability of Callable Gas
         Production a request for an offer by Farmoutor or Farmoutor's designee
         to purchase the Callable Gas Production, or Farmoutee may submit a
         bona fide offer from a third party that Farmoutee is willing to accept
         and offer Farmoutor or Farmoutor's designee an opportunity to match
         such bona fide third party offer and purchase the Callable Gas
         Production on the same terms.

24
<PAGE>   28

         If Farmoutor elects to purchase or designate the purchaser of the
         Callable Oil Production, the price shall be determined using the first
         of the following methods which is available on the date the oil is
         purchased: (1) Farmoutor's posted price for oil of like gravity and
         quality in the field where the oil is produced, (2) the average of the
         prices posted by others in the same field for oil of like gravity and
         quality, or (3) a price specified by Farmoutor or its designated
         purchaser which represents the reasonable value of the oil in question.

         Notwithstanding the foregoing, if at any time while Farmoutor is not
         exercising its call on oil production Farmoutee receives a bona fide
         third party offer, which Farmoutee is willing to accept, to purchase
         Farmoutee's Callable Oil Production from the Subject Property for a
         term longer than one month, Farmoutee may submit such-offer to
         Farmoutor and request that Farmoutor either match such offer or waive
         its call on oil production for the term necessary to allow Farmoutee to
         accept such offer. Farmoutor shall exercise its right to match such an
         offer within 30 days after receipt of the offer from Farmoutee or
         Farmoutor shall be deemed to have waived its right as to that
         particular offer. If Farmoutor waives its right to match an offer and
         Farmoutee does not enter into a contract based on that offer, then
         Farmoutor's call on production shall remain in effect and Farmoutor
         shall have the same rights as to any subsequent offer received by
         Farmoutee.

         CALL ON OIL

         44.4. Initial Exercise

         With respect to "crude oil" as hereinafter defined, Farmoutee shall
         give thirty (30) days' written notice to Farmoutor of Farmoutee's
         anticipated date of first production. Upon receipt of such notice
         Farmoutor shall have the option to purchase Farmoutee's share of the
         crude oil (the term "crude oil" as used herein shall include condensate
         and other liquid hydrocarbons) produced from or attributable to the
         Earned Areas for a period of three (3) years commencing the date of
         first production. Within ten (10) days of the anticipated date of first
         production, Farmoutor shall inform Farmoutee whether it will purchase
         Farmoutee's share of crude oil. Should Farmoutor elect not to purchase
         Farmoutee's share of crude oil hereunder, Farmoutor reserves the
         option, exercisable at the time of its election not to purchase for its
         own account, and exercisable in accordance with the terms of this
         Section 14, to designate, the person, firm, or corporation to which
         such crude oil shall be sold. Only after Farmoutee has so notified
         Farmoutor and Farmoutor has elected not to purchase such crude oil or
         to designate a purchaser therefor, can Farmoutee dispose of any crude
         oil produced from or attributable to the Earned Areas.

         44.5. Pricing

         With respect to crude oil, Farmoutor, or its designated purchaser,
         shall pay for Farmoutee's share of crude oil the posted price per
         barrel in the field or at the first pipeline terminal to which such
         production is transported, less the cost of transportation to such
         terminal and any treating charges or any other charges incurred against
         Farmoutee's share of production at such terminal or downstream of
         delivery to Chevron Pipe Line Company or other regulated common carrier
         pipelines and facilities for transportation to market and for further
         treating and handling that have riot otherwise been borne or paid by
         Farmoutee. The posted price in the field or at the terminal shall mean
         the average of the three highest POSTED prices being paid in the area
         by crude oil purchasers for crude oil of like quantity and quality.

         44.6. Subsequent Exercise Of Call

                  44.6.1. Subsequent Periods

         Farmoutor or its designated purchaser shall also have the option to
         purchase Farmoutee's share of crude oil for successive additional
         periods of three (3) years each, the first of which shall commence at
         the end of the initial three-year period referred to in this Section
         14. Farmoutor shall inform Farmoutee at least three (3) months in
         advance of the commencement of any three-year period following the
         initial period whether Farmoutor, or a purchaser designated by
         Farmoutor, will purchase Farmoutor's proportionate share of Farmoutee's
         share of crude oil during such three-year period.

                  44.6.2. Price for Subsequent Periods

         The price provisions applicable under this Section 44 to the initial
         three-year period shall be applicable to subsequent three-year periods.

                  44.6.3. No One-Time Election

         Farmoutor's election for any reason not to purchase Farmoutee's share
         of crude oil during any three-year period, or not to designate a
         purchaser for such share of crude oil during any three-

25
<PAGE>   29

         year period, shall not affect Farmoutor's option to purchase or to
         designate a purchaser for subsequent three-year periods.

