Document:

Exhibit
      10.17

    

    

    

    

    

    

    

    

    

    

    

    

    

    FUNDING
      AGREEMENT

    

    by
      and between

    

    

    DOMAIN
      DEVELOPMENT PARTNERS I, LP,

    

    and

    

    CAPCO
      OPERATING CORPORATION,

    

    

    

    

    

    

    

    

    

    Dated

    

    September
      15th, 2005

    

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    TABLE
      OF CONTENTS

    

    
      	 	 	
              Page

            
	
              1.

            	
              DEFINITIONS

            	
              1

            
	
              2.

            	
              TERM

            	
              5

            
	
              3.

            	
              PARTICIPATION

            	
              5

            
	
              4.

            	
              PAYMENTS

            	
              6

            
	
              5.

            	
              DISPOSAL;
                SALE OF CONTRACT AREA.

            	
              8

            
	
              6.

            	
              REPRESENTATIONS
                AND WARRANTIES

            	
              12

            
	
              7.

            	
              COVENANTS.

            	
              15

            
	
              8.

            	
              TERMINATION

            	
              17

            
	
              9.

            	
              CONFIDENTIAL
                INFORMATION AND INTELLECTUAL PROPERTY

            	
              19

            
	
              10.

            	
              NOTICES

            	
              20

            
	
              11.

            	
              MISCELLANEOUS
                PROVISIONS

            	
              21

            
	
              12.

            	
              SEVERABILITY;
                SAVINGS CLAUSE

            	
              22

            
	
              13.

            	
              TITLE
                WARRANTY

            	
              22

            
	
              14.

            	
              FORCE
                MAJEURE

            	
              23

            
	
              15.

            	
              RELATIONSHIP
                OF THE PARTIES

            	
              23

            
	
              16.

            	
              WAIVER
                OF JURY TRIAL, PUNITIVE DAMAGES, ETC.

            	
              23

            
	
              17.

            	
              GOVERNMENT
                APPROVALS

            	
              24

            
	
              18.

            	
              PUBLIC
                ANNOUNCEMENTS

            	
              24

            
	
              19.

            	
              MODIFICATION
                OF EXHIBITS

            	
              24

            
	
              20.

            	
              EXPENSES

            	
              24

            
	
              21.

            	
              NO
                LIABILITY; INDEMNITY

            	
              25

            
	
              22.

            	
              COUNTERPARTS

            	
              26

            
	
              23.

            	
              JOINT
                ACKNOWLEDGEMENT

            	
              26

            

    

    

    

    
      	
              EXHIBITS

            	 	 
	 	 	 
	
              Exhibit
                A

            	 	
              Contract
                Area 

            
	
              Exhibit
                A-1

            	 	
              Schedule
                of Leases

            
	
              Exhibit
                B

            	 	
              Computations

            
	
              Exhibit
                C

            	 	
              Financial
                Accounting Procedures

            
	
              Exhibit
                D

            	 	
              Form
                of Assignment of Net Profits Interest

            
	
              Exhibit
                E

            	 	
              Form
                of Mortgage

            

    

    

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    

    FUNDING
      AGREEMENT

     

    This
      Funding
      Agreement
      (this
“Agreement”) is entered into this 1st day of October, 2005, among Domain
      Development Partners I, LP, a Texas limited partnership (“Domain”), and Capco
      Operating Corporation (“COC”), a Texas based Operating Company of Capco Energy,
      Inc. Domain and COC may be referred to individually as a “Party” and
      collectively as the “Parties”.

     

    WHEREAS,
      COC
owns
      and
      operates certain oil and gas leases, minerals and other interests in the Brazos
      Blocks 440/478/479, Brazos (Matagorda) County, Texas, as more particularly
      described in Exhibit A attached hereto (the “Contract Area”); and

     

    WHEREAS,
      the
      Parties desire to work together for the purpose of exploiting and developing
      the
      hydrocarbon potential from currently owned and operated oil and gas interests
      of
      COC in the Contract Area;

     

    WHEREAS,
      COC
      has
requested
      that
      Domain provide funding for the re-development of the Contract Area;
      and

     

    WHEREAS,
      Domain
      is
      willing to provide such funding on the terms and conditions set forth
      herein;

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual promises, conditions and agreements herein
      contained, the sufficiency of which is hereby acknowledged, the Parties agree
      as
      follows:

     

    DEFINITIONS

     

    For
      purposes of this Agreement, including the Exhibits, except as otherwise
      expressly provided or unless the context otherwise requires, the terms defined
      in this Article have the meanings assigned to them herein and the capitalized
      terms defined elsewhere in this Agreement by inclusion in quotation marks and/or
      parentheses have the meanings so ascribed to them.

     

    “AFE”
      means an Authority for Expenditure prepared by or on behalf of COC for the
      purpose of estimating the well costs to be incurred in connection with a
      proposal to workover, plugback, complete or re-complete, drill, deepen, rework
      or sidetrack a ReWork Well. 

     

    “Affiliate”
      means, with respect to any Person, any other Person directly or indirectly
      controlling or controlled by or under common control with such Person. For
      purposes of this definition, the term “control”, including, with correlative
      meanings, the terms “controlling”, “controlled by” and “under common control
      with”, as applied to any Person, means the possession, directly or indirectly,
      of the power to direct or cause the direction of the management of such Person,
      whether through ownership of voting securities, by contract or otherwise. With
      respect to a corporation, partnership or limited liability company “control” is
      conclusively established ownership of fifty percent (50%) or more of the voting
      stock in such corporation or of the voting interest as a partner in such
      partnership or as a member of such limited liability company. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Agreement”
      means this Funding Agreement between the Parties, including the Exhibits
      attached hereto or referred to herein. 

     

    “Business
      Day” means any day that is not a Saturday, Sunday, or legal holiday recognized
      by the United States of America or a day on which banks in Houston, Texas are
      authorized or required by law to be closed. 

     

    “Cash
      Method of Accounting” means a method of accounting in which (i) the Gross
      Proceeds for a Month shall be the net amount recognized and recorded by COC
      during such Month in COC’s ledgers for sales of Hydrocarbon Production from the
      Subject Properties included in a Tranche and (ii) the Production Costs for
      a
      Month shall be the amount paid or charged to the Subject Properties included
      in
      a Tranche by COC and recorded during such Month in the COC’s ledgers for
      operating the Subject Properties, all such proceeds and costs being determined
      in accordance with Exhibit B attached hereto. Accordingly, by way of example
      only, sales of January production of Hydrocarbon Production will normally be
      used to determine Gross Proceeds for the Month of March if the proceeds of
      such
      sales are received in March. No Gross Proceeds nor Production Costs for a
      Subject Property shall be recognized for Production Month Proceeds accrued
      prior
      to the Effective Date for such Subject Property.

     

    “Contract
      Area” means the geographic area encompassing portions in Brazos
      Blocks 440/478/479, Brazos (Matagorda) County, Texas,
      as
      further described in Exhibit A attached hereto, as may be amended from time
      to
      time by mutual agreement of COC and Domain.

     

    “Contribution”
      is defined in Article 3.3.

     

    “Domain’s
      Capital Contribution” means the aggregate Contributions provided by Domain
      pursuant to this Agreement for 100% of Domains investment in each Tranche of
      wells in the Contract Area.

     

    “Effective
      Date” means the effective date of this Agreement, being October 1st,
      2005.

     

    “Exhibits”
      means the exhibits to this Agreement, as such exhibits may be amended from
      time
      to time by a writing approved, dated and executed by all Parties. 

     

    “GAAP”
      means generally accepted accounting principles and practices which are
      recognized as such by the Financial Accounting Standards Board (or any generally
      recognized successor).

     

    “Gross
      Proceeds” means for a Month, as to the Subject Properties included in any
      Tranche, the amount when received, on the Cash Method of Accounting, by COC,
      without duplication, from the sale of Hydrocarbon Production produced from
      the
      Subject Properties included in such Tranche for such Month, subject to the
      provisions of Exhibit B attached hereto. 

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Hydrocarbon
      Production” means, as to the Subject Properties included in any Tranche for any
      Month, the total number of barrels of crude oil, condensate and other liquid
      hydrocarbons and cubic feet of natural gas and other gaseous hydrocarbons
      production from such Subject Properties as measured in MMBtus under standard
      temperature and pressure conditions during such Month.

     

    “MMBtus”
      means one million British Thermal Units. 

     

    “Month”
      means the period beginning at noon hour Central time on the first day of any
      calendar month and ending at the same time on the first day of the next
      succeeding calendar month. 

     

    “Net
      Profit” is defined as to each Tranche, and on a Tranche by Tranche basis, for
      each Month as the Gross Proceeds of COC from the Subject Properties included
      in
      a Tranche in such Month less (a) royalties, production, severance and ad
      valorem taxes, and operating expenses, attributable to such Tranche, and
      (b) Production Costs paid with respect to the Subject Properties included
      in such Tranche during such Month, all as calculated in accordance with Exhibit
      B attached hereto and other provisions of this Agreement. 

     

    “Net
      Profits Account” is defined in Article 4.8. 

     

    “Net
      Profits Interest” is defined in Article 4.1.

     

    “Net
      Revenue Interest” means the percentage of hydrocarbon production from the
      Subject Properties that is remaining after the hydrocarbon production necessary
      to satisfy all royalty, overriding royalty, production payments and other
      burdens on production has been deducted.

     

    “NPI
      Payment” means each payment made to Domain pursuant to Article 4.3 in
      consideration for Domain’s Capital Contribution. 

     

    “Operating
      Account” means the account established by the Operator of Record, COC for the
      purpose of this Project. 

     

    “Payout”
      means, with respect to each Tranche, that respective point in time at which
      the
      total of the NPI Payments received by Domain with respect to such Tranche is
      equal to one hundred fifty percent (150%) of Domain’s Capital Contribution in
      such Tranche.

     

    “Person” means,
      and shall be interpreted broadly to include, without limitation, any individual,
      corporation, association, company, limited liability company, trust, estate,
      partnership, limited partnership, joint venture, unincorporated organization,
      other business entity, any government or any department or agency thereof,
      or
      any other legal entity. 

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Production
      Costs” means the direct costs incurred by COC and the overhead allowed by Domain
      in the operations of the Subject Properties calculated in accordance with
      Exhibit B hereto. 

     

    “Project”
      means the well re-activation project in the Contract Area contemplated by this
      Agreement.

     

    “Prudent
      Standards” means the standards of reasonable and prudent business judgment and
      sound oil and gas field practices, in compliance with applicable federal, state
      and local laws, rules and regulations.

     

    “Representative(s)” means
      the
      directors, officers, supervisors, employees, partners, lenders, consultants,
      attorneys and legal counsel, financial advisors, accountants, marketing
      representatives and other agents of the Parties. 

     

    “Re-Work
      Well” means
      a
      well on which activity (re-completion or re-entry operations, facilities
      upgrades and sidetracking or deepening) is conducted within the limits of any
      productive reservoir in a discovered field to allow production of any reserves.
      

     

    “Spud
      Date” means
      the
      date upon which Re-Work activities are initiated on a specified well in a
      Tranche. 

     

    “Subject
      Properties” means
      all
      right, title, interest or claim (of every kind and character, whether legal
      or
      equitable and whether vested or contingent) of COC in and to the oil and gas
      leases covering land in the Contract Areas.

     

    “Third
      Party” means
      a
      Person not a Party to this Agreement. 

     

    “Total
      NPI Payment” means, with respect to any Tranche, the total of the payments
      Domain is entitled to receive for such Tranche pursuant to Article
      0.

     

    “Total
      Well Costs” means, with respect to any Tranche, the (a) actual costs and
      expenses attributable to the entire Working Interest in the Subject Properties
      with respect to such Tranche, for, re-completion, drilling or workover,
      completion for production, construction of and connecting into new or reworked
      gathering systems, access and connection into third party high pressure or
      intermediate pressure pipelines, workovers, sidetracking, or deepening that
      are
      directly or indirectly related to the Project.

     

    “Tranche”
      means each group of five potential ReWork Wells to be drilled, deepened or
      recompleted on the Subject Properties that are designated by Domain for funding
      pursuant to Article 0. In the event that five hundred thousand dollars
      ($500,000) or more is spent on any single Trance, the Tranche may be redefined
      by Domain to be less than five (5) wells.

     

    “Working
      Interest” means that portion of the working interest ownership in a given well
      attributable to the ownership of COC of the Subject Property on which the well
      is located (including farm-in interests and other related interests and
      including any interests allocated to them in accordance with any pooling or
      unitization agreement or order of applicable governmental agency).

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    TERM

     

    This
      Agreement shall remain in force and effect for a period of three (3) years
      beginning on the Effective Date of this Agreement (“Primary Term”) and shall
      continue from year to year thereafter (each a “Renewal” or “Renewal Term”)
      unless sooner terminated in accordance with Article 8. Upon termination of
      this Agreement pursuant to this Article 0, Article 8, or as elsewhere herein
      provided Domain shall retain its Net Profits Interests in wells located in
      the
      Subject Properties, and Domain shall be entitled to, and shall continue to,
      receive NPI Payments as provided under Article 4. The confidentiality provisions
      of Article 9 shall continue for eighteen (18) months after the date of any
      termination of this Agreement.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    PARTICIPATION

     

    Funding.
      Within
      thirty (30) days of the Effective Date, Domain shall elect the first Tranche
      of
      5 wells that will be covered by this agreement and shall fund the project.
      Domain shall have the right, but not the obligation, to designate up to three
      Tranche’s during the term of this Agreement. The Tranche wells may be modified
      by Domain depending on the results and interpretations found during the
      operations, provided that any replacement wells are located in the Contract
      Area. Subject to the terms and conditions hereof, Domain agrees to fund Domain’s
      Capital Contribution with respect to each Tranche designated by Domain hereunder
      and to receive in consideration for such funding, the NPI Payments.

     

    Domain’s
      Capital Contributions.
      Domain
      and COC shall set a schedule of working capital for use on the first 5 well
      Tranche, setting forth budgetary AFE’s for all the work required including but
      not limited to such key concerns as equipment and personnel mobilization and
      fees, supervision and well service expenditures. Domain’s expenditures on the
      facilities and the surface production infrastructure shall be limited to the
      amounts allocated in the program AFE’s. COC will be responsible in all respects
      for the land, legal and regulatory preparedness and production accounting for
      the Contract Area. COC shall be responsible for all costs not covered in the
      program AFE’s. Payments for the programmed AFE costs in the Contract Area shall
      be made by COC from a Project Operating Account established for this Agreement.
      Payments made from that account shall be subject to Domain’s approvals.