         44.7. Separate Disposition If No Call

         During any three-year period in which Farmoutor or its designated
         purchaser is not purchasing Farmoutee's share of crude oil produced
         from the Earned Areas, Farmoutee shall be obligated to take in kind or
         separately dispose of its share of such crude oil and shall bear all
         costs and expenses of doing so. If and so long as Farmoutee fails to
         take in kind or separately dispose of its share of crude oil, Farmoutor
         may dispose of Farmoutee's share of crude oil at the best price
         obtainable (not to exceed the price Farmoutor receives for its own
         production from the Earned Areas) and at Farmoutee's sole risk, cost,
         and expense. Farmoutee shall be bound by delivery obligations incurred
         by Farmoutor for such purpose; however, any contract made by Farmoutor
         for the sale of Farmoutee's share of crude oil shall bear a term no
         longer than is commensurate with the minimum needs of the industry
         under the circumstances and in no event for a term exceeding one (1)
         year.

         44.8. Disposition of Farmoutor's Share

         Farmoutor shall have the right to take in kind and separately dispose
         of its share of oil produced from or attributable to the Earned Areas.

         44.9. Severance Taxes

         Farmoutee shall bear any severance taxes owing on its share of
         production.

         44.10. Subsidiaries and Affiliates

         This Section 44 shall include and apply separately to not only
         Farmoutor but also any one of its subsidiaries or affiliates.

         CALL ON GAS

         44.11.1. Exercise

         With respect to natural gas, Farmoutee shall notify Farmoutor in
         writing immediately upon the receipt from a responsible third party of
         a bona fide offer to purchase any natural gas owned by Farmoutee in the
         Earned Areas. Prior to Farmoutee's completing a sale of such natural
         gas to said third party, Farmoutor will have the option of purchasing
         Farmoutee's share of such natural gas, or of designating a purchaser
         for such sale of gas from Farmoutee, on overall terms and conditions as
         favorable as those set out in the offer from said third party, by
         notifying Farmoutee in writing within ten (10) days after receiving
         Farmoutee's notice of Farmoutor's desire to purchase such natural gas,
         or identifying the purchaser designated by Farmoutor. Failure by such
         Farmoutor to give such written notice to Farmoutee within the aforesaid
         ten (10) day period will be considered an election by such Farmoutor
         not to purchase and not to designate a purchaser for such gas. If,
         however, Farmoutor timely elects to purchase Farmoutee's share of such
         natural gas or to designate a purchaser therefor, Farmoutor or its
         designated purchaser will, as soon as possible thereafter, enter into a
         gas purchase contract with Farmoutee on terms and conditions as
         favorable as those set out in the offer from said third party.
         Farmoutee shall not be required to give Farmoutor notice if Farmoutee's
         natural gas is being sold on the spot market in a contract for a term
         of forty-five (45) days or less.

         44.11.2. Disposition If No Call

         If Farmoutor elects not to purchase Farmoutee's share of natural gas,
         and elects not to designate a purchaser therefor, Farmoutee may then
         enter into a gas purchase contract with said third party on terms
         and conditions no more favorable to said third party than those
         submitted by Farmoutee to Farmoutor. However, if Farmoutee does not
         execute a gas purchase contract with said third party within one
         hundred and twenty (120) days after Farmoutor's election not to
         purchase, Farmoutor's prior rights to purchase such natural gas from
         Farmoutee, or to designate a purchaser for such gas, will be
         reinstated.

         44.11.3. Farmoutor's Offer To Purchase

         At any time prior to receiving written notice from Farmoutee that
         Farmoutee has received from a responsible third party a bona fide
         contract offer, Farmoutor or its designated purchaser may submit to
         Farmoutee in writing an offer to purchase Farmoutee's share of such
         natural gas. Within ten (10) days after receipt of Farmoutor's or its
         designated purchaser's offer, Farmoutee may either accept Farmoutor's
         or its designated purchaser's offer to purchase, in which event
         Farmoutee and Farmoutor or its designated purchaser will enter into a
         gas purchase contract embodying the terms and conditions of said
         offer; or confer with Farmoutor or its designated purchaser in order to
         negotiate the terms and conditions of the purchase of such natural gas
         by Farmoutor or its designated purchaser. If such terms and conditions
         cannot be agreed upon within the aforesaid ten (10) day period,
         Farmoutee may thereafter dispose of its share of the

26
<PAGE>   30

         natural gas after submitting to Farmoutor any bona fide offer from a
         responsible third party in accordance with this Section 44.

         44.11.4. Subsequent Elections

         Upon termination of the primary term of any gas purchase contract
         consummated under the applicable provisions of this Section 13,
         Farmoutor's right to purchase Farmoutee's share of any remaining
         natural gas reserves within the dedicated zone and area of such gas
         purchase contract, or to designate a purchaser therefor, will be
         automatically reinstated and both the Farmoutee and the Farmoutor will
         be subject to the provisions of this Section 44.