     

    Contribution.
      The
      parties agree to contribute to the Project as outlined below;

     

    COC
      shall
      make available personnel and resources including but not limited to those below
      available at no cost to Domain or the programs;

     

    
      	·  	
              Engineer,
                Flint Emmons on an as needed basis

            

    

     

    
      	·  	
              Field
                Superintendent, Kurt Endres on an as needed
                basis

            

    

     

    
      	·  	
              Office
                staff in Houston for normal Operator related functions on an as needed
                basis

            

    

     

    
      	·  	
              The
                platforms, the wells, the Wolverine Jackup, Royal Alliance supply
                vessel
                and related offshore miscellaneous
                equipment

            

    

     

    Domains
      costs that will be included in the programs and that will be paid for through
      funding include but are not limited to;

     

    
      	·  	
              All
                project direct personnel such as crews, supervisors and field specialists
                and consultants (including allocations for COC field
                personnel)

            

    

     

    
      	·  	
              All
                project related third party
                services

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	·  	
              Equipment
                insurance, fueling and maintenance
                costs

            

    

     

    
      	·  	
              Programmed
                upgrades to facilities included in program
                AFE’s

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    PAYMENTS 

     

    Net
      Profits Interest.
      In
      consideration for Domain’s Capital Contribution, COC agrees to assign to Domain
      a secured net profits interest (the “Net Profits Interest”) in the Subject
      Properties included in any Tranche equal to (i) seventy-five percent (75%)
      of the Net Profits in proportion to COC’s interests from the date of first sale
      of Hydrocarbon Production from the first well completed or recompleted in such
      Tranche until Payout of the Tranche, and (ii) twenty-five percent (25%) of
      the Net Profits from such Subject Properties after Payout until the date on
      which the aggregate NPI Payments received by Domain with respect to such Tranche
      is equal to two hundred percent (200%) of Domain’s Capital Contribution in such
      Tranche, and (iii) zero at all times after the date on which the Total NPI
      Payments received by Domain with respect to such Tranche is equal to two hundred
      percent (200%) of Domain’s Capital Contribution in such Tranche.
      The Net
      Profits Interest is limited to the incremental production obtained through
      the
      efforts of this Project and excludes any production volumes or costs associated
      with the Subject Properties that existed prior to the Effective Date of this
      Agreement.

     

    Stock.
      Domain
      shall have the right (such right to survive termination) at its sole discretion
      and for a period of two (2) years from the effective date of the Funding
      Agreement to acquire up to five million (5,000,000) shares of COC stock at
      17.5
      cents ($0.175) per share.

     

    Payment.

     

    Distribution
      of NPI Payments.
      Domain
      shall be entitled to receive NPI Payments beginning on the date of first sale
      of
      Hydrocarbon Production from the Subject Properties attributable to a Tranche
      and
      ending on the date on which the Total NPI Payments received by Domain with
      respect to such Tranche is equal to two hundred percent (200%) of Domain’s
      Capital Contribution in such Tranche. 

     

    Time
      for Payment.
      NPI
      Payments attributable to a given Month’s Hydrocarbon Production shall be due and
      payable by COC to Domain not later than the first to occur of (i) sixty (60)
      days following the last day of the Month of production or (ii) thirty days
      (30)
      following receipt by COC of proceeds from applicable purchasers.

     

    Assignment
      of Net Profits Interest.
      COC
      shall execute and file an Assignment of Net Profits Interest substantially
      in
      the form attached as Exhibit D on all the wells included in the Subject
      Properties within 60 days of Domain’s funding of the first Tranche. COC shall
      warrant its title interest in the Subject Properties in the form shown in the
      Assignment of Net Profits Interest attached hereto.

     

    Mortgage.
      As
      security for the payment and performance of all of COC’s obligations to Domain
      hereunder and within thirty (30) days of the first funding for a Tranche, COC
      shall execute and acknowledge one or more Mortgages, Assignments of Production
      and Security Agreements in the form of Exhibit E attached hereto and made a
      part
      hereof for all purposes (the “Mortgage”), covering the Subject Properties
      included in such Tranche. Domain shall file the Mortgage in all appropriate
      records to properly perfect the lien and security interests created thereunder.
      In addition, COC shall, from time to time, execute all such further and
      additional instruments as Domain may reasonably request in order to properly
      perfect the lien and security interests created under each Mortgage. COC hereby
      authorizes Domain to file one or more financing statements naming COC as debtor
      and covering the Subject Properties described in Schedule A to each
      Mortgage.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Prices
      for Calculation of Gross Proceeds and NPI Payments.
      The
      actual amounts received by COC for the sale of oil, gas and other associated
      hydrocarbons from the Subject Properties as set out in bona
      fide contracts
      between COC and a Third Party purchaser shall be used to determine Gross
      Proceeds and in the calculation of the NPI Payments.

     

    Interest
      on Past Due Payments.
      Any
      amount owed to Domain hereunder and not paid by COC when due shall bear, and
      COC, will pay, interest at a rate of 1.5% per month. 

     

    Net
      Profits Account.
      An
      account (the “Net Profits Account”) shall be maintained by COC for the Subject
      Properties. The Net Profits Account shall be credited with the aggregate of
      any
      Net Profit received by COC. On or before the date of each payment as set forth
      in Article 4.3.2 hereof, COC shall furnish to Domain a detailed statement
      clearly reflecting the credits and debits against and the balance of the Net
      Profits Account as of the close of business on the last day of the preceding
      Month. For each Month that the Net Profits Account contains funds, payment
      to
      Domain of NPI Payments shall be accomplished by wire transfer to Domain’s
      banking account, pursuant to the instructions set forth in Exhibit C. Following
      any such payment, the balance of the Net Profits Account shall be reduced by
      the
      amount of such payment.

     

    DISPOSAL;
      SALE OF CONTRACT AREA.

     

    Domain’s
      Right of First Refusal and Preferential Rights.

     

    In
      the
      event COC elects to dispose, by sale, transfer, assignment, conveyance or
      otherwise (including any change of control), all or any part of its interests
      in
      the Contract Area (the “Offered Interests”) during the term of this Agreement,
      or at any time during which Domain is entitled to receive NPI Payments, to
      any
      Person, COC shall send a written notice (an “Offer”) to Domain offering to sell
      the Offered Interests to Domain and setting forth COC’s asking price. Domain
      shall have the right for a period of thirty (30) days following its receipt
      of
      an Offer, but not the obligation, to purchase the Offered Interests at COC’s
      asking price set forth in the Offer. In the event Domain elects to not exercise
      its option to purchase the Offered Interests, COC may then market the Offered
      Interests to Third Parties.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    If
      COC
      receives an offer for the Offered Interests at a selling price less than that
      set forth in the Offer, COC must promptly provide written notice of such offer
      to Domain, which notice must also (i) include the name and address of the
      prospective transferee (who must be ready, willing and able to purchase), the
      purchase price, and all other terms of the desired transaction (collectively
      the
“Desired Terms”), (ii) include a copy of any proposed or executed written
      agreement the sets forth the Desired
      Terms, including all exhibits, schedules and related agreements, and
      (iii) be accompanied by a written purchase and sale (“Sales Offer”) signed
      by COC that provides for sale of all of the Offered Interest, or if a change
      of
      control, the Offered Interest that will be affected by the change of control.
      The Sales Offer shall provide for the sale of the Offered Interests to Domain
      on
      the same terms as the Desired Terms, provided that the Sales Offer shall not
      include any terms or conditions that were primarily included for the purpose
      of
      defeating or avoiding this preferential purchase right. Domain shall then have
      the right, for a period of thirty (30) calendar days (“Exercise Period”)
      after the notice and Sales Offer is delivered, to purchase the Offered Interests
      on the Desired Terms, except for any terms or condition that were primarily
      included for the purpose of defeating or avoiding the preferential purchase
      right contained herein. Domain shall be deemed to have exercised its
      preferential purchase right on the date that it executes and returns the Sales
      Offer, on the same terms as the Desired Terms (except for any terms or condition
      that were primarily included for the purpose of defeating or avoiding the
      preferential purchase right contained herein). If Domain does not exercise
      its
      preferential purchase right, then COC may enter into a binding agreement or
      proceed to close on any such agreement already executed to transfer such Offered
      Interest or cause a change of control with any party, on terms and conditions
      no
      less favorable to COC than the Desired Terms, during a period (“Third Party Sale
      Period”) ending thirty (30) days after the Exercise Period. If however, no such
      binding agreement is entered into during the Third Party Sale Period, then
      no
      sale or change of control may thereafter be entered into by COC without first
      again complying with this section.

     

    Notwithstanding
      the foregoing, COC may not sell, transfer, assign, convey or otherwise dispose
      of all or any part of its interests in the Contract Area or the Subject
      Properties to a Third Party during the term of this Agreement or at any time
      during which Domain is entitled to receive NPI Payments unless (i) COC
      retains all obligations and liabilities it has assumed under this Agreement
      including, but not limited to, the obligation to pay to Domain the NPI Payments,
      (ii) the transferee agrees to take the interest in the Contract Area
      subject to the terms of this Agreement and the Net Profits Interest, and
      (iii) such disposal has no effect on the Net Revenue from which the Net
      Profits are derived.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Right
      of First Refusal and Preferential Rights of COC.

     

    In
      the
      event Domain elects to dispose, by sale, transfer, assignment, conveyance or
      otherwise (including any change of control), all or any part of its interests
      in
      the Contract Area (“Domain’s Interests”) during the term of this Agreement,
      Domain shall send a written notice (a “Domain Offer”) to COC offering to sell
      Domain’s Interests to COC and setting forth Domain’s asking price. COC shall
      have the right for a period of thirty (30) days following its receipt of a
      Domain Offer, but not the obligation, to purchase Domain’s Interests at Domain’s
      asking price set forth in the Domain Offer. In the event COC elects to not
      exercise its option to purchase Domain’s Interests, Domain may then market
      Domain’s Interests to Third Parties. 

     

    If
      Domain
      receives an offer for Domain’s Interests at a selling price less than that set
      forth in the Domain Offer, Domain must promptly provide written notice of such
      offer to COC, which notice must also (i) include the name and address of
      the prospective transferee (who must be ready, willing and able to purchase),
      the purchase price, and all other terms of the desired transaction (collectively
      the “Domain Terms”), (ii) include a copy of any proposed or executed
      written agreement the sets forth the Domain
      Terms, including all exhibits, schedules and related agreements, and
      (iii) be accompanied by a written purchase and sale (“Sales Agreement”)
      signed by Domain that provides for sale of all of Domain’s Interests, or if a
      change of control, Domain’s Interests that will be affected by the change of
      control. The Sales Agreement shall provide for the sale of Domain’s Interests to
      COC on the same terms as the Domain Terms, provided that the Sales Agreement
      shall not include any terms or conditions that were primarily included for
      the
      purpose of defeating or avoiding this preferential purchase right. COC shall
      then have the right, for a period of thirty (30) calendar days
      (“Determination Period”) after the notice and Sales Agreement is delivered, to
      purchase Domain’s Interests on the Domain Terms, except for any terms or
      condition that were primarily included for the purpose of defeating or avoiding
      the preferential purchase right contained herein. COC shall be deemed to have
      exercised its preferential purchase right on the date that it executes and
      returns the Sales Agreement, on the same terms as the Domain Terms (except
      for
      any terms or condition that were primarily included for the purpose of defeating
      or avoiding the preferential purchase right contained herein). If COC does
      not
      exercise its preferential purchase right, then Domain may enter into a binding
      agreement or proceed to close on any such agreement already executed to transfer
      Domain’s Interests or cause a change of control with any party, on terms and
      conditions no less favorable to Domain than the Domain Terms, during a period
      (“Sale Period”) ending thirty (30) days after the Determination Period. If
      however, no such binding agreement is entered into during the Sale Period,
      then
      no sale or change of control may thereafter be entered into by Domain without
      first again complying with this section.

    
      
        
        

      

      
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    Notwithstanding
      the foregoing, Domain may not sell, transfer, assign, convey or otherwise
      dispose of all or any part of its interests in the Contract Area or the Subject
      Properties to a Third Party during the term of this Agreement or at any time
      during which Domain is obligated to fund Domain’s Capital Contribution unless
      (i) Domain retains all obligations and liabilities it has assumed under
      this Agreement including, but not limited to, the obligation to fund
      Contributions, (ii) the transferee agrees to take the interest in the
      Contract Area subject to the terms of this Agreement and to be jointly and
      severally liable with Domain for Domain’s obligations under this Agreement,
      whether accruing before or after the date of the assignment, and (iii) such
      transferee is financially and operationally capable of discharging the
      obligations it assumes under this Agreement. 

     

    Change
      of Control.
      For
      purposes of Articles 5.1 and 5.2, in the case of a change of control or package
      sale that includes all or part of COC’s or Domain’s interest in an Offered
      Interest or Domain’s Interest, as applicable, or if the proposed transaction is
      structured as a non-simultaneous, like-kind exchange under Section 1031 of
      the
      Internal Revenue Code of 1986, as amended (“Code”), the interest that is subject
      to Article 5.1 or 5.2, as applicable, shall be separately valued and the
      applicable notice shall state the value attributed to such interest by the
      prospective transferee and attributed to each of the other properties included
      in the desired transaction. A “change of control” shall mean, for purposes of
      this section, any one of the following circumstances: any person shall have
      become the beneficial owner of or shall have acquired, directly or indirectly,
      securities or ownership interest of COC or Domain, representing 50% or more
      (in
      addition to his current holdings) of the combined voting power of COC’s or
      Domain’s, as applicable, then outstanding voting securities or interests.
      However, there shall be no right of first refusal preferential right to purchase
      in those cases where a party desires to mortgage its interests, or to transfer
      title to its interests to its mortgagee in lieu of or pursuant to foreclosure
      of
      a mortgage of its interests

    
      
        
        

      

      
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    Sale
      of Contract Area.

     

    In
      the
      event the Parties desire to jointly market their interests in the Contract
      Area,
      the Parties shall engage an Engineering Consultant mutually agreeable to Domain
      and COC to determine the value of the Subject Properties in the Contract Area
      (“Property Value”) and the value of all future NPI Payments which Domain would
      be entitled to receive attributable to Tranches completed in the Contract Area
      at the time of the valuation (“Domain’s Value”). Said valuation shall be
      conducted in accordance with generally accepted engineering principles utilizing
      the discounted cash flow method using a ten percent (10%) discount rate. The
      valuation shall determine the value of existing producing wells, proved
      non-producing zones or recompletion and workover objectives, proved undeveloped
      locations and other probable and possible drilling locations and potential
      reserves within the Contract Area. In determining Domain’s Value, the
      Engineering Consultant shall utilize the time to reach Payout from the most
      recently completed or partially completed Tranche. The valuation shall
      separately set out the value attributable to Domain and COC expressed in dollars
      and as a percentage of the total appraised value. The cost of such valuation
      shall be borne equally by the COC and Domain. For purposes of making the
      valuation, the sales price set out in bona fide contracts between COC and a
      Third Party purchaser shall be used by the Engineering Consultant to calculate
      the Property Value.
      As
      used herein, the term “Engineering Consultant” means any of (i) Ryder Scott
      Petroleum Consultants, (ii) Netherland, Sewell and Associates,
      (iii) Degoyler and McNaughton, (iv) Cawley-Gillespie, or
      (v) Sproule Associates, Inc. 

     

    If
      the
      Parties receive an offer from a Third Party with a purchase price and other
      terms acceptable to the Parties, no later than ninety (90) days following the
      determination of the Domain Values, within thirty (30) Business Days of receipt
      of such offer, Domain shall send notice to COC of Domain’s election to either
      (i) require that the buyer, assignee or transferee shall agree to acquire
      the interests subject to the terms of this Agreement and the Net Profits
      Interest, or (ii) receive a lump sum payment (a “Disposal Payment”) from
      COC in lieu of its entitlement to receive any further NPI Payments under this
      Agreement. Disposal Payments shall be equal to the Domain Value.

     

    In
      the
      event the Parties consummate a sale of the Contract Area and Domain has elected
      to receive a Disposal Payment, Domain shall terminate its Net Profits Interest
      and Mortgage, upon receipt by Domain of the Disposal Payment. The Disposal
      Payment shall be made by the purchaser directly to Domain by wire transfer
      in
      immediately available funds on the same date that COC receives funds
      attributable to the sale.

     

    REPRESENTATIONS
      AND WARRANTIES 

     

    Domain
      represents to COC, as of the Effective Date, that: 

    
      
        
        

      

      
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    Organization
      and Existence.
      Domain
      is a limited partnership duly organized and legally existing under the laws
      of
      Texas.

     

    Power
      and Authority.
      Domain
      has full partnership power and authority to execute, deliver, and perform this
      Agreement and each other agreement, instrument, or document executed or to
      be
      executed by Domain in connection with the transactions contemplated hereby
      to
      which it is a party and to consummate the transactions contemplated hereby
      and
      thereby. The execution, delivery, and performance by Domain of this Agreement
      and each other agreement, instrument, or document executed or to be executed
      by
      Domain in connection with the transactions contemplated hereby to which it
      is a
      party, and the consummation by it of the transactions contemplated hereby and
      thereby, have been duly authorized by all necessary partnership action of
      Domain. 

     

    Valid
      and Binding Agreement.
      This
      Agreement has been duly executed and delivered by Domain and constitutes, and
      each other agreement, instrument, or document executed or to be executed by
      Domain in connection with the transactions contemplated hereby to which it
      is a
      party has been, or when executed will be, duly executed and delivered by Domain
      and constitutes, or when executed and delivered will constitute, a valid and
      legally binding obligation of Domain, enforceable against it in accordance
      with
      their respective terms, except that such enforceability may be limited by
      (a) applicable bankruptcy, insolvency, reorganization, moratorium, and
      similar laws affecting creditors’ rights generally and (b) equitable
      principles which may limit the availability of certain equitable remedies (such
      as specific performance) in certain instances. 

     

    Non-Contravention.
      The
      execution, delivery, and performance by Domain of this Agreement and each other
      agreement, instrument, or document executed or to be executed by Domain in
      connection with the transactions contemplated hereby to which it is a party
      and
      the consummation by it of the transactions contemplated hereby and thereby
      do
      not and will not (a) conflict with or result in a violation of any
      provision of the partnership agreement or other governing instruments of Domain,
      (b) conflict with or result in a violation of any provision of, or
      constitute (with or without the giving of notice or the passage of time or
      both)
      a default under, or give rise (with or without the giving of notice or the
      passage of time or both) to any right of termination, cancellation, or
      acceleration under, any bond, debenture, note, mortgage, indenture, lease,
      contract, agreement, or other instrument or obligation to which Domain is a
      party or by which Domain or any of its properties may be bound, (c) result
      in the creation or imposition of any lien or other encumbrance upon the
      properties of Domain, or (d) violate any applicable law, rule or regulation
      binding upon Domain.

    
      
        
        

      

      
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    Approvals.
      No
      consent, approval, order, or authorization of, or declaration, filing, or
      registration with, any court or governmental agency or of any third party is
      required to be obtained or made by Domain in connection with the execution,
      delivery, or performance by Domain of this Agreement and each other agreement,
      instrument, or document executed or to be executed by Domain in connection
      with
      the transactions contemplated hereby to which it is a party or the consummation
      by it of the transactions contemplated hereby and thereby.

     

    Pending
      Litigation.
      There
      are no pending suits, actions, or other proceedings in which Domain is a party
      which affect the execution and delivery of this Agreement or the consummation
      of
      the transactions contemplated hereby.

     

    COC
      represents to Domain, as of the Effective Date, that: 

     

    Organization
      and Existence.
      COC is
      duly organized, legally existing and in good standing under the laws of
      jurisdiction of organization and is qualified to do business in the state of
      Texas.

     

    Power
      and Authority.
      COC has
      full corporate power and authority to execute, deliver, and perform this
      Agreement and each other agreement, instrument, or document executed or to
      be
      executed by COC in connection with the transactions contemplated hereby to
      which
      it is a party and to consummate the transactions contemplated hereby and
      thereby. The execution, delivery, and performance by COC of this Agreement
      and
      each other agreement, instrument, or document executed or to be executed by
      COC
      in connection with the transactions contemplated hereby to which it is a party,
      and the consummation by it of the transactions contemplated hereby and thereby,
      have been duly authorized by all necessary corporate action of COC.

     

    Valid
      and Binding Agreement.
      This
      Agreement has been duly executed and delivered by COC and constitutes, and
      each
      other agreement, instrument, or document executed or to be executed by COC
      in
      connection with the transactions contemplated hereby to which it is a party
      has
      been, or when executed will be, duly executed and delivered by COC and
      constitutes, or when executed and delivered will constitute, a valid and legally
      binding obligation of COC, enforceable against it in accordance with their
      respective terms, except that such enforceability may be limited by
      (a) applicable bankruptcy, insolvency, reorganization, moratorium, and
      similar laws affecting creditors’ rights generally and (b) equitable
      principles which may limit the availability of certain equitable remedies (such
      as specific performance) in certain instances. 

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    Non-Contravention.
      The
      execution, delivery, and performance by COC of this Agreement and each other
      agreement, instrument, or document executed or to be executed by COC in
      connection with the transactions contemplated hereby to which it is a party
      and
      the consummation by it of the transactions contemplated hereby and thereby
      do
      not and will not (a) conflict with or result in a violation of any
      provision of the governing instruments of COC, (b) conflict with or result
      in a violation of any provision of, or constitute (with or without the giving
      of
      notice or the passage of time or both) a default under, or give rise (with
      or
      without the giving of notice or the passage of time or both) to any right of
      termination, cancellation, or acceleration under, any bond, debenture, note,
      mortgage, indenture, lease, contract, agreement, or other instrument or
      obligation to which COC is a party or by which COC or any of its properties
      may
      be bound, (c) result in the creation or imposition of any lien or other
      encumbrance upon the properties of COC, or (d) violate any applicable law,
      rule or regulation binding upon COC.

     

    Approvals.
      No
      consent, approval, order, or authorization of, or declaration, filing, or
      registration with, any court or governmental agency or of any third party is
      required to be obtained or made by COC in connection with the execution,
      delivery, or performance by COC of this Agreement and each other agreement,
      instrument, or document executed or to be executed by COC in connection with
      the
      transactions contemplated hereby to which it is a party or the consummation
      by
      it of the transactions contemplated hereby and thereby.

     

    Pending
      Litigation.
      There
      are no pending suits, actions, or other proceedings in which COC is a party
      which affect the execution and delivery of this Agreement or the consummation
      of
      the transactions contemplated hereby.

     

    COVENANTS.

     

    Books,
      Financial Statements and Reports.
      COC
      will at all times maintain full and accurate books of account and records.
      COC
      will maintain a standard system of accounting, will maintain its Fiscal Year,
      and will furnish the following statements and reports to Domain at COC’s
      expense:

     

    As
      soon
      as available, and in any event within ninety (90) days after the end of each
      Fiscal Year, complete consolidated financial statements of COC together with
      all
      notes thereto, prepared in reasonable detail in accordance with GAAP, together
      with an unqualified opinion, based on an audit using generally accepted auditing
      standards, [by
      a “Big Four” public accounting firm or]
      another
      independent certified public accounting firm selected by COC and acceptable
      to
      Domain, stating that such consolidated financial statements have been so
      prepared. These financial statements shall contain a consolidated balance sheet
      as of the end of such Fiscal Year and consolidated statements of earnings,
      of
      cash flows, and of changes in owners’ equity for such Fiscal Year, each setting
      forth in comparative form the corresponding figures for the preceding Fiscal
      Year.

    
      
        
        

      

      
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    By
      March
      1 of each year, an Engineering Report prepared by *[Ryder Scott
      Company/Netherland, Sewell & Associates/H.J. Gruy and Associates/DeGolyer
& MacNaughton/Williamson Petroleum Consultants, Inc.], or other independent
      petroleum engineers chosen by COC and acceptable to Domain, concerning the
      Subject Properties oil and gas properties and interests owned by any COC which
      are located in the Contract Lands and which have attributable to them proved
      oil
      or gas reserves. This report shall be satisfactory to Domain, shall take into
      account any “over-produced” status under gas balancing
      arrangements.

     

    As
      soon
      as available, and in any event within forty-five (45) days after the end of
      each
      calendar month, a report describing by lease or unit the gross volume of
      Hydrocarbon Production and sales attributable to Hydrocarbon Production during
      such month from the Subject Properties and describing the related severance
      taxes, other taxes, leasehold operating expenses attributable thereto and
      incurred during such month.

     

    As
      soon
      as available, and in any event within ten (10) days after the end of each
      calendar month, a report on Subject Properties setting forth the capital
      expenditures and Domain Capital Contributions made during such calendar
      month.

     

    On
      the
      dates set forth in Exhibit C hereto, the financial reporting described
      therein.

     

    Other
      Information and Inspections.
      COC
      will furnish to Domain any information which Domain may from time to time
      request concerning any of the Subject Properties or any matter in connection
      with COC’s businesses, properties, prospects, financial condition and
      operations, including all evidence which Domain from time to time reasonably
      requests in writing as to the accuracy and validity of or compliance with all
      representations, warranties and covenants made by any COC in this Agreement,
      and
      the satisfaction of all conditions contained herein, and all other matters
      pertaining thereto. COC will permit representatives appointed by Domain
      (including independent accountants, auditors, agents, attorneys, appraisers
      and
      any other Persons) to visit and inspect during normal business hours any of
      the
      Subject Properties in the Contract Area, including its books of account, other
      books and records, and any facilities or other business assets, and to make
      extra copies therefrom and photocopies and photographs thereof, and to write
      down and record any information such representatives obtain, and COC shall
      permit Domain or its representatives to investigate and verify the accuracy
      of
      the information furnished to Domain in connection herewith and to discuss all
      such matters with its officers, employees and representatives. COC shall permit
      Domain or its representatives to audit the books and records of COC in
      accordance with the terms of Exhibit C hereto.

     

    Delay
      Rentals, Minimum Royalties, and Shut-in Gas Payments.
      COC
      shall use reasonable commercial efforts to pay, or cause to be paid, in a proper
      and timely manner any delay rentals, minimum royalties, and shut-in gas
      payments, if any, which may be necessary to maintain in force and effect the
      Subject Properties, except any portion thereof which the Parties have determined
      to abandon pursuant hereto. Notwithstanding anything to the contrary herein,
      COC
      shall not be liable to Domain for any failure to pay, or the incorrect payment
      of, any delay rentals, minimum royalty, shut-in gas payments, or any other
      contractual obligation of COC to royalty or working interest owners unless
      resulting from the gross negligence or willful misconduct of COC.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    Insurance.
      COC
      shall maintain, or cause to be maintained, during the life of the Net Profits
      Interest, insurance coverage in such amounts, with provisions for such
      deductible amounts, and for such purposes as are consistent with Prudent
      Standards and the requirements of any joint operating agreement related to
      Subject Properties.

     

    Payment
      of Trade Liabilities.
      COC
      shall (i) timely file all required tax returns; (ii) timely pay all
      taxes, assessments and other governmental charges or levies imposed upon it
      or
      upon its income, profits or property; and (iii) within ninety (90) days
      after the sum becomes due pay all liabilities owed by it to Third Party vendors,
      suppliers and other Persons providing goods and services used by it in the
      ordinary course of its business. COC may, however, delay paying or discharging
      any of the foregoing so long as it is in good faith contesting the validity
      thereof by appropriate proceedings and has set aside on its books adequate
      reserves therefore. Without the consent of Domain, COC shall not undertake
      any
      single project with respect to the Subject Properties reasonably estimated
      to
      require expenditure in excess of Twenty Thousand Dollars
      ($20,000.00).

     

    Prudent
      Operator Standard.
      COC
      will conduct and carry on or cause to be conducted and carried on the
      development, maintenance and operation of the Subject Properties in accordance
      with Prudent Operating Standards.

     

    Plugging
      and Abandonment Costs.
      Except
      as otherwise herein provided and except as such charges may be provided for
      in
      Exhibit B, Domain shall not have any liability of any nature for the plugging
      or
      abandonment of any wells or the reclamation of facilities associated with the
      proper plugging and abandonment of any well for which Domain provides capital
      pursuant to this Agreement.

     

    TERMINATION

     

    Notwithstanding
      the provisions of Article 2, this Agreement may be terminated as
      follows:

     

    Insolvency.

     

    If
      COC
      becomes insolvent, makes a general assignment for the benefit of its creditors,
      applies for or consents to the appointment of a receiver, trustee or liquidation
      of all or substantially all of its assets, has an involuntary petition in
      bankruptcy filed against it which is not dismissed within forty-five (45) days
      or fails to pay its debts and obligations as they become due, Domain may,
      without prejudice to any of its other rights, immediately terminate this
      Agreement effective upon delivery of written notice of same to
      COC.

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    If
      Domain
      becomes insolvent, makes a general assignment for the benefit of its creditors,
      applies for or consents to the appointment of a receiver, trustee or liquidation
      of all or substantially all of its assets, has an involuntary petition in
      bankruptcy filed against it which is not dismissed within forty-five (45) days
      or fails to pay its debts and obligations as they become due, COC may, without
      prejudice to any of its other rights, immediately terminate this Agreement
      effective upon delivery of written notice of same to Domain.

     

    Breach.

     

    If
      COC
      fails to pay any obligation under this Agreement within ten (10) Business Days
      after the same becomes due and payable, or if COC fails to duly observe, perform
      or comply with any other covenant, agreement, condition or provision of this
      Agreement and such failure remains unremedied for a period of thirty (30) days
      after notice of such failure is given by Domain to COC, Domain may, without
      prejudice to any of its other rights, immediately terminate this Agreement
      effective upon delivery of written notice of same to COC.

     

    If
      Domain
      fails to pay any obligation under this Agreement within ten (10) Business Days
      after the same becomes due and payable, or if Domain fails to duly observe,
      perform or comply with any other covenant, agreement, condition or provision
      of
      this Agreement and such failure remains unremedied for a period of thirty (30)
      days after notice of such failure is given by COC to Domain, COC may, without
      prejudice to any of its other rights, immediately terminate this Agreement
      effective upon delivery of written notice of same to Domain.

     

    Mutual
      Agreement.
      This
      Agreement may be terminated by mutual agreement of the Parties.

     

    Domain
      Unilateral Termination.
      This
      Agreement may be terminated unilaterally by Domain upon thirty (30) days advance
      written notice to COC. Upon such termination, Domain shall retain the Net
      Profits Interest and continue to be entitled to receive NPI Payments with
      respect to any wells included in any Tranche’s as of the date of termination,
      and Payout shall be determined based on Domain’s Capital Contribution as of the
      date of termination. 

     

    Effect
      of Termination.
      Any
      termination shall not relieve any Party of its obligations arising from or
      incident to obligations under this Agreement prior to the time such termination
      becomes effective. Domain shall be entitled to receive NPI Payments, until
      the
      Total NPI Payments for all Tranche’s have been made. Alternatively, the Parties
      may agree upon a lump sum payment to be made by COC to Domain in lieu of
      Domain’s right to receive further NPI Payments under this Agreement. Such lump
      sum shall be calculated as the amount equal to the present value of Domain’s
      expected future NPI Payments on all Tranche’s using a ten percent (10%) discount
      rate. Upon a termination of this Agreement pursuant to this Article 8, Domain
      shall, at COC’s cost, execute and deliver partial releases of the Mortgage
      pursuant to which Domain will release its lien on the Subject Properties, except
      for any wells on which Domain has a Net Profits Interest. Upon the termination
      of this Agreement, the Parties shall be released from their obligations
      hereunder, provided that all indemnification obligations of the Parties shall
      survive such termination. 