         44.11.5. Disposition of Farmoutor's Share

         Farmoutor shall have the right to take in kind and separately dispose
         of its share of gas produced from or attributable to the Earned Areas.

         44.11.6. Severance Taxes

         Farmoutee shall bear any severance taxes owing on its share of
         production.

         44.11.7. Subsidiaries and Affiliates

         This Section 44 shall include and apply separately to not only
         Farmoutor but also to any one of its subsidiaries or affiliates.

45.      GAS PLANT PROCESSING

         Farmoutor's interest in the property covered by this Agreement is
subject to that certain Natural Gas Processing Agreement - Gulf of Mexico,
effective September 1,1996, between Farmoutor and Warren Petroleum Company (now
called "Dynegy Midstream Services, Limited Partnership") (the "Chevron GPA").
Upon or immediately following any assignment to Farmoutee under this Agreement,
Farmoutee shall enter into a separate Natural Gas Processing Agreement with
Dynegy Midstream Services, Limited Partnership, covering the interest assigned
to Farmoutee hereunder and containing terms and provisions similar to those in
the Chevron GPA.

46.      PLURALS AND HEADINGS

         The headings and table of contents used in this Agreement are inserted
for convenience only and shall be disregarded in construing this Agreement.
Reference to the plural form of a noun, pronoun, or verb shall, whenever
appropriate, be deemed to include the singular form, and vice versa.

47.      TERM

         This Agreement shall be effective from May 3. 2000, if fully executed
prior to August 21, 2000 and shall remain in force and effect for so long as any
of the Farmout Wells is yet to be abandoned and a final accounting for all costs
has been made. This Agreement shall run contemporaneously with the operating
agreement but any conflict between this Agreement and the operating agreement
shall be resolved in favor of this Agreement.

IN WITNESS WHEREOF, this Agreement is executed by each party on the date of the
acknowledgment of its signature below.

FARMOUTOR:                               FARMOUTEE:

CHEVRON U.S.A. INC.                      ENERGY PARTNERS, LTD.

BY: /s/ J. G. LARRE                      BY: /s/ L. KEITH VINCENT
   -----------------------------             ---------------------------

TITLE: Assistant Secretary               TITLE: Vice President Land
      --------------------------               -------------------------

                                         WHELESS ANDERSON L.L.C.

                                         BY: /s/ R.E. BOUNDE, JR.
                                             ---------------------------

                                         TITLE: VICE PRESIDENT
                                               -------------------------
                                                Anderson Oil & Gas, Inc.
                                                Manager

27
<PAGE>   31

STATE OF LOUISIANA
PARISH OF ORLEANS

         On this 23rd day of August, 2000, before me appeared I. M. Tarre, to
me personally known, who, being by me duly sworn, did say that he is an
Assistant Secretary of CHEVRON U.S.A. INC., a Pennsylvania corporation, and that
said instrument was signed on behalf of said corporation by authority of its
Board of Directors, and said appearer acknowledged that he executed the same as
the free act and deed of said corporation.

         IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.

                                               /s/ WITNESS
                                              -------------------------
                                              Notary Public in and for
                                              Orleans Parish, LA

My commission expires at death.

STATE OF LOUISIANA
PARISH OF ORLEANS

         On this 24th day of AUGUST, 2000 before me appeared L. Keith Vincent to
me personally known, who, being by me duly sworn, did say that he is the VICE
PRESIDENT of Energy Partners, Ltd. a Delaware corporation, and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said appearer acknowledged that he executed the same as the free
act and deed of said corporation.

         IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.

                                               /s/ WITNESS
                                               -------------------------
                                               Notary Public in and for
                                               Orleans Parish, LA

My commission expires at death.

STATE OF LOUISIANA
PARISH OF ORLEANS

         On this 24th day of August, 2000 before me appeared R. E. Bounds, Jr.
to me personally known, who, being by me duly sworn, did say that he is the Vice
President of Wheless-Andersen, L.L.C. a Louisiana LLC, and that said instrument
was signed on behalf of said corporation by authority of its Board of Directors,
and said appearer acknowledged that he executed the same as the free act and
deed of said corporation.

         IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.

                                               /s/ WITNESS
                                               -------------------------
                                               Notary Public in and for
                                               Orleans Parish, LA

My commission expires at death.

28<PAGE>   1
                                                                   EXHIBIT 10.35
                              EXPLORATION AGREEMENT
                                       AND
                              AGREEMENT TO ASSIGN

                              HUGES-RAWLS, L.L.C.
                                       AND
                              ENERGY PARTNERS, LTD.

                                AUGUST 25, 1998

<PAGE>   2

                 EXPLORATION AGREEMENT AND AGREEMENT TO ASSIGN
                               RAY MARCHAND FIELD
                              OCS - GULF OF MEXICO

STATE OF LOUISIANA     )

PARISH OF ORLEANS      )

         KNOW ALL MEN BY THESE PRESENTS THAT:

         THIS AGREEMENT is made and entered this 25th day of August, 1998 and is
effective the 15th day of August, 1998, by and between HUGHES-RAWLS, L.L.C.,
a Delaware limited liability company, whose address is Mtel Centre South, Suite
800, 200 South Lamar Street, Jackson, Mississippi 39201, hereinafter sometimes
referred to as "HRL" and ENERGY PARTNERS, LTD., a Delaware corporation, whose
address is 1100 Poydras Street, Suite 1850, New Orleans, Louisiana 70163,
hereinafter sometimes referred to as "EPL".

                                   WITNESSETH:

         WHEREAS, HRL represents that it has acquired the right to conduct
certain operations on the oil and gas leases, hereinafter referred to as the
"LEASES", described in EXHIBIT "A" attached hereto and made a part hereof, and
is the sole farmoutee under that certain Farmout Agreement dated August 25, 1998
and effective the 15th day of August, 1998, from Chevron U.S.A. Inc.
("Chevron"), as farmoutor, hereinafter referred to herein as "FARMOUT
AGREEMENT", a copy of which is attached hereto as EXHIBIT "B".

         WHEREAS, HRL desires to convey an undivided thirty percent (30%)
interest in the Farmout Agreement to EPL, subject to the terms and conditions
provided hereafter, and EPL is desirous of receiving such assignment on said
terms and conditions.

         NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements herein contained, it is hereby agreed by and
between the parties hereto as follows:

                                   ARTICLE I.

                                   ASSIGNMENT

In consideration of the cash payment provided for in Article II hereinbelow and
other considerations, the receipt and sufficiency of which are hereby
acknowledged, HRL hereby agrees to transfer and assign unto EPL an undivided
thirty percent (30%) interest in the Farmout Agreement and all interests earned
or to be earned thereunder, subject to the following terms and conditions:

         1. The assignment shall be made with a limited warranty of title as to
         any and all claims by third parties, including but not limited to any
         liens or encumbrances, arising by, through or under HRL, and shall be
         made with full subrogation to all rights granted by Chevron in the
         Farmout Agreement.

         2. The assignment shall be made subject to the terms, covenants and
         conditions of the following:

                                       1
<PAGE>   3

                     a.       the Farmout Agreement;

                     b.       the Leases;

                     c.       this Agreement;

                     d.       that certain Confidentiality Agreement, dated June
                              17, 1998, by and between the HRL and EPL;

                     e.       EPL's thirty percent (30%) of the overriding
                              royalty interest created or to be created in favor
                              of Rosson Exploration Company (as set forth in the
                              EXHIBIT "C"), as well as its proportionate share
                              of all royalties, overriding royalties and other
                              leasehold burdens created by Chevron U.S.A. Inc.
                              or its predecessors in title and existing of
                              record as of August 15, 1998;

                     f.       Consent to Assignment of Farmout Agreement dated
                              August 25, 1998 and effective August 15, 1998 --
                              Bay Marchand Block 2 Field, by and between EPL,
                              HRL and Chevron, a copy of which is attached
                              hereto as EXHIBIT "D"; and

                     g.       The Assignment by and between EPL and HRL,
                              attached hereto as EXHIBIT "E".

             3.  Both parties shall provide geological and geophysical services
                 for operations under the Farmout Agreement. HRL and EPL shall
                 share all relevant data and interpretations.

             4.  In the event that the Farmout Agreement is terminated pursuant
                 to Article 27 of said agreement, then this Agreement shall
                 terminate. The parties shall have no further rights or
                 obligations hereunder, except that the Cash Payment made by EPL
                 pursuant Article II shall be returned to EPL and any costs or
                 expenses referred to in Article II shall be paid by HRL, as to
                 its proportionate part, as contemplated herein.

             5.  HRL agrees to indemnify and hold harmless EPL and its officers,
                 directors, employees, representatives and agents from and
                 against any and all claims, costs, demands, judgments and
                 expenses arising from or related to the Rosson Exploration
                 Company, with the exception of the override obligations set
                 forth in (e) above.

                                   ARTICLE II.

                                  CASH PAYMENT

             As partial consideration hereunder, EPL has delivered unto HRL a
    check in the amount of $75,000 (30% x $250,000), said amount being referred
    to herein as the "Cash Payment".

             In addition, EPL and HRL shall share all title examination costs
    incurred by EPL with the Gordon, Arata Law Firm and any broker, abstracter
    and/or landman pertaining to this Agreement and the Farmout Agreement on a
    50/50 basis. Upon receipt of an invoice from EPL for said costs, including
    copies of the title opinion and

                                       2
<PAGE>   4

title documents used in preparing same, HRL agrees to pay its proportionate
share to EPL within fifteen (15) days of receipt thereof.

                                  ARTICLE III.