     

    
      
        
        

      

      
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    CONFIDENTIAL
      INFORMATION AND INTELLECTUAL PROPERTY

     

    Confidential
      Information.
      “Confidential Information” means information unavailable from public sources
      that any of the Parties consider confidential and proprietary information or
      data including, but not limited to, the substance or contents of this Agreement,
      seismic records and tapes, interpreted well logs or maps or engineering data,
      financial information relating to the Contract Area and certain non-proprietary
      seismic data licensed from Third Parties which impose various restrictions
      and
      limitations on the owner of such license to use, disclose and/or display such
      data relating to certain portions of the Contract Area. 

     

    Domain
      Nondisclosure.
      Domain
      agrees that any Confidential Information obtained by it from COC under the
      terms
      of this Agreement will be held in strict confidence and will not be disclosed
      by
      Domain to any Third Party without authorization from COC, as long as such
      information is not in the public domain or except as required by law or legal
      process. Domain agrees not to reproduce any Confidential Information of COC
      or
      to disclose such Confidential Information to any Third Party, in any manner
      whatsoever, without the express prior written consent of COC. Domain agrees
      to
      limit access to such Confidential Information only to those of its
      Representatives who have a need to review such Confidential Information for
      the
      purposes stated herein.

     

    COC
      Nondisclosure.
      COC
      agrees that any Confidential Information obtained by it from Domain under the
      terms of this Agreement will be held in strict confidence and will not be
      disclosed by such party to any Third Party without authorization from Domain
      as
      long as such information is not in the public domain or except as required
      by
      law or legal process. COC agrees not to reproduce Domain’s Confidential
      Information or to disclose such Confidential Information to any Third Party,
      in
      any manner whatsoever, without the express prior written consent of Domain.
      COC
      agrees to limit access to such Confidential Information only to those of its
      Representatives who have a need to review such Confidential Information for
      the
      purposes stated herein. Domain hereby acknowledges that COC will, from time
      to
      time, be subject to joint interest billing (“JIB”) audits by working interest
      owners. Nothing contained in this Article 9 shall prevent COC from complying
      with the requests for information in such JIB audits to the extent such requests
      do not call for the disclosure of information which Domain considers to be
      confidential (except the substance or contents of this Agreement and documents
      related or generated pursuant to the payment provisions of this Agreement),
      proprietary or a trade secret. 

     

    Proceedings
      to Compel Disclosure.
      In the
      event a Party hereto, or its Representatives, is required by any court or
      legislative or administrative body to disclose any Confidential Information
      belonging to another Party, the Party required to make such disclosure shall
      provide the other Party with prompt notice of such requirement in order to
      afford the other Party the opportunity to seek an appropriate protective order.
      However, if the Party seeking to prevent the disclosure is unable to obtain
      or
      does not seek such protective order and the Party, or its Representatives,
      that
      is required to make such disclosure are, in the opinion of counsel, compelled
      to
      disclose Confidential Information under pain of liability for contempt or other
      censure penalty, disclosure of the Confidential Information may be made without
      liability. 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    Injunctive
      Relief.
      In the
      event of breach or threatened breach by one Party or its employees of the
      provisions of this Article 9, the disclosing Party shall be entitled to an
      injunction or judicial order equivalent thereto restraining the first Party
      or
      its employees from using or disclosing, in whole or in part, such Confidential
      Information. Nothing herein shall be construed as prohibiting any Party from
      pursuing any other remedies available to it for such breach or threatened
      breach, including recovery of damages from the other Party. 

     

    Term
      of Confidentiality.
      The
      confidentiality obligations of each Party under this Article shall continue
      in full force and effect for a period of eighteen (18) months after the
      termination of this Agreement. 

     

    Non-Confidentiality
      for Tax Purposes.
      Notwithstanding anything else to the contrary in this Agreement, each Party
      to
      this Agreement (and each employee, representative, or other agent of such Party)
      may disclose to any persons as required or allowed by applicable law, rule
      or
      regulation the tax treatment and tax structure of the transaction contemplated
      by this Agreement (the “Transaction”) and all materials of any kind (including
      opinions or other tax analyses) that are provided to such Party relating to
      such
      tax treatment and tax structure. Nothing in this Agreement, or any other
      agreement between the Parties hereto, whether express or implied, shall be
      construed as limiting in any way the ability of any Party to consult with any
      tax advisor independent from all other entities involved in the Transaction
      regarding the treatment, tax structure or tax consequences of the Transaction.
      

     

    NOTICES 

     

    Any
      notice, transmittal of documents, correspondence or other communication between
      the Parties shall be in writing, addressed to the Party to whom sent and
      transmitted prepaid either by air courier or by telecopy or other facsimile
      transmission with signed written original to follow by air courier. All such
      notices in compliance with this provision shall be deemed received by such
      Party
      on the next Business Day after transmission by telecopy or other facsimile
      transmission and on the third Business Day after transmission by air courier.
      For purposes of this Agreement, the addresses of the Parties are as follows
      until changed by written notice from the Party desiring to change its address
      to
      the other Party:

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    

    DOMAIN:

    Domain
      Development Partners I, LP

    10000
      memorial Dr.

    Suite
      550

    Houston,
      Tx, 77024

    
      	
              Telephone:

            	
              713-579-2623

            
	
              Facsimile:

            	
              713-579-2611

            
	
              Attention:

            	
              Domain
                Energy Partners, LP

            

    

     

    COC:

    COC
      Energy Inc.

    
      	
              [Address]

            	 
	
              Telephone:

            	 
	
              Facsimile:

            	 
	
              Attention:
                

            	 

    

    

    MISCELLANEOUS
      PROVISIONS

     

    Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Texas.

     

    Dispute
      Resolution.
      Any
      dispute or controversy between the Parties arising out of or related to this
      Agreement shall be finally settled by binding arbitration between the Parties
      pursuant to the commercial arbitration rules of the American Arbitration
      Association (“AAA”). The arbitration shall be conducted in Houston, Texas before
      a single arbitrator to be selected jointly by the Parties. In the event the
      Parties are unable to agree upon an arbitrator within thirty (30) days of the
      date on which the notice of arbitration is served, the arbitrator shall be
      selected by AAA. The arbitration award may be enforced by application to any
      court of competent jurisdiction. 

     

    Amendment;
      No Waiver.
      No
      modification of this Agreement shall be of any force or effect unless in writing
      and signed by an authorized signatory of all Parties. Failure to enforce any
      or
      all of the terms and conditions of this Agreement in a particular instance
      or
      instances shall not constitute a waiver thereof or preclude subsequent
      enforcement thereof. 

     

    Assignment.
      COC may
      not assign its rights or obligations under this Agreement without the prior
      written consent of Domain. Domain shall have the right to assign its rights
      and
      obligations under this Agreement to an Affiliate, without prior consent of
      COC.
      Domain will not transfer or assign its rights and obligations under this
      Agreement, except its right to receive payments hereunder, to a non-Affiliate
      without first obtaining the written consent of COC, which consent shall not
      be
      unreasonably withheld or delayed. 

     

    Rules
      of Construction.
      All
      references in this Agreement to articles, sections, subsections and other
      subdivisions refer to corresponding articles, sections, subsections and other
      subdivisions of this Agreement unless expressly provided otherwise. Titles
      appearing at the beginning of any of such subdivisions are for convenience
      only
      and shall not constitute part of such subdivisions and shall be disregarded
      in
      construing the language contained in such subdivisions. The words “this
      Agreement”, “this instrument”, “herein”, “hereof”, “hereunder”‘ and words of
      similar import refer to this agreement as a whole and not to any particular
      subdivision unless expressly so limited. Unless the context otherwise requires:
      “including” and its grammatical variations mean “including without limitation”;
“or” is not exclusive; words in the singular form shall be construed to include
      the plural and vice versa; words in any gender include all other genders;
      references herein to any instrument or agreement refer to such instrument or
      agreement as it may be from time to time amended or supplemented; and references
      herein to any Person include such Person’s successors and assigns. All
      references in this Agreement to exhibits and schedules refer to exhibits and
      schedules to this Agreement unless expressly provided otherwise, and all such
      exhibits and schedules are hereby incorporated herein by reference and made
      a
      part hereof for all purposes.

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    SEVERABILITY;
      SAVINGS CLAUSE

     

    Any
      provision or term of this Agreement which is or may be void or unenforceable
      shall, to the extent of such invalidity or unenforceability, be deemed severable
      and shall not affect any other provision of this Agreement. The Parties agree
      that the exculpatory, indemnification and hold harmless provisions applicable
      to
      this Agreement shall be modified or altered only insofar as required by a
      jurisdiction purporting to limit such provisions, it being the intention of
      the
      Parties to enforce to the fullest extent all terms and conditions herein agreed
      to.

     

    TITLE
      WARRANTY

     

    COC
      represents and warrants to Domain that it is the owner of the leasehold and/or
      fee mineral interests comprising the Subject Properties which it has represented
      or will represent to Domain it owns, that it will defend its title to such
      interests, that said interests are and that COC will take appropriate steps
      to
      maintain such interests in good standing and free and clear of all liens,
      charges, encumbrances and claims whatsoever, except liens in favor of Domain,
      and to the best knowledge of COC there is no claim, action or administrative
      proceeding pending which may jeopardize title to its interests. COC shall
      provide such documentation to Domain as Domain may reasonably require to satisfy
      itself that COC own such interests. 

     

    Any
      costs, expenses, losses or liabilities (including, but not limited to, attorneys
      fees’, court costs and litigation expenses) suffered by Domain as a result of
      COC’s failure to have good and defensible title to the Subject Properties free
      and clear of all burdens, encumbrances, liens (except liens in favor of Domain)
      and title defect including any claim that Domain must deliver or pay over to
      any
      Person any part of the Hydrocarbon Production or any proceeds thereof at any
      time previously received or thereafter to be received by Domain shall constitute
      a Contribution for any Tranche then open, or if no Tranche is then open, COC
      shall promptly reimburse and indemnify Domain for all such costs, expenses,
      losses or liabilities.

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    FORCE
      MAJEURE

     

    If,
      as a
      result of an event of Force Majeure, any Party is rendered unable, wholly or
      in
      part, to carry out its obligations under this Agreement, other than the
      obligation to pay any amounts due or to furnish security, then the obligations
      of the Party giving such notice, so far as and to the extent that the
      obligations are affected by such event of Force Majeure, shall be suspended
      during the continuance of any inability so caused, but for no longer period.
      The
      Party claiming Force Majeure shall notify the other Party of the Force Majeure
      situation within a reasonable time after the occurrence of the cause relied
      on
      and shall keep the other Party timely informed of all significant developments.
      Such notice shall give reasonably full particulars of said event of Force
      Majeure, and also estimate the period of time which said Party will probably
      require to remedy the Force Majeure. The affected Party shall use all reasonable
      diligence to remove or overcome the Force Majeure situation as quickly as
      possible in an economic manner, but shall not be obligated to settle any labor
      dispute except on terms acceptable to it and all such disputes shall be handled
      within the sole discretion of the affected Party. 

     

    For
      the
      purposes of this Agreement, “Force Majeure” shall mean an
      act of
      God, strike, lockout, or other industrial disturbance, act of the public enemy,
      war, blockade, public riot, lightning, fire, storm, flood, earthquake,
      explosion, governmental restraint, and any other cause, whether of the kind
      specifically enumerated above or otherwise, which is not reasonably within
      the
      control of the Party concerned. 

     

    RELATIONSHIP
      OF THE PARTIES

     

    This
      Agreement is not intended to create, nor shall it be construed as creating,
      any
      joint venture, association, partnership, trust or fiduciary relationship nor
      shall it give rise to the imposition of a fiduciary obligation or liability
      with
      regard to any one or more of the Parties. In this Agreement, the Parties agree
      that where decisions are to be taken hereunder by unanimous agreement, agreement
      thereto shall not be unreasonably withheld.

     

    WAIVER
      OF JURY TRIAL, PUNITIVE DAMAGES, ETC.

     

    EACH
      OF DOMAIN AND COC HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY
      (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
      TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR
      INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
      AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH; (B)
      WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
      TO
      CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY “SPECIAL DAMAGES”, AS DEFINED BELOW,
      (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR COUNSEL FOR ANY
      PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
      PARTY
      WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS,
      AND D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT,
      THE
      OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH AND THE TRANSACTIONS
      CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
      AND
      CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, “SPECIAL
      DAMAGES” INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES
      (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH
      ANY
      PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY
      HERETO.

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    GOVERNMENT
      APPROVALS

     

    From
      and
      after the execution hereof, each of the Parties hereto, without further
      consideration, shall use their best efforts to execute, deliver, submit, gain
      approvals of, and record, or cause to be executed, delivered, submitted, and
      recorded, good and sufficient permits, designations of operator forms, other
      regulatory documents and instruments, as applicable, and take such other action
      as may be reasonably required to carry out the purposes of this Agreement and
      to
      give effect to the covenants, stipulations and obligations of the Parties
      hereto.

     

    PUBLIC
      ANNOUNCEMENTS

     

    No
      Party
      will issue, or permit any agent or Affiliate of it to issue, any press releases
      or otherwise make, or cause any agent or Affiliate of it to make, any public
      statements with respect to the content of this Agreement and the transactions
      contemplated herein other than internal releases and statements to their
      respective partners, owners and Representatives upon commitment by such
      partners, owners and Representatives to maintain the confidentiality of such
      matters, without the prior written approval of the other Parties, which approval
      may be unreasonably withheld.

     

    MODIFICATION
      OF EXHIBITS

     

    It
      is
      understood that there may be a number of additional Exhibits and or amendments
      that may be necessary to fully address the financial and operational details
      of
      the various activities under this Agreement. The Parties agree to cooperate
      to
      obtain the execution of any documents necessary to carry out the intents of
      this
      Article. 

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    EXPENSES

     

    Expenses
      incurred by Domain in this Article 20 shall be included by Domain as costs
      attributable to the program including but not limited to: (i) all transfer,
      stamp, mortgage, documentary or other similar taxes, assessments or charges
      levied by any governmental or revenue authority in respect of this Agreement
      or
      any other document or transaction referred to herein or therein, (ii) all
      reasonable costs and expenses incurred by or on behalf of Domain (including
      attorneys’ fees, consultants’ fees and engineering fees, travel costs and
      miscellaneous expenses) in connection with (1) the negotiation,
      preparation, execution and delivery of this Agreement, and any and all consents,
      waivers or other documents or instruments relating thereto, (2) the filing,
      recording re-filing and re-recording of any documents or instruments or further
      assurances required to be filed or recorded or re-filed or re-recorded by the
      terms of this Agreement, and (iii) all reasonable costs and expenses
      incurred by or on behalf of Domain (including without limitation attorney’s
      fees, consultants’ fees and accounting fees) in connection with the preservation
      of any rights, or the defense of Domain’s exercise of its rights
      thereunder.