                                  PARTICIPATION

         All costs incurred in operations pursuant to the Farmout Agreement
(including but not limited to insurance costs) shall be borne and paid, and all
leasehold interest earned (except as otherwise set forth herein) and equipment
and materials acquired for operations under this Agreement shall be owned by the
parties as their interests are set forth below. EPL shall cash call HRL for all
such costs or expenses. "EXPLORATORY WELL" as used below shall mean the
exploratory test well to test the 11,800' sand on the East Flank of Bay Marchand
Field.

<TABLE>
<CAPTION>
All Wells Except Exploratory Well                            Working Interest
---------------------------------                            ----------------
<S>                                                          <C>
HUGHES- RAWLS, L.L.C.                                        70.000000%
ENERGY PARTNERS, LTD.                                        30.000000%
</TABLE>

<TABLE>
<CAPTION>
                                                            Working Interest            Working Interest
Exploratory Well                                            Drilling & Completion       After Completion
----------------                                            ----------------------      ----------------
<S>                                                         <C>                            <C>
HUGHES- RAWLS, L.L.C.                                       65.000000%                     70.000000%
ENERGY PARTNERS, LTD.                                       35.000000%                     30.000000%
</TABLE>

The actual leasehold interests and corresponding net revenue interests to be
earned under the Farmout Agreement are subject to proportionate reduction
according to the terms of such Farmout Agreement.

                                   ARTICLE IV.

                             DESIGNATION OF OPERATOR

         (A) Under the terms of the Farmout Agreement, HRL is obligated to
conduct certain workover and drilling operations, as exhibited therein, on the
Leases at specified intervals and commencing on or before September 1, 1998.
Upon EPL's execution hereof, HRL hereby nominates and appoints EPL as Operator
for and on behalf of HRL under the Farmout Agreement. HRL shall assist EPL in
securing from Chevron, as well as all other necessary parties, the documentation
necessary for EPL to file with the appropriate governmental agency having
jurisdiction the required forms designating EPL as operator of the wells under
the Farmout Agreement. EPL represents and warrants, and covenants and agrees,
that (I) it is currently qualified to conduct operations on the Outer
Continental Shelf in accordance with all Minerals Management Service regulations
and will cause itself to remain qualified during the term of this Agreement and
(II) it will obtain all permits from the Louisiana State Mineral Board ("SMB")
necessary for operations in Louisiana state waters and shall cause such permits
to remain in effect, including, the timely filing of all reports required to be
filed by the SMB.

         (B) "Operator" (as designated herein) shall timely commence all
operations, as required under the Farmout Agreement, and shall prosecute said
operations as a prudent operator so as to fully comply with all of the required
material obligations contained in the Farmout Agreement or this Agreement. In
the event that EPL

                                       3
<PAGE>   5

    fails to do so (with exception of any breach which is caused by either the
    Farmoutor of the Farmout Agreement or HRL), this agreement shall, at HRL's
    option, terminate and HRL may appoint a new Operator. EPL shall, however,
    retain any interest previously earned based upon Well Operations completed
    or operations being performed prior to the date of termination. HRL, or
    its designee, may, at its option, take over as Operator and use well
    equipment placed thereon by EPL (subject to contractor consent) and complete
    said operations at HRL's sole expense and liability; however, the exercise
    of this option shall in no way relieve EPL from liability for damages,
    including liquidated damages, if any, as provided in the Farmout Agreement,
    accruing to HRL as a result of EPL's default. Notwithstanding any other
    provision in this Agreement, in no event shall EPL be liable to HRL for
    punitive, consequential, indirect, loss of profit, loss of production or
    reservoir, or any other such damages. Following such removal, EPL shall not
    be entitled to earn any interest in future operations. Upon any material
    breach by HRL of the Farmout Agreement or this Agreement (with exception
    of any breach which is caused by either the Farmoutor of the Farmout
    Agreement or EPL), HRL shall relinquish its right to earn any additional
    interests in the Leases. In such event, at its sole option, EPL may demand
    that, at no additional cost, HRL convey in favor of EPL all of its rights in
    the Farmout Agreement, reserving only those rights or interests they have
    earned in operations or wells completed before the default or operations
    being performed. The exercise of such option shall in no way relieve HRL
    from liability for damages, including liquidated damages, if any, as
    provided in the Farmout Agreement, accruing to EPL as a result of HRL's
    default.

             (C)(1) Obligation Wells. The Farmout Agreement sets forth eight
    (8) Major Operations to be conducted on Obligation Wells. The parties have
    agreed to timely perform such Major Operations in such a manner as to cause
    the parties hereto to earn interests under such Farmout Agreement. EPL, as
    Operator, shall propose an AFE for each such Major Operation to HRL and
    Farmoutor according to the terms of the Farmout Agreement. HRL shall have
    the same time periods provided for Farmoutor in the Farmout Agreement to
    approve such AFE. Should Farmoutor approve such AFE and HRL disapprove, EPL
    shall notify HRL and HRL shall have three days to reconsider such AFE as
    approved by Farmoutor. Should HRL not approve such AFE as approved by
    Farmoutor (provided such operations are conducted), HRL shall be deemed to
    have relinquished its rights to earn any additional interest under the terms
    of the Farmout Agreement. Should HRL and Farmoutor both disapprove of such
    AFE, EPL shall, within ten days thereafter, resubmit a revised AFE to HRL
    and Farmoutor incorporating revisions reasonably reflecting any comments of
    Farmoutor to the first AFE. Should HRL not approve such revised AFE
    (provided such operations are conducted), HRL shall be deemed to have
    relinquished its rights to earn any additional interest under the terms of
    the Farmout Agreement. In such event, at its sole option, EPL may demand
    that, at no additional cost, that HRL convey in favor of EPL all of their
    rights in the Farmout Agreement, reserving those rights or interests they
    have already earned in operations or wells completed before disapproval or
    operations being performed at the time of disapproval; however, the exercise
    of this option shall in no way relieve HRL from liability for damages,
    including liquidated damages, if any, as provided in the Farmout Agreement.
    In the event that EPL should elect to decline to participate in the drilling
    of one of the Major Operations to be conducted on the eight Obligation
    Wells, EPL shall be deemed to have relinquished its right to earn any
    additional interest under the terms of the Farmout Agreement. In such event,
    at its sole option, HRL may demand that, at no additional cost, that EPL
    convey in favor of HRL all of its rights in the Farmout Agreement, reserving
    those rights or interests it has already earned in operations or wells
    completed before the disapproval or operations being performed at the time
    of disapproval; however, the exercise of this option shall in no way relieve
    EPL from liability for damages, including liquidated damages, if any, as
    provided in the Farmout Agreement.

             (C)(2) Mandatory Optional Wells. The Farmout Agreement also
    provides for the option to conduct additional Major Operations covering the
    drilling of Optional Wells. The parties have agreed to timely perform Major
    Operations covering the drilling of Optional Wells, which such Operations
    are necessary and required in order to perpetuate the right to earn
    additional interests under such Farmout Agreement ("Required Operations").

                                       4
<PAGE>   6

EPL, as Operator, shall propose an AFE for each such Required Operation to HRL
and Farmoutor according to the terms of the Farmout Agreement. HRL shall have
the same time periods provided for Farmoutor in the Farmout Agreement to approve
such AFE. Should Farmoutor approve such AFE and HRL disapprove, EPL shall notify
HRL and HRL shall have three days to reconsider such AFE as approved by
Farmoutor. Should HRL not approve such AFE as approved by Farmoutor (provide
such operations are conducted), HRL shall be deemed to have relinquished its
rights to earn any additional interest under the terms of the Farmout Agreement
as to those rights being perpetuated by the Required Operations. Should HRL and
Farmoutor both disapprove of such AFE, EPL shall, within ten days thereafter,
resubmit a revised AFE to HRL and Farmoutor incorporating revisions reasonably
reflecting any comments of Farmoutor to the first AFE. Should HRL not approve
such revised AFE (provided such operations are conducted), HRL shall be deemed
to have relinquished its rights to earn any additional interest under the terms
of the Farmout Agreement, as to those rights being perpetuated by the Required
Operations. In such event, at its sole option, EPL may demand that, at no
additional cost, that HRL convey in favor of EPL all of their rights in the
Farmout Agreement, reserving those rights or interests they have already earned
in operations or wells completed before disapproval or operations being
performed at the time of disapproval and the right to earn additional rights
under the Farmout Agreement, to the extent that such rights may still exist,
which rights were not perpetuated by this Required Operations; however, the
exercise of this option shall in no way relieve HRL from liability for damages,
including liquidated damages, if any, as provided in the Farmout Agreement. In
the event that EPL should elect to decline to participate in a Required
Operations, EPL shall be deemed to have relinquished its right to earn any
additional interest under the terms of the Farmout Agreement only to the extent
of the rights which were perpetuated by the Required Operations. In such event,
at its sole option, HRL may demand that, at no additional cost, that EPL convey
in favor of HRL all of its rights in the Farmout Agreement, reserving those
rights or interests it has already earned in operations or wells completed
before the disapproval or operations being performed at the time of disapproval
and the right to earn additional rights under the Farmout Agreement to the
extent that such rights may still exist, which rights were not perpetuated by
this Required Operations; however, the exercise of this option shall in no way
relieve EPL from liability for damages, including liquidated damages, if any, as
provided in the Farmout Agreement.

         (C)(3) Notwithstanding anything to the contrary contained herein,
prior to relinquishment of all rights under the Farmout Agreement, either HRL or
EPL shall have the right to propose operations to be conducted pursuant to the
terms of the Farmout Agreement.