     

    NO
      LIABILITY; INDEMNITY

     

    EXCEPT
      TO
      THE EXTENT OF DOMAIN’S OBLIGATIONS UNDER ARTICLE 3, AND ANY OF THE FOLLOWING
      ITEMS ARE TAKEN INTO ACCOUNT IN COMPUTING NET PROFITS UNDER THIS AGREEMENT,
      DOMAIN SHALL NEVER BE RESPONSIBLE FOR ANY PART OF THE COSTS, EXPENSES OR
      LIABILITIES INCURRED IN CONNECTION WITH THE EXPLORING, DEVELOPING, OPERATING,
      OWNING, MAINTAINING, REWORKING OR RECOMPLETING OF THE SUBJECT PROPERTIES, TITLE
      DISPUTES RELATED TO THE SUBJECT PROPERTIES (INCLUDING REASONABLE ATTORNEY’S
      FEES, COSTS AND EXPENSES), THE PHYSICAL CONDITION OF THE SUBJECT PROPERTIES,
      OR
      THE HANDLING, TREATING OR TRANSPORTING OF HYDROCARBONS PRODUCED FROM THE SUBJECT
      PROPERTIES (INCLUDING ANY COSTS, EXPENSES, LOSSES OR LIABILITIES RELATED TO
      VIOLATION OF AN ENVIRONMENTAL LAW OR OTHERWISE RELATED TO DAMAGE TO OR
      REMEDIATION OF THE ENVIRONMENT, WHETHER THE SAME ARISE OUT OF THE ACTIONS OF
      COC, OR THIRD PARTIES OR ARISE OTHERWISE). 

     

    COC
      AGREES TO INDEMNIFY AND HOLD DOMAIN HARMLESS FROM AND AGAINST ALL COSTS,
      EXPENSES, LOSSES AND LIABILITIES INCURRED BY DOMAIN IN CONNECTION WITH ANYTHING
      SET OUT IN THE PARAGRAPH ABOVE OR IN CONNECTION WITH THE NET PROFITS INTEREST,
      THIS AGREEMENT, OR THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR
      DEFENSE THEREOF OR HEREOF) AT ANY TIME ASSOCIATED WITH OR CONTEMPLATED IN
      ANYTHING SET OUT IN THE PARAGRAPH ABOVE. THE INDEMNITY SET OUT IN THIS ARTICLE
      21 SHALL ALSO COVER ALL REASONABLE COSTS AND EXPENSES OF DOMAIN, INCLUDING
      REASONABLE LEGAL FEES AND EXPENSES, WHICH ARE INCURRED INCIDENT TO THE MATTERS
      INDEMNIFIED AGAINST. AS USED IN THIS ARTICLE 21, “DOMAIN” MEANS DOMAIN AND ITS
      SUCCESSORS AND ASSIGNS, ITS AFFILIATES, AND ALL OF THE OFFICERS, DIRECTORS,
      AGENTS, BENEFICIARIES, TRUSTEES, ATTORNEYS AND EMPLOYEES OF DOMAIN AND ITS
      AFFILIATES.

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    THE
      INDEMNITY SET OUT IN THIS ARTICLE 0 SHALL APPLY WHETHER OR NOT ARISING OUT
      OF
      THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF DOMAIN
      AND SHALL APPLY, WITHOUT LIMITATION, TO ANY LIABILITY IMPOSED UPON DOMAIN AS
      A
      RESULT OF ANY THEORY OF STRICT LIABILITY OR ANY OTHER DOCTRINE OF
      LAW,
      PROVIDED
      THAT THE INDEMNITY SET OUT IN THIS ARTICLE 0 SHALL NOT APPLY TO ANY COSTS,
      EXPENSES, LOSSES OR LIABILITIES INCURRED BY DOMAIN TO THE EXTENT PROXIMATELY
      CAUSED SOLELY BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF DOMAIN. THE
      INDEMNITY SET OUT IN THIS ARTICLE 0 SHALL SURVIVE THE TERMINATION OF THE NET
      PROFITS INTEREST AND OF THIS AGREEMENT AND THE OTHER DOCUMENTS RELATED
      HERETO.

     

    COUNTERPARTS

     

    This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, and all of which taken together shall constitute one
      agreement.

     

    JOINT
      ACKNOWLEDGEMENT

     

    THIS
      WRITTEN AGREEMENT AND THE OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH
      REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
      BY
      EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
      PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
      PARTIES.

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      this
      Agreement is executed as of the date first above written, but is effective
      as of
      the Effective Date.

     

    
      	DOMAIN
              DEVELOPMENT PARTNERS I, LP	 	 
	 	 
	By: ___________________________________________________
              ,	 
	
              Its
                General Partner, Domain Energy Partners, LP

            	 
 	 
 

    
      	 	 	 
	By: ___________________________________________________
              	 
	
              Name:

              Title:

            	 
 	 
 
	 	 

    

    
      	 	 	 
	COC
              OPERATING COMPANY	 
	 
 	 
 	 
 
	By: ___________________________________________________
              	 	 
	
              Name:

              Title:

            	
            
	 	 

    

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    Exhibit
      A

     

    The
      Contract Area

     

    

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A-1

     

    
      

    

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    

    
      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

    

     

    

     

    
      
        
          
            
            

          

          
            32

            
              

            

          

          
            
            

          

        

      

    

     

    Exhibit
      B

     

    Computations

     

    Adjustments
      to Gross Proceeds

    

    (a) If
      any
      gas is processed before the sale thereof, the amount of the Gross Proceeds
      for
      such gas shall be the Gross Proceeds for the sale of COC's proportionate share
      of the residue gas and liquid hydrocarbons attributable to the processed gas
      as
      determined by the processing agreement, if any, covering such gas or, if there
      is no gas processing agreement in place, COC's proportionate share of the
      wellhead volume multiplied by the Btu content.

    

    (b) There
      shall be excluded any amount for Hydrocarbon Production attributable to
      non-consent operations conducted with respect to any Subject Property as to
      which COC shall be a non-consenting party and which is dedicated to the
      recoupment or reimbursement of costs and expenses of the consenting party or
      parties by the terms of the relevant operating agreement, unit agreement,
      contract for development or other agreement providing for such non-consent
      operations. Similar amounts received from non-consenting third parties shall
      be
      included in Gross Proceeds.

    

    (c) If
      a
      controversy or possible controversy exists (whether by reason of any statute,
      order, decree, rule, regulation, contract or otherwise) between COC and any
      purchaser or any other third party as to the correct sales price or sales volume
      or COC proportionate share thereof of any Hydrocarbon Production produced from
      a
      Subject Property or as to the correct ownership of a Subject Property, then,
      amounts withheld by the purchaser or any such third party shall not be
      considered to be received by COC or part of the Gross Proceeds until actually
      collected by COC or the production there from.

    

    (d) Gross
      Proceeds shall not include the value of any Hydrocarbon Production unavoidably
      lost or used in operations on any Subject Property and plant operations
      (including gas injection, compression, treating, transporting, secondary
      recovery, pressure maintenance, repressuring, recycling operations, plant fuel
      or shrinkage).

    

    (e) There
      shall be excluded from Gross Proceeds any royalties, overriding royalties,
      production payments, and other burdens on the Hydrocarbon Production produced
      from the Subject Properties of record on or before _________________; provided
      however, if COC acquires an additional interest in a Subject Property after
      such
      date, then all royalties, production payments, and other burdens on such
      interest shall also be excluded from Gross Proceeds.

    

    (f) Subject
      to (b) above, there shall be excluded from Gross Proceeds any revenues received
      by COC that are attributable to the net revenue interests of other working
      interest owners on the Hydrocarbon Production produced from any Subject
      Property.

    

    (g) There
      shall be excluded from Gross Proceeds any amounts received by COC from a
      purchaser of Hydrocarbon Production as advance payments and payments pursuant
      to
      take-or-pay and similar provisions of sales contracts until such Hydrocarbon
      Production is actually produced and delivered to such purchaser.

    

    (h) During
      any month when COC is, for any Subject Property, an Overproduced Party or an
      Underproduced Party under any gas balancing arrangement, there shall be included
      in Gross Proceeds amounts received by COC from a purchaser of Hydrocarbon
      Production or an Overproduced Party as and when paid to COC and when COC is
      required to make settlement in cash for any net overproduction, such payment
      shall be deducted from the Gross Proceeds, if any.

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    

    (i) To
      the
      extent allocable to the Subject Properties, refunds of revenues previously
      included as Gross Proceeds for such Subject Property required to be made by
      COC
      (including any interest thereon or penalties) as a result of the bankruptcy,
      insolvency or similar condition of a purchaser of production or other party,
      an
      order of the Federal Energy Regulatory Commission, tax, or other governmental
      unit or any other legal reason shall be deducted from Gross
      Proceeds.

    

    (j) If
      COC is
      an Overproduced Party on such Subject Property under any gas balancing
      arrangement and COC is required to make settlement in cash for any net
      overproduction, such payment shall be deducted from the Gross Proceeds for
      such
      Subject Property.

    

    (k) To
      the
      extent allocable to a Subject Property, any amounts paid by COC as a prudent
      owner or operator, whether as refund, interest or penalty, to a purchaser
      because the amount initially received by COC as sales price attributable to
      Hydrocarbon Production Produced after the Effective Date for such Subject
      Property was more or allegedly more than permitted by the terms of any
      applicable contract, statute, regulation, order, decree or other obligation
      shall be deducted from Gross Proceeds.

    

    (m) Insurance
      proceeds received by COC relating to any Subject Property if the proceeds
      therefore relate to costs which shall have been included in Production Costs
      shall be included in Gross Proceeds.

    

    Calculation
      of Production Costs

    

    Definitions:

    

    "First
      Level Supervisors" means those employees whose primary function in Operations
      is
      the direct supervision of other employees and/or contract labor directly
      employed on the Subject Properties in a field operating capacity.

    

    "Material"
      means personal property, equipment or supplies acquired or held for use on
      the
      Subject Properties.

    

    "Operations"
      means all operations necessary for the development, operation, protection and
      maintenance of the Subject Properties.

    

    "Operator"
      means COC.

    

    "Personal
      Expenses" means travel and other reasonable reimbursable expenses of Operator's
      employees.

    

    "Technical
      Employees" means those employees having special and specific engineering,
      geological or other professional skills and whose primary function in Operations
      is the handling of specific operating conditions and problems for the benefit
      of
      the Subject Properties.

    

    (a) Direct
      Charges:
      The sum
      of:

    

    Ecological
      and Environmental.
      Costs
      incurred for the benefit of the Subject Properties as a result of governmental
      or regulatory requirements to satisfy environmental considerations applicable
      to
      the Operations. Such costs may include surveys of an ecological or
      archaeological nature and pollution control procedures as required by applicable
      laws and regulations.

    

    Rentals
      and Royalties.
      Lease
      rentals and royalties paid by Operator for the Operations.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Labor

    

    
      	1.  	
              Salaries
                and wages of Operator's field employees directly employed on the
                Subject
                Properties in the conduct of
                Operations.

            

    

    

    
      	2.  	
              Salaries
                of First Level Supervisors in the
                field.

            

    

    

    Expenditures
      or contributions made pursuant to assessments imposed by governmental authority
      which are applicable to Operator's costs for the personnel set out above and
      which are chargeable to the parties to the applicable joint operating agreement
      related to the Subject Properties ("JOA").

    

    Personal
      Expenses of those employees set out above whose salaries and wages are
      chargeable to the parties to the applicable JOA.

    

    Employee
      Benefits.
      Operator's current costs or established plans for employees' group life
      insurance and hospitalization, for the employees set out above, applicable
      to
      Operator's labor cost chargeable to the parties to the applicable JOA, shall
      be
      Operator's actual cost. 

    

    Material.
      Material
      purchased or furnished by Operator for use on the Subject Properties. Only
      such
      Material shall be purchased for or transferred to the Subject Properties as
      may
      be required for immediate use and is reasonably practical and consistent with
      efficient and economical operations. The accumulation of surplus stocks shall
      be
      avoided.

    

    Transportation.
      Transportation
      of employees and Material necessary for the Operations but subject to the
      following limitations:

    

    
      	A.  	
              If
                Material is moved to the Subject Properties from the Operator's warehouse
                or other properties, no charge shall be made for a distance greater
                than
                the distance from the nearest reliable supply store where like material
                is
                normally available or railway receiving point nearest the Subject
                Properties unless agreed to by the
                Parties.

            

    

    

    
      	B.  	
              If
                surplus Material is moved to Operator's warehouse or other storage
                point,
                no charge shall be made for a distance greater than the distance
                to the
                nearest reliable supply store where like material is normally available,
                or railway receiving point nearest the Subject Properties unless
                agreed to
                by the Parties. No charge shall be made for moving Material to other
                properties belonging to Operator, unless agreed to by the
                Parties.

            

    

    

    
      	C.  	
              The
                option to equalize or charge actual trucking cost is available when
                the
                actual charge is $400
                or
                less excluding accessorial charges. The $400
                will be adjusted to the amount most recently recommended by the Council
                of
                Petroleum Accountants Societies.

            

    

    

    Services.
      The
      cost of contract services, equipment and utilities provided by outside sources,
      except excluded services. The cost of professional consultant services and
      contract services of technical personnel directly engaged on for the benefit
      of
      the Subject Properties if such charges are excluded from the overhead rates.
      

    

    Equipment
      and Facilities Furnished By Operator.

    

    
      	A.  	
              Operator
                shall charge for the use of Operator-owned equipment and facilities
                at
                rates commensurate with costs of ownership and operation. Such rates
                shall
                include costs of maintenance, repairs, other operating expense, insurance,
                taxes, depreciation, and interest on gross investment less accumulated
                depreciation not to exceed twelve & one-half percent (12.5%) per
                annum. Such rates shall not exceed average commercial rates currently
                prevailing in the immediate area of the Joint Property. In no event
                shall
                the rates charged for Operator-owned equipment or facilities exceed
                the
                then-current fair market value of such equipment or
                facilities.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    In
      lieu
      of charges above Operator may elect to use average commercial rates prevailing
      in the immediate area of the Subject Properties. For automotive equipment,
      Operator may elect to use rates published by the Petroleum Motor Transport
      Association. 

    

    other
      allocated and direct costs to the Subject Properties including but not
      limited:

    

    
      	1.  	
              contract
                and professional services; 

            

    

    
      	2.  	
              materials,
                supplies, fuel, water, and treating
                chemicals;

            

    

    
      	3.  	
              salt
                water disposal;

            

    

    
      	4.  	
              all
                costs associated with processing, treating, compressing, marketing
                and
                transporting oil and natural gas produced from the Subject
                Properties.

            

    

    
      	5.  	
              well
                and lease repairs and maintenance including workovers and pulling
                expense;

            

    

    
      	6.  	
              transportation
                including boats, aircraft, and other vehicles;

            

    

    
      	7.  	
              safety
                and environmental costs including spill
                cleanup;

            

    

    
      	8.  	
              the
                costs of secondary recovery, pressure maintenance, repressuring,
                recycling, and other operations used to enhance
                production;

            

    

    
      	9.  	
              insurance
                including workman's compensation, general liability, and the costs
                of
                certificates of responsibility, performance bonds or letters of credit;
                

            

    

    
      	10.  	
              other
                miscellaneous costs of operating, producing, and maintaining the
                well
                furnished by Operator or on behalf of Operator;
                and

            

    

    
      	11.  	
              costs
                incurred for claims, demands or litigation relating to property damage,
                including environmental damages, spills, clean-up and remediation,
                personal injury or death, or claims, demands or litigation brought
                by
                third parties, including governmental or regulatory
                authorities.

            

    

     

    Damages
      and Losses to the Subject Properties.
      All
      costs or expenses necessary for the repair or replacement of the Subject
      Properties made necessary because of damages or losses incurred by fire, flood,
      storm, theft, accident, or other cause, except those resulting from Operator's
      gross negligence or willful misconduct. Operator shall furnish the Parties
      written notice of damages or losses incurred as soon as practicable after a
      report thereof has been received by Operator.

    

    Legal
      Expense.
      Expense
      of handling, investigating and settling litigation or claims, discharging of
      liens, payment of judgments and amounts paid for settlement of claims incurred
      in or resulting from Operations under the JOA or necessary to protect or recover
      the Subject Properties.

    

    Taxes.
      All
      taxes of every kind and nature assessed or levied upon or in connection with
      the
      Subject Properties, the Operations, or the production therefrom, and which
      taxes
      have been paid by the Operator..

    

    Insurance.
      Net
      premiums paid for insurance required to be carried for the Operations for the
      protection of the Subject Properties. In the event Operations are conducted
      in a
      state in which Operator may act as self-insurer for worker's compensation and/or
      employers liability under the respective state's laws, Operator may, at its
      election, include the risk under its self-insurance program and in that event,
      Operator shall include a charge at Operator's cost not to exceed manual
      rates.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Communications.
      Cost of
      acquiring, leasing, installing, operating, repairing and maintaining
      communication systems, including radio and microwave facilities directly serving
      the Subject Properties. In the event communication facilities/systems serving
      the Subject Properties are Operator owned, charges shall be made as provided
      in
      Paragraph viii.

    

    Other
      Expenditures.
      Any
      other expenditure not covered or dealt with in the foregoing provisions and
      which is of direct benefit to the Subject Properties and is incurred by the
      Operator in the necessary and proper conduct of the Operations.

    

    
      	(b)  	
              Overhead
                

            

    

    

    
      	(i)  	
              Overhead
                - Drilling and Producing Operations.
                As compensation for administrative, supervision, office services
                and
                warehousing costs, Operator shall charge drilling and producing operations
                on a Fixed Rate Basis, as set out in Paragraph (b)(iii)(A) below.
                

            

    

    

    Unless
      otherwise agreed to by the Parties, such charge shall be in lieu of costs and
      expenses of all offices and salaries or wages plus applicable burdens and
      expenses of all personnel, except those directly chargeable under Paragraph
      (a)(iii)A above. The cost and expense of services from outside sources in
      connection with matters of taxation, traffic, accounting or matters before
      or
      involving governmental agencies shall be considered as included in the overhead
      rates provided for in the Fixed Rate unless otherwise agreed to by the Parties
      in writing..

    

    
      	(ii)  	
              The
                salaries, wages and Personal Expenses of Technical Employees and/or
                the
                cost of professional consultant services and contract services of
                technical personnel directly employed on the Subject Properties shall
                not
                be covered by the overhead rates.

            

    

    

    
      	(iii)  	
              The
                salaries, wages and Personal Expenses of Technical Employees or other
                Operator personnel and/or costs of professional consultant services
                and
                contract services of technical personnel either temporarily or permanently
                assigned to and directly employed in the operation or for the benefit
                of
                the Subject Properties shall not be covered by the overhead
                rates.

            

    

    

    
      	A.  	
              Overhead
                - Fixed Rate Basis

            

    

    

    
      	1.  	
              Operator
                shall charge the following rates per well per
                month:

            

    

    

    Drilling
      Well Rate $ [to be determined by JOA] 

          (Prorated
      for less than a full month)

    

    Producing
      Well Rate $ 
      [to be
      determined by JOA] 

    

    
      	2.  	
              Application
                of Overhead - Fixed Rate Basis shall be as
                follows:

            

    

    

    
      	i.  	
              Drilling
                Well Rate

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	(a)  	
              Charges
                for drilling wells shall begin on the date the well is spudded and
                terminate upon completion of the well except that no charge shall
                be made
                during suspension of drilling or completion operations for fifteen
                (15) or
                more consecutive calendar days.

            

    

    

    
      	(b)  	
              Charges
                for wells undergoing any type of workover or recompletion for a period
                of
                five (5) consecutive work days or more shall be made at the drilling
                well
                rate. Such charges shall be applied for the period from date workover
                operations, with rig or other units used in workover, commence through
                date of rig or other unit release, except that no charge shall be
                made
                during suspension of operations for fifteen (15) or more consecutive
                calendar days.

            

    

    

    
      	ii.  	
              Producing
                Well Rates

            

    

     

    
      	(a)  	
              An
                active well either produced or injected into for any portion of the
                month
                shall be considered as a one-well charge for the entire
                month.

            

    

    

    
      	(b)  	
              Each
                active completion in a multi-completed well in which production is
                not
                commingled down hole shall be considered as a one-well charge providing
                each completion is considered a separate well by the governing regulatory
                authority.

            

    

    

    
      	(c)  	
              An
                inactive gas well shut in because of overproduction or failure of
                purchaser to take the production shall be considered as a one-well
                charge
                providing the gas well is directly connected to a permanent sales
                outlet.

            

    

    

    
      	(d)  	
              A
                one-well charge shall be made for the month in which plugging and
                abandonment operations are completed on any well. This one-well charge
                shall be made whether or not the well has produced except when drilling
                well rate applies.

            

    

    

    
      	(e)  	
              All
                other inactive wells (including but not limited to inactive wells
                covered
                by unit allowable, lease allowable, transferred allowable, etc.)
                shall not
                qualify for an overhead charge.

            

    

    

    
      	3.  	
              The
                well rates shall be adjusted as of the first day of April each year
                following the effective date of the agreement to which this Exhibit
                is
                attached. The adjustment shall be computed by multiplying the rate
                currently in use by the percentage increase or decrease in the average
                weekly earnings of Crude Petroleum and Gas Production Workers for
                the last
                calendar year compared to the calendar year preceding as shown by
                the
                index of average weekly earnings of Crude Petroleum and Gas Production
                Workers as published by the United States Department of Labor, Bureau
                of
                Labor Statistics. The adjusted rates shall be the rates currently
                in use,
                plus or minus the computed
                adjustment.

            

    

    

    
      	(a)  	
              Where
                production costs incurred for the benefit of a Subject Property also
                benefit other wells or properties, COC will allocate charges on an
                equitable and consistent basis.

            

    

    

    
      	(b)  	
              Production
                Costs for the Subject Properties shall not include:
                

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	(i)  	
              amounts
                related to a Subject Properties which are applicable to operations
                prior
                to the Effective Date for such Subject
                Property;

            

    

    
      	(ii)  	
              general
                and administrative costs that are not covered by the provisions of
                this
                Exhibit "B"; 

            

    

    
      	(iii)  	
              depreciation,
                depletion, or amortization; and

            

    

    
      	(iv)  	
              The
                value of any equipment removed from a Subject
                Property.

            

    

    

    (c) Any
      increased costs or liabilities that are borne by COC as a result of its being
      a
      consenting party in non-consent operations on a Subject Property shall be deemed
      to be allocable to or applicable to such Subject Property.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      C

     

    Financial
      Accounting Procedure

     

    The
      purpose of this Accounting Procedure is to establish equitable methods for
      determining financial information applicable to the Parties under the Agreement
      and to ensure the necessary and appropriate exchange of data by and between
      the
      Parties.

    

    
      	1.	
              Accounting
                Reporting 

            

    

    For
      so
      long as Domain may be entitled to receive any NPI Payment hereunder, COC shall
      provide to such Provider, on or before the last day of each Month, the
      information contained within the monthly joint interest billing report (“JIB”)
      generated by COC and provided to each working interest owner for the Contract
      Area (or the equivalent information contained in any successor document) for
      the
      immediately preceding Month including, but not limited to, Hydrocarbon
      Production, total revenues attributable to such Hydrocarbon Production, royalty
      and overriding royalty payments and severance taxes. COC shall also provide
      to
      Domain total well completion and construction costs on an ongoing basis, as
      appropriate.

     

    
      	2.	
              Accounting
                Adjustments

            

    

    In
      the
      event that the data provided by the Parties pursuant to Article 1 above requires
      any adjustment to accurately reflect the Party’s
      respective costs incurred for the Subject Properties, such Party shall promptly
      notify the other of such adjustment and provide revised information. The Parties
      shall make every reasonable effort to minimize the adjustments made to data
      previously provided to each other and to ensure the accuracy of such data within
      three (3) months of initially reporting such data. 

     

    
      	3.	
              Domain
                Payments

            

    

    NPI
      Payments earned by Domain under the terms of this Agreement shall be paid in
      accordance with the provisions of Article 4 and shall be paid to Domain in
      accordance with the following wire instructions:

     

    Domain

     

    
      	4	
              Audit
                Rights

            

    

    Domain
      shall have the continuing right and option to audit the books and records of
      COC
      covering the Contract Area after reasonable request therefore for two (2) years
      following the end of any Month during which Domain reasonably believes it would
      be entitled to receive a NPI Payment from COC. Domain shall be responsible
      for
      the full cost of the audit. The initial audit, should Domain elect to conduct
      such an audit, shall be conducted no sooner than one (1) year after the
      Effective Date of this Agreement. 

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    EXHIBIT
      D

     

    Form
      of Assignment of Net Profits Interest

     

    EXHIBIT
      E

    

    MORTGAGE,
      ASSIGNMENT OF

    PRODUCTION
      AND SECURITY AGREEMENT

    

    Date:

    

    Grantor:

    

    (List
      Owners) (the “Owners”), acting through their duly authorized agent for such
      purpose, COC.

    

    Grantor's
      Mailing Address (including county):

    

    Grantee:

    

    Domain
      Development Partners I, LP

    

    Grantee's
      Mailing Address (including county):

    

    10000
      Memorial Drive

    Suite
      550

    Houston,
      Tx 77024

    

    Secured
      Obligations:

    

    COC’s
      obligation to make NPI and Finance Payments to Grantee under that certain
      Funding Agreement dated [_______________________] (as from time to time amended,
      modified or restated, the “Agreement”),
      by
      and between COC and Grantee and becoming due prior to abandonment of the
      Property.

    

    Property:

    

    All
      of
      Grantor's right, title and interest, now owned or hereafter acquired, in and
      to
      the following:

    

    
      	1.  	
              the
                _________ [describe well] (the "Well")
                and the wellbore of the Well;

            

    

    

    
      	2.  	
              the
                lands
                described (which term shall include any lands the description of
                which is
                incorporated therein by reference to another document) on Exhibit
                A
                attached hereto and hereby made a part hereof, and all lands now
                or
                hereafter unitized or pooled with any lands described in Exhibit
                A
                (collectively, the "Lands"),
                but
                insofar and only insofar as
                the Lands are necessary to reasonably operate, maintain and produce,
                receive, sell or otherwise dispose of all oil, gas or other hydrocarbons
                produced through the wellbore of the
                Well;

            

    

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    

    
      	
            	3.	
              the
                oil and gas leases, oil, gas and mineral leases, fee interests, mineral
                interests, working interests, overriding royalty interests, royalty
                interests and other interests described in Exhibit
                A
                or
                covering or relating to any of the Lands or any of the same as they
                may be
                enlarged by the discharge of any payments out of production or by
                the
                removal of any charges or encumbrances to which any of the same are
                subject (collectively, the “Interests”)
                but insofar and only insofar as
                the Interests are necessary to reasonably operate, maintain and produce,
                receive, sell or otherwise dispose of all oil, gas or other hydrocarbons
                produced through the wellbore of the
                Well;

            

    

    

    
      	
            	4.	
              all
                operating, unitization and pooling agreements and orders now or hereafter
                existing and the properties covered and the units created thereby
                (including all units formed under acts of any governmental agency)
                which
                are described on Exhibit
                A
                or
                cover or relate to any of properties, rights and interests described
                in
                clauses 1, 2 or 3 above;

            

    

    

    
      	
            	5.	
              all
                oil, gas, casinghead gas and other liquid or gaseous hydrocarbons
                (collectively, "Hydrocarbons")
                which are in, under, upon, produced or to be produced from the
                Lands;

            

    

    

    
      	
            	6.	
              all
                contracts for the sale, purchase, transportation, exchange or processing
                of Hydrocarbons produced from the Lands or the
                Interests;

            

    

     

    
      	
            	7.	
              all
                subleases, farmout agreements, assignments of interest, assignments
                of
                operating rights, contracts, operating agreements, rights-of-way,
                franchises, privileges, permits, licenses, easements, tenements,
                hereditaments, appurtenances and benefits now existing or in the
                future
                obtained and incident and appurtenant to any of the
                foregoing;

            

    

    

    
      	
            	8.	
              all
                lease records, well records and production records which relate to
                any of
                the foregoing;

            

    

    

    
      	
            	9.	
              all
                of the personal property (surface and subsurface) now or hereafter
                located
                on or under any of the Lands; and

            

    

    

    
      	
            	10.	
              all
                proceeds and products from any of the foregoing, including, but not
                limited to, accounts, contract rights and general
                intangibles.

            

    

    

    Prior
      Liens (including recording information):

    

    [Insert,
      if any]

    

    Other
      Exceptions to Conveyance and Warranty:

    

    [Insert,
      if any]

    

    For
      value
      received and to secure payment and performance of the Secured Obligations,
      Grantor does hereby MORTGAGE the Property to Grantee and grants to Grantee
      a
      POWER OF SALE (pursuant to this Mortgage and applicable law). Grantor agrees
      to
      defend title to the Property against the claims and demands of all persons
      claiming the same or any part thereof, through or under the Grantor, but not
      otherwise. If Grantor pays and performs all of the Secured Obligations and
      its
      obligations hereunder, this Mortgage, Assignment of Production and Security
      Agreement (this “Mortgage”)
      shall
      have no further effect, and Grantee shall promptly release it at Grantees’ sole
      expense.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Grantor's
      Obligations:

     

    Grantor
      agrees to:

    

    1. keep
      the
      Property in good repair and condition;

    2. pay
      all
      taxes and assessments on the Property when due;

    3. preserve
      the lien's priority as it is established in this Mortgage;

    4. observe
      and comply with all of the terms and provisions of all oil, gas and mineral
      leases and other agreements relating to the Property;

    5. develop
      and operate the Property in accordance with sound field practices, applicable
      operating agreements and all applicable legal requirements; and

    6. if
      this
      is not a first lien, pay all prior lien notes and abide by all prior lien
      instruments.

    

    Grantee's
      Rights:

    

    
      	1.  	
              If
                Grantor fails to perform any of Grantor's obligations, Grantee may
                perform
                those obligations and be reimbursed by Grantor on demand at the place
                where the Secured Obligations are payable for any sums so paid, including
                attorney's fees, plus interest on those sums from the dates of payment
                at
                the rate stated in the Contract for unpaid, past due amounts. The
                sum to
                be reimbursed shall be secured by this
                Mortgage.

            

    

    

    
      	
            	2.	
              If
                Grantor defaults on the Secured Obligations or fails to perform any
                of
                Grantor's obligations or if default occurs on a prior lien note or
                other
                instrument, and the default continues after Grantee gives Grantor
                thirty
                (30) days written notice of the default and a thirty (30) day opportunity
                to cure, as may be required by law or by written agreement, then
                Grantee
                may:

            

    

     

    
      	
              a.  

            	declare
              the unpaid principal balance and earned interest on the Secured
              Obligations immediately due;

    

    
      	b.  	
              foreclose
                this lien on the Property, or any part thereof, in any manner permitted
                by
                applicable law;

            

    

    
      	c.  	
              exercise
                its rights of enforcement with respect to the personal property under
                the
                Uniform Commercial Code or any other statute in force in any state
                to the
                extent the same is applicable law;
                and

            

    

    
      	d.  	
              purchase
                the Property at any foreclosure sale by offering the highest bid
                and then
                have the bid credited against the Secured
                Obligations.

            

    

    

    Cumulative
      of the foregoing and the other provisions of this Mortgage:

    

    A
      POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
      GRANTEE TO TAKE THE PROPERTY AND SELL IT WITHOUT GOING TO COURT IF A FORECLOSURE
      ACTION UPON DEFAULT BY GRANTEE UNDER THIS MORTGAGE.

    

    Assignment
      of Production:

     

    Independent
      but cumulative of any and all other rights and remedies created by this
      Mortgage, Grantor assigns to Grantee:

    

    
      	1.  	
              all
                Hydrocarbons and other minerals, and the proceeds therefrom, produced
                and
                to be produced from the Property from and after 7:00 a.m., local
                time, on
                the first day of the first calendar month to begin after the date
                of this
                Mortgage;

            

    

    

    
      	2.  	
              all
                accounts and general intangibles and all proceeds payable to or to
                become
                payable to Grantor or to which Grantor is or becomes entitled under
                all
                gas sales contracts, all oil, distillate or condensate sales contracts,
                all gas transportation contracts and all gas processing contracts,
                present
                and future, relating to, or now or hereafter to become a part of,
                the
                Property; and

            

    

    

    
      	3.  	
              all
                amounts payable to or to become payable to Grantor from any part
                of the
                Property or under any contract, present or future, relating to any
                gas
                pipeline system or processing plant or unit now or hereafter constituting
                part of the Property.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Grantor
      authorizes and directs all parties purchasing or receiving Hydrocarbons from
      the
      Property or having in their possession any such production or the proceeds
      therefrom to pay and deliver the same to Grantee. Grantor authorizes Grantee
      to
      demand, receive and hold all of the foregoing and to execute and deliver, in
      the
      name of Grantor or of Grantee, any release, receipt, division order, payment
      order, transfer order, relinquishment or other instrument that may be necessary
      or advisable to collect and receive such production or the proceeds therefrom.
      No party making payment shall have any responsibility to see to the application
      of any funds paid to Grantee, but any such party shall be fully protected in
      making such payment to Grantee under this assignment. Should Grantee bring
      suit
      against any third party for collection of any amounts included within this
      assignment (and Grantee shall have the right to bring any such suit), it may
      sue
      in the name of Grantor or of Grantee. Grantee is absolved from all liability
      for
      failure to enforce collection of the proceeds of production and from all other
      responsibility in connection with this assignment, except the responsibility
      to
      account to Grantor for funds actually received.

    

    Security
      Agreement:

    

    In
      addition to creating a mortgage lien on all the real and other property
      described above, Grantor also grants to Grantee a security interest in all
      Property other than the realty pursuant to the Texas Uniform Commercial Code.
      In
      the event of a foreclosure sale under this Mortgage, Grantor agrees that all
      the
      Property may be sold as a whole at Grantee's option and that the Property need
      not be present at the place of sale.

    

    Grantee’s
      Interest:

    

    Notwithstanding
      anything to the contrary contained herein, Grantee agrees that in the event
      of
      any foreclosure or other exercise of remedies provided herein (a) Grantee is
      entitled to receive an amount equal to (i) seventy
      five percent (75%) of Grantor’s Net Profits until Payout and (ii) twenty five
      percent (25%) of Grantor’s Net Profits after Payout and up to two hundred
      percent (200%) (collectively “Grantee’s Interest”) and (b) Grantee will promptly
      reconvey to Grantor all Property other than the Grantee’s Interest that was
      subject to such sale or other exercise of remedies. As use in this section,
      the
      terms “Net Profits”, “Provider’s Percentage” and “Payout” shall have the meaning
      assigned to them in the Contract. 

    

    General
      Provisions:

    

    
      	
            	1.	
              Recitals
                in any deed conveying the Property after a foreclosure sale will
                be
                presumed to be true.

            

    

    
      	
            	2.	
              Proceeding
                under this Mortgage, filing suit for foreclosure, or pursuing any
                other
                remedy will not constitute an election of
                remedies.

            

    

    
      	
            	3.	
              This
                lien shall remain superior to liens later created even if the time
                of
                payment of all or part of the Secured Obligations is extended or
                part of
                the Property is released.

            

    

    
      	
            	4.	
              If
                any portion of the Secured Obligations cannot be lawfully secured
                by this
                Mortgage, payments shall be applied first to discharge that
                portion.

            

    

    
      	
            	5.	
              Grantor
                assigns to Grantee all sums payable to or received by Grantor from
                condemnation of all or part of the Property, from private sale in
                lieu of
                condemnation, and from damages caused by public works or construction
                on
                or near the Property. After deducting any expenses incurred, including
                attorney's fees, Grantee may release any remaining sums to Grantor
                or
                apply such sums to reduce the Secured Obligations. Grantee shall
                not be
                liable for failure to collect or to exercise diligence in collecting
                any
                such sums.

            

    

    
      	
            	6.	
              Interest
                on the debt secured by this Mortgage shall not exceed the maximum
                amount
                of nonusurious interest that may be contracted for, taken, reserved,
                charged, or received under law; any interest in excess of that maximum
                amount shall be credited on the principal of the debt or, if that
                has been
                paid, refunded. On any acceleration or required or permitted prepayment,
                any such excess shall be canceled automatically as of the acceleration
                or
                prepayment or, if already paid, credited on the principal of the
                debt or,
                if the principal of the debt has been paid, refunded. This provision
                overrides other provisions in this and all other instruments concerning
                the debt.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
            	8.	
              When
                the context requires, singular nouns and pronouns include the
                plural.

            

    

    
      	
            	9.
              	
              The
                term “Secured
                Obligations” includes
                all sums secured by this Mortgage.

            

    

    
      	
            	10.	
              This
                Mortgage shall bind, inure to the benefit of, and be exercised by
                successors in interest of all
                parties.

            

    

    
      	
            	11.	
              This
                Mortgage covers goods which are or are to become fixtures on the
                real
                property described therein, and this Mortgage shall be effective
                as a
                financing statement filed as a fixture filing with respect to all
                fixtures
                included within the Property.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	Grantor:
	 	 
	 	[list
              Owners]
	 
 	 
 	 
 
	 	By:  	 
	 	
              
COC

      	 	 	 
	 	
              By:  

               

              Name:

               

              Title: 

            	
               

              
                

              

               

              
                

              

               

              

            

    

    
THE
      STATE
      OF TEXAS        
                     §

    §

    

    This
      instrument was acknowledged before me on ____________________ ____, 20___,
      by
      ___________________________, __________________________________ of COC, a ______
      corporation, on behalf of said corporation.

    

    NOTARY
      STAMP BELOW:

     

    
      	 	 	 
	 	
              
Notary
              Public in and for the State of Texas
	 	 
	 	
               My commission expires:Unassociated Document

    Exhibit
      10.18

    

    

    

    

    PURCHASE
      AND SALE AGREEMENT

    

    BETWEEN

    

    TAG
      OPERATING COMPANY, INC.

    AND

    INLAND
      GAS CORPORATION

    As
      Sellers

    

    AND

    

    PACKARD
      GAS COMPANY

    As
      Buyer

    

    

    
 

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    This
      Purchase and Sale Agreement (“Agreement”) is between Tag Operating Company,
      Inc., a Texas corporation with an address of 7447 Harwin Drive, Suite 145,
      Houston, Texas 77036 and Inland Gas Corporation, a Texas corporation with an
      address of 7447 Harwin Drive, Suite 145, Houston, Texas 77036 (collectively,
      “Seller”), as sellers, and Packard Gas Company, a Texas corporation with an
      address of 2815 East Skelly Drive, Suite 823, Tulsa, Oklahoma 74105 (“Buyer”),
      as buyer, effective on October 1, 2005.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    WHEREAS,
      Seller owns properties located within the Orange Field (“Properties”) of Orange
      County, Texas (as the same is hereinafter defined);

    

    WHEREAS,
      Buyer desires to purchase from Seller, and Seller desires to sell to Buyer,
      all
      of Sellers interest in and to the Properties;

    

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

    

    ARTICLE
      1. DEFINITIONS

    

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

    

    
      	1.01        	
              Additional
                Instruments.
                The instruments executed by Buyer before and at Closing and delivered
                to
                Seller in connection with this
                transaction.

            

    

    

    
      	1.02     
                 	
              Ad
                Valorem Taxes.
                Defined in Section 9.01.

            

    

    

    
      	1.03        	
              Associated
                Parties.
                Successors, assigns, directors, officers, employees, agents, contractors,
                subcontractors, and affiliates.

            

    

    

    
      	1.04      
               	
              Base
                Purchase Price.
                The respective amount set forth in Section
                3.01.

            

    

    

    
      	1.05      
               	
              Properties.
                Sellers interest in the oil and gas leasehold estates or other interests
                set forth on Exhibit A-1, together with Sellers interest in the
                following:

            

    

    

    
      	(a)  	
              each
                Well located on the leases and land described in Exhibit
                A-1.

            

    

    

    
      	(b)  	
              the
                easements, permits, licenses, surface and subsurface leases, right-of-way,
                servitudes, and other surface and subsurface rights affecting the
                land and
                leases described in Exhibit A-1.

            

    

    

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

            

    

    

    
      	(d)  	
              The
                facilities and pipelines located pursuant to the rights described
                in (b)
                above and necessary to market the production from the
                Properties.

            

    

    

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

            

    

    

    
      	1.06        	
              Claim
                or Claims.
                Collectively, claims, demands, causes of action, and lawsuits asserted
                or
                filed by any person, including an artificial or natural person; a
                local,
                state, or federal governmental entity; a person holding rights under
                any
                Related Agreement; an Associated Party of Buyer or Seller; or a third
                party.

            

    

    

    
      	1.07     
                	
              Closing.
                The delivery of the conveyancing instruments and funds by the parties
                to
                close the purchase and sale of
                Properties.

            

    

    

    
      	1.08     
                	
              Closing
                Date.
                The date on which Closing is scheduled to and does
                occur.

            

    

    

    
      	1.09      
               	
              Effective
                Time.
                7
                a.m. local time where the interests are
                located.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	1.10  
                     	
              Environmental
                laws.
                Applicable federal, state and local laws, including statutes, regulations,
                orders and ordinances, previously or currently enacted or enacted
                in the
                future, and common law, relating to protection of public health,
                welfare,
                and the environment, including those laws relating to storage, handling,
                and use of chemicals and other hazardous materials; those relating
                to the
                generation, processing, treatment, storage, transport, disposal,
                cleanup,
                remediation, or management of waste materials or hazardous substances
                of
                any kind; and those relating to the protection of environmentally
                sensitive or protected areas. “Environmental Laws” includes the
                Comprehensive Environmental response, Compensation and Liability
                Act of
                1980, the Resource Conservation and Recovery Act of 1976, the Clean
                Water
                Act, the Safe Drinking Water Act, the Hazardous Materials Transportation
                Act, the Toxic Substance Control Act, and the Clean Air Act, as each
                is
                amended from time to time.

            

    

    

    
      	1.11     
                	
              Execution
                Date.
                The date on which the last of the parties executes this
                Agreement.

            

    

    

    
      	1.12      
               	
              Liability
                or
                Liabilities..
                Collectively, all damages (including consequential and punitive damages),
                including those for personal injury, death, or damage to personal
                or real
                property (both surface and subsurface) and costs for remediation,
                restoration, or clean up of contamination, whether the injury, death,
                or
                damage occurred or occurs on or off the Property by migration, disposal,
                or otherwise; losses; fines; penalties, expenses; costs to remove
                or
                modify facilities on or under the Property; plugging liabilities
                for all
                Wells; attorneys’ fees; court and other costs incurred in defending a
                Claim; liens; and judgments; in each instance, whether these damages
                and
                other costs are foreseeable or unforeseeable.

            

    

    

    
      	1.13        	
              NORM.
                Naturally
                occurring radioactive material.

            

    

    

    
      	1.14     
                	
              Oil.
                Crude oil, distillate, drip gasoline, condensate, and other liquid
                hydrocarbons.

            

    

    

    
      	1.15     
                	
              Permitted
                Encumbrances.
                (i) royalties, overriding royalties, reversionary interests, production
                payments and similar burdens which are in existence on the date here;
                (ii)
                sales contracts or other arrangements for the sale of production
                hydrocarbons which would not (when considered cumulatively with the
                matters discussed in clause (i) above) deprive the Buyer of any material
                right in respect of the Interests and Property (except for rights
                customarily granted with respect to such contracts and arrangements);
                (iii) statutory liens for taxes or other assessments that are not
                yet
                delinquent (or that, if delinquent, are being contested in good faith
                by
                appropriate proceedings, levy and execution thereon having been stayed
                and
                continue to be stayed; (iv) easements, rights of way, servitudes,
                permits,
                surface leases and other rights in respect to surface operations,
                pipelines, grazing, logging, canals, ditches, reservoirs or the like,
                conditions, covenants and other restrictions, and easements and rights
                of
                way on, over or in respect of the Interests and property and that
                do not
                individually or in the aggregate, cause a material adverse effect
                upon the
                operations or value of Interests and Property; and (v) rights reserved
                to
                or vested in any municipality, governmental, statutory or other public
                authority to control or regulate the Interests and Property in any
                manner,
                and all applicable laws, rules and orders from any governmental authority.
                

            

    

    

    
      	1.16     
                	
              Strict
                Liability.
                Includes strict statutory liability and strict products
                liability.

            

    

    

    
      	1.17     
                	
              Well
                or
                Wells.
                All
                wellbores, both abandoned and unabandoned, including oil wells, gas
                wells,
                injection wells, disposal wells, and water
                wells.

            

    

    

    ARTICLE
      2. PURCHASE AND SALE

    

    
      	
              2.01

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

            

    

    

    
      	(a)  	
              All
                of Seller’s right, title and interest in and to the
                Properties.

            

    

    

    ARTICLE
      3. PURCHASE PRICE

    

    
      	3.01  
               	
               Base
                Purchase Prices.
                The Base Purchase Price for the Properties is as
                follows:

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	(a)  	
              $2,500,000

            

    

    and
      is
      subject to adjustment only as provided in this Agreement.