         (D) With respect to AFE submittals by Chevron, EPL and HRL shall have
the time periods set forth in the Farmout Agreement to approve or disapprove of
such AFE proposal. In the event that EPL or HRL, but not both, disapprove of
such AFE, the party approving such AFE shall have the right to notify Chevron of
its approval and the disapproving party shall relinquish its rights to earn any
interest in such Well Operation under the terms of the Farmout Agreement,
provided that the operations proposed are conducted. The approving party shall
be responsible for 100% of any costs and expenses incurred with respect to such
operations.

         (E) Under Section 4.2. of the Farmout Agreement, failure to timely
commence and complete eight (8) Major Operations requires that specified
liquidated damages will be paid by Farmoutee to Farmoutor. In the event that HRL
or EPL (but not both) elects to discontinue participation prior to completion of
such eight (8) Major Operations in the Farmout Agreement, the party electing
not to participate shall pay the other party an amount equal to the
discontinuing party's share of such liquidated damages which would become due
and payable under the terms of the Farmout Agreement at the time of the
discontinuance, whether or not such liquidated damages are ever paid to
Farmoutor. This provision shall in no way relieve the party electing not to
participate from liability to Chevron U.S.A. Inc. (excluding liability for
liquidated damages) pursuant to the terms of the Farmout Agreement for damages
previously incurred or which may become due in the future.

                                       5
<PAGE>   7

If a party declines or is deemed to have declined to participate in all AFE
elections for Major Operations on an Obligation Well (provided such operations
are conducted), then for purposes of this provision such party shall be deemed
to have elected to discontinue participation in such eight Major Operations.

         (F) The parties agree that with respect to all operations to be
conducted pursuant to the Farmout Agreement, less and except (i) any Major
Operations on Obligation Wells and/or (ii) any Major Operations on Optional
Wells only if same are necessary to perpetuate the right or ability to earn
additional interests pursuant to the Farmout Agreement, the non-consent penalty
provisions of the first but not the second paragraph of Article IX.E of the
joint operating agreement described in Article V. hereinafter shall apply as to
all other operations conducted pursuant to the Farmout Agreement by the parties.

                                   ARTICLE V.

                               OPERATING AGREEMENT

         All EPL operations conducted on the Leases pursuant to the Farmout
Agreement shall comply with the requirements of the South Bay Marchand Unit
Operating Agreement dated June 28, 1957, as amended (the "OPERATING AGREEMENT").
All costs and expenses incurred in operations conducted pursuant to this
agreement shall be charged in accordance with Article III hereof and as set
forth in Accounting Procedure attached to the Operating Agreement.
Notwithstanding anything to the contrary contained herein or in the Operating
Agreement, in the event of a conflict or inconsistency between the terms and
provisions of this Agreement and those of the Operating Agreement, it is
stipulated that the terms and provisions of this Agreement shall prevail as to
the interests of the parties hereunder.

                                   ARTICLE VI.

                                    INSURANCE

         EPL, as Operator, will be required to maintain and carry insurance
coverage for the joint account that meets the minimum requirements under the
terms and provisions of the Farmout Agreement (Section 17.) and as may be
required by the Minerals Management Service (MMS), applicable laws, ordinances,
and regulation of any other governmental authority having jurisdiction,
whichever is higher. During the term of this Agreement, said Operator agrees to
carry those insurance requirements set forth on EXHIBIT "F" and in accordance
with Section 17 of the Farmout Agreement, for the account of EPL and HRL. The
parties agree that the cost of such insurance shall be borne by the parties in
accordance with the provisions of the terms of Article III hereof.

                                  ARTICLE VII.

                                OTHER PROVISIONS

A.       Management and Control:

                 EPL shall, subject to the terms hereof, direct and have full
         control of all operations to be conducted on the Leases as permitted
         and required under the terms of the Farmout Agreement. Either party may
         call a meeting at any time for the purpose of discussing operations
         hereunder. Unless agreed to otherwise, all meetings shall be held at
         EPL's office at 1100 Poydras Street, Suite 1850, New Orleans, LA 70163
         until notice otherwise is given by EPL.

                                       6
<PAGE>   8

B.        Consent to Assign:

                 Neither Party shall assign any rights under this Agreement, or
         any interest which they may acquire under the Farmout Agreement,
         without the prior written consent of the other party, which consent
         shall not be unreasonably withheld; provided that EPL may assign such
         interests to its financing organizations. Any other assignment or
         transfer shall be made expressly subject to this Agreement and each
         assignee to any assignment or transfer shall expressly assume and agree
         to carry out all of the assigning party's obligations under this
         Agreement to the extent of the rights and interests assigned or
         transferred. Assignment as used herein shall be defined to include any
         change of control of the ownership or management of a party, howsoever
         occurring, including without limitation by merger, stock sale or
         corporate reorganization.