     

    
      	
              3.02

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

            

    

    

    
      	(a)  	
              Increased
                by the following amounts:

            

    

    

    
      	
            	(i) 
              	
              The
                aggregate amount of all non-reimbursed amounts directly attributable
                to
                the operations and
                ownership of the properties incurred and paid in the ordinary course
                of
                business, exclusive of indirect amounts and overhead allocations,
                during
                the period from the respective Effective Time to the Closing
                Date;

            

    

    

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

            

    

    

    
      	(iii) 
              	
              Any
                other upward adjustment mutually agreed upon by the
                parities;

            

    

    

    
      	(b)  	
              Decreased
                by the following amounts:

            

    

    

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

            

    

    

    
      	(ii)  	
              The
                amount of any downward adjustment relating to Title Defects pursuant
                to
                Article 5;

            

    

    

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

            

    

    

    
      	(iv)  	
              The
                amount of any downward adjustment mutually agreed upon by the parties;
                and

            

    

    

    
      	(v)  	
              The
                Base Purchase Price shall be adjusted downward by the amount of $20,000
                per barrel of produced oil if the gross production volumes for a
                consecutive 30 day period (prior to the Closing Date), to be selected
                by
                the Seller, are less than 125 barrels of oil per day (3,750 barrels
                of oil
                in 30 days). An exception to this adjustment would be an occurrence
                or
                situation wherein production from the Properties is interrupted by
                circumstances beyond the control of Seller. In that event, the days
                and
                the respective volumes of the Interruption Period shall be excluded
                from
                the calculation of the production volumes. Seller shall give Buyer
                two (2)
                days notice prior to starting the 30 day period so that Buyer may
                monitor
                the production. 

            

    

    

    
      	
              3.03

            	
              Closing
                Settlement Statement.
                Seller shall provide to Buyer a closing settlement statement prior
                to
                Closing presenting adjustments to the Base Purchase Price for the
                respective Interests that are subject to this Section 3.03, which
                Closing
                Settlement Statement shall set out separately the adjustments applicable
                to the respective Interests. Prior to Closing, Buyer and Seller shall
                agree upon the Closing Settlement Statement which shall include
                adjustments, known as of the Closing Date, pursuant to Section 3.02
                hereof. The Closing Statement shall also set forth the allocation
                of the
                Purchase Price to the Seller.

            

    

    

    ARTICLE
      4. SELLER’S REPRESENTATIONS AND WARRANTIES

    

    
      	
              4.01

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

            

    

    

    
      	
              4.02

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

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              4.03

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

            

    

    

    
      	 	
              (a)

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

            

    

    

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

            

    

    

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

            

    

    

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

            

    

    

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

            

    

    

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

            

    

    

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

            

    

    

    
      	(e)        
                	
              No
                consent of any governmental body or other person is required to be
                made or
                obtained by Seller in connection with the execution, delivery and
                performance by Seller of this Agreement or any other Additional
                Instruments to which Seller is a party or the consummation by Seller
                of
                the transactions contemplated hereby and thereby.
                

            

    

    

    
      	
              4.04

            	
              Title
                to the Interests.
                Seller represents and warrants that it owns Defensible Title to the
                Interests as of the date this Agreement is executed and will convey
                to
                Buyer Defensible Title to the Interests on the Closing
                Date.

            

    

    

    ARTICLE
      5. TITLE AND TITLE DEFECTS

    

    
      	
              5.01

            	
              Title.
                Seller shall transfer title of the Interests to Buyer at Closing
                pursuant
                to an assignment substantially in the form of the Assignment attached
                hereto as Exhibit
                B,
                and said Assignment shall be adapted to the particular interest to
                be
                assigned and to conform to the provisions of Article 2 hereof. Seller
                will
                convey to Buyer Defensible Title to the Interests on the Closing
                Date.
                Seller shall execute as many Assignments as are necessary to file
                for
                record Assignments in each jurisdiction and with each governmental
                authority where necessary to effect conveyance of the Interests and/or
                notice of such conveyance. Buyer shall be entitled to satisfy itself
                prior
                to Closing that it will be receiving conveyance of Defensible Title
                to the
                Interests. Seller shall provide to Buyer full and complete access
                to its
                records and documents relating to the Interests. As used herein,
                the term
                “Defensible Title” shall mean, as to each of the Interests to be conveyed
                to Buyer, a net revenue interest which is not less, and a working
                interest
                which is not greater, than those set out in Exhibits
                A-1 and A-2
                hereto with respect to such Interests, and a title which is free
                and clear
                of liens, encumbrances, defects or environment Conditions, other
                than
                Permitted Encumbrances, which materially and adversely affect the
                value of
                such Interests. Any matter which causes an Interest not to have Defensible
                Title, and any environmental Condition, shall be considered to be
                a “Title
                Defect”. If Buyer determines that any Interest is subject to any Title
                Defects prior to Closing, Buyer shall notify Seller in writing describing
                the Title Defects, after which time, the parties shall meet and exercise
                their best efforts to determine the validity of the claimed Title
                Defect.
                Seller shall have until the Closing to cure the Title Defects to
                the
                satisfaction of the Buyer. If Seller is not able to cure the Title
                Defect
                to Buyer’s reasonable satisfaction prior to Closing, then Buyer in its
                sole discretion may either (a) reduce the Purchase Price by the Allocation
                for the Property(s) with a Title Defect, (b) allow Seller 90 days
                after
                Closing to cure the Title Defects, (c) waive the Title Defects, or
                (d)
                terminate this Agreement. Should a Title Defect be discovered after
                the
                Closing Date, Seller shall undertake to cure such Title Defect to
                Buyer’s
                reasonable satisfaction; failing cure thereof, Buyer shall have the
                right,
                but not the obligation, to re-assign the affected Interest to Seller
                following the provisions of Section 8.04 hereof as to the Property
                so
                affected.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              5.02

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

            

    

    

    ARTICLE
      6. PRE-CLOSING OBLIGATIONS

    

    
      	6.01        	
              Preferential
                Rights.

            

    

    

    
      	 	
              (a)

            	
              Notice.
                Seller will notify the owners, if any, of preferential rights to
                purchase
                the Properties.

            

    

    

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

            

    

    

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

            

    

    

    
      	6.02      
               	
              Third-Party
                Notifications and Approvals.
                The sale of the Interests may require the approval or consent of
                lessors,
                joint interest owners, farmors, sublessors, Sellers, grantors, parties
                to
                agreements, governmental bodies having jurisdiction, or other third
                parties. Seller is responsible for obtaining approvals from all applicable
                third parties and will furnish Buyer with proof of each consent,
                maintenance-of-uniform interest provisions, if any, from joint-interest
                owners. If Seller does not furnish Buyer with all third-party approvals
                applicable to any Interest, then Seller may, at its option, elect
                to (a)
                delay Closing as to any or all of the Interests, with no charge to
                either
                party for the delay, or (b) terminate this Agreement. To the extent
                any
                consent or approval is typically obtained after transfer of a given
                Interest, Seller agrees that it will exercise its best efforts to
                obtain
                such consent(s) or approval(s) within 30 days following the Closing,
                and
                in any event will obtain such consent(s) or approval(s) within the
                shortest time practicable after Closing. Buyer shall provide assistance
                to
                Seller’s efforts to obtain such consent(s) or
                approval(s).

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      7. CLOSING

    

    
      	
              7.01

            	
              Closing
                Date.
                The Closing Date will be on or before October 30, 2005. Closing under
                this
                Agreement shall occur at the offices of Capco Offshore, Inc, 5555
                San
                Felipe, Suite 725, Houston, TX 77056. If the parties agree, Closing
                may be
                handled by exchange of documents (by mail or by courier). No price
                adjustment will be made if Closing is
                delayed.

            

    

    

    
      	
              7.02

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

            

    

    

    
      	
              7.03

            	
              Seller’s
                Right to Delay Closing.
                In the event that production volumes have not averaged 125 BOPD for
                a
                consecutive 30 (thirty) day period by October 30, 2005 as defined
                in
                3.02(b)(v) hereinabove, Seller shall have the option to extend the
                Closing
                Date to November 30, 2005, with an Effective Date of November 1,
                2005, in
                order to qualify said production. Irrespective of this provision,
                Buyer
                may elect to close this transaction at any time by tendering the
                amount of
                the Base Purchase Price due, without adjustment for production
                volume.

            

    

    

    7.04       
       Closing
      Obligations.

    

    
      	 	
              (a)

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

            

    

    

    
      	 	
              (b)

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

            

      	 	 	 

    

    
      	(c)        
                	
              Closing
                Settlement Statements.
                Seller shall provide to Buyer Closing Settlement Statement, as same
                may
                have been revised pursuant to Section 3.02, including items such
                as Base
                Purchase Price and adjustments to the Base Purchase Price (if any),
                to the
                extent this information is available at Closing. Seller will use
                estimates
                in the respective closing settlement statements, to the extent that
                estimates are necessary, and may correct the estimates in the final
                settlement statement. 

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

            

    

    

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

            

    

    

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

            

    

    

    
      	(iii)  	
              Designation-of-Operator
                forms, or such other form as is required by governmental agencies
                with
                jurisdiction over the Properties.

            

    

    

    
      	(iv)  	
              Seller
                shall furnish Buyer with:

            

    

    

    
      	i.  	
              List
                of all pumping equipment and tankage for each
                lease

            

    

    

    
      	ii.  	
              List
                of all related equipment used on the lease premises such as all trucks,
                trailers, tractors, etc.

            

    

    

    
      	(v)  	
              The
                closing settlement statements.

            

    

    

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

            

    

    

    
      	(f)             	
              Payment
                to Seller.
                At Closing, (i) buyer will pay to Seller $2,000,000.00 and (ii) as
                to the
                net amount shown on Closing Settlement Statement, in Buyer’s sole and
                unfettered discretion Buyer will either (A) offset amounts due hereunder,
                (B) pay Seller, or (C) any combination of the above. Cash payments
                hereunder shall be made by certified check, cashier’s check, or funds
                transfer as that term is defined in Chapter 4 of the Texas Business
                and
                Commerce Code. The respective closing settlement statement amounts
                are
                subject to further adjustment after Closing as provided in this Agreement.
                

            

    

    

    
      	(g)            	
              Delivery
                of Possession.
                Subject to the terms of applicable joint operating agreements, if
                any, the
                Related Agreements, and this Agreement, Seller will deliver possession
                of
                the Properties to Buyer as soon as practicable after the Effective
                Time or
                the Closing Date, whichever is later.

            

    

    

    
      	
              7.05

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

            

    

    

    
      	
              7.06

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

            

    

    

    ARTICLE
      8. POST-CLOSING OBLIGATIONS

    

    
      	
              8.01

            	
              Filing
                and Recording.
                Buyer will file or record the conveyance documents by which the Interests
                will be conveyed from Seller to Buyer in the appropriate governmental
                records and will provide photocopies of the filed or recorded document,
                including the recording data, to Seller.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              8.02

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

            

    

    

    
      	
              8.03

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

            

    

    

    
      	
              8.04

            	
              Reassignment.
                Should Buyer elect to reassign any property(s) due to title defect
                or due
                to other causes as set forth herein, Buyer shall execute and deliver
                to
                Seller a reassignment, without warranty of any kind (title, fitness,
                condition). Seller shall release and discharge Buyer and its Associated
                Parties, covenant not to sue Buyer or its Associated Parties, and
                indemnify, defend, and hold Buyer and its Associated Parties harmless
                as
                to any Property(s) that are reassigned, and the reassignment instrument
                will reinstate Seller’s obligation.

            

    

    

    ARTICLE
      9. TAXES

    

    
      	
              9.01

            	
              Taxes.
                Any ad valorem, property, production, severance and similar taxes
                and
                assessments on said Interests shall be borne by Seller for all times
                prior
                to the Effective Time and by Buyer for all times after the Effective
                Time.

            

    

    

    ARTICLE
      10. OIL IN STORAGE, PROCEEDS, COSTS, EXPENSES, AND
      DISBURSEMENTS

    

    
      	
              10.01

            	
              Oil
                in Storage.
                All Oil in storage at the Effective Time, including working inventory,
                belongs to Seller. All storage tanks shall be gauged as of 7:00am,
                local
                time, or as close thereto as possible. Any oil so shown to be in
                storage
                shall be valued at the price last paid by purchases during the last
                month
                of sales, less any applicable taxes, royalties and/or other required
                payments. Seller shall have the right to have a representative present
                at
                the gauging of all tanks.

            

    

    

    
      	
              10.02

            	
              Proceeds,
                Costs, and Expenses.
                All proceeds, receipts, credits, income, and charges attributable
                to the
                Properties and accruing after the Effective Time will be Buyer’s property
                and responsibility. 

            

    

    

    
      	
              10.03

            	
              Notice
                to Remitters of Proceeds.
                Seller will make reasonable efforts to cause all remitters to remit
                proceeds to Buyer. Notice to the remitters that this transaction
                has
                closed shall occur by letter-in-lieu-of-transfer order or other documents
                required by each remitter. 

            

    

    

    ARTICLE
      11. ENVIRONMENTAL MATTERS

    

    
      	
              11.01

            	
              Acknowledgement
                Concerning Possible Contamination of the Interests and
                Property.
                Buyer and Seller are aware that the Interests and property have been
                used
                for exploration, development, and production of oil and gas and that
                there
                may be petroleum, produced water, wastes, or other materials located
                on or
                under the Properties. Equipment and sites included in the properties
                may
                contain asbestos, hazardous substances, or NORM. NORM may affix or
                attach
                itself to the inside of Wells, materials, and equipment as scale,
                or in
                other forms; the Wells, materials, and equipment located on the Properties
                may contain NORM and other wastes or hazardous substances; and
                NORM-containing material and other wastes or hazardous substances
                may have
                been buried, come in contact with the soil, or otherwise been disposed
                of
                on the Property. Special procedures may be required for the remediation,
                removal, transportation, or disposal of wastes, asbestos, hazardous
                substances, and NORM from the Interests and the Property. Buyer shall
                undertake, at its sole cost and expense an evaluation of the environmental
                status of the Properties and shall inform Seller should this evaluation
                reveal any deficiencies as to the environmental status of the Properties.
                Any deficiencies so noted by Buyer shall be treated in the same manner
                as
                a Title Defect and Seller and Buyer shall have the same obligations
                and
                remedies as set forth in Article 5
                hereinabove.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    ARTICLE
      12. BUYER’S REPRESENTATIONS AND COVENANTS

    

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

    

    
      	
              12.01

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

            

    

    

    12.02    
       Power
      and Authority; Authorization; Enforceability; No Conflicts; Etc.
      

    

    
      	 	
              (a)

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

            

    

    

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

    

    
      	 	
              (c)

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

            

    

    

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

            

    

    

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

            

    

    

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

            

    

    

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

            

    

    

    
      	12.03   
                	
              Securities
                Laws.
                

            

    

     

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

            

    

    

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

            

    

    

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

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    ARTICLE
      13. GAS IMBALANCES

    

    
      	
              13.01

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

            

    

    

    ARTICLE
      14. FINAL SETTLEMENT STATEMENT

    

    
      	14.01      	
              Preparation.
                Seller will prepare a final settlement statement relating to the
                Interests
                and submit it to Buyer within 90 days after the Closing Date. The
                final
                settlement statement will deduct royalties, operating expenses, taxes,
                overhead, and other amounts due to Seller from amounts due to Buyer
                as
                provided in this Agreement, with adjustments as necessary for items
                identified after Closing.

            

    

    

    
      	14.02      	
              Final
                Settlement.
                Buyer must respond in writing with objections and proposed corrections
                within thirty days of receiving the final settlement statement relating
                to
                the interests. If the parties cannot resolve their differences within
                ninety days of Seller’s receipt of Buyer’s objections, then the
                alternate