C.       Term of Agreement:

                  This Agreement shall continue in force and effect, unless
         terminated sooner in writing by the mutual consent of the parties
         hereto, for so long as drilling or well reworking operations are being
         conducted on the Leases in accordance with the terms of this Agreement
         and/or the Farmout Agreement, or so long as production in paying
         quantities, attributable to any rights and interests earned by the
         parties hereunder, can be produced from the Leases.

D.       Liability:

                 It is not the purpose of this Agreement to create a
         partnership, mining partnership, partnership for a specific purpose,
         joint venture, agency relationship, or any other relationship, which
         would render the parties liable as partners, associates, or joint
         venturers. Each party hereto agrees to bear its ownership percentage,
         according to the percentage, set forth in Article III (subject to
         modification by the terms and provisions of the Farmout Agreement) of
         all costs, expenses and liabilities incident hereunder to the drilling,
         re-entering, equipping, completing, operating, and plugging and
         abandoning of any well hereunder and for producing oil and gas
         therefrom, and for any injury to any persons (including death), for any
         other damages resulting from such operations and any liquidated damages
         arising under the Farmout Agreement.

E.       Entire Agreement

                 The terms and provisions set forth herein constitute the entire
         agreement between HRL and EPL and any prior agreements, promises,
         negotiations or representations between HRL and EPL pertaining to the
         Farmout Agreement, which are not expressly set forth in this Agreement
         are of no force and effect.

F.       Binding Agreement:

                 The terms, covenants and conditions of this Agreement shall be
         binding upon and shall inure to the benefit of the parties hereto and
         to their respective heirs, devisees, legal representatives, successors
         and assigns, and such terms, covenants and conditions shall be deemed
         as covenants running with the lands, the Leases and any other interests
         covered hereby and with each transfer or assignment of said lands or
         leases.

                                       7
<PAGE>   9

G.       Information and Data:

                 Notwithstanding anything to the contrary contained herein, it
         is agreed that each party to this Agreement shall furnish to each
         other, when requested, to the extent permitted by law or contractual
         obligation, any and all information and data of every kind and
         character, including but not limited to seismic data, core reports,
         logs, well tests, production tests and reports, joint operations costs,
         and revenue data and reports, relative to the Leases covered by the
         Farmout Agreement.

H.       Notices:

         All notices and demands provided hereunder shall be in writing and
         shall be given by registered or certified mail, return receipt
         requested, telecopy, air courier guaranteeing overnight delivery or
         personal delivery to the following addresses:

                Hughes-Rawls, L.L.C.                       (601)969-7474
                Mtel Centre South, Suite 800               (601)353-4331 Fax
                200 South Lamar Street
                Jackson, Mississippi 39201
                Attention: Mr. James H. Rawls

                Energy Partners, Ltd.                      (504)569-1875
                1100 Poydras Street                        (504)569-1874 Fax
                Suite 1850
                New Orleans, Louisiana 70163
                Attention: Mr. Richard A. Bachmann

         or to such other address as the Farmoutor and Farmoutee may designate
         in writing. All other communications may be by regular mail. All
         notices and communications shall be deemed to have been duly given: at
         the time delivered by hand, if personally delivered; two days after
         being sent by certified mail, return receipt requested, if mailed; when
         receipt acknowledged, if telecopied; and on the next Business Day if
         timely delivered to an air courier guaranteeing overnight delivery.

I.       Survival:

         The terms of the Article VII, Paragraph D. shall survive the
         termination of this Agreement or the removal of the Operator under
         Article IV (B).

J.       Definitions:

         The parties hereto agree that terms not defined herein shall be given
         the definition set forth in the Farmout Agreement. However, in the
         event of a conflict or inconsistency between the terms and

                                       8
<PAGE>   10

         provisions of this Agreement and the Farmout Agreement, it is
         stipulated that the terms and provisions of this Agreement shall
         prevail as to the interests of the parties hereunder.

K.       This Agreement shall be interpreted in accordance with the laws of the
         State of Louisiana.

         IN WITNESS WHEREOF, this instrument is executed before the undersigned
competent witnesses in duplicate by each of the parties hereto as of the date
hereinabove first written.

WITNESSES:                                     HUGES-RAWLS, L.L.C.

/s/ JAMES E. ORTH
---------------------------------              By: /s/ JAMES H. RAWIS
                                                  ------------------------------
Name:    JAMES E. ORTH                            James H. Rawis
     ----------------------------                 President
          (Please Print)

/s/ JOSEPH M. GIANOLA
---------------------------------

Name: JOSEPH M. GIANOLA
     ----------------------------
           (Please Print)

/s/ JAMES E. ORTH
---------------------------------              ENERGY PARTNERS, LTD.

Name: JAMES E. ORTH
     ----------------------------
           (Please Print)

/s/ JOSEPH M. GIANOLA
---------------------------------              By: /s/ RICHARD A. BACHMAN
                                                  ------------------------------
Name: JOSEPH M. GIANOLA                           Richard A. Bachman
     ----------------------------                 President
           (Please Print)

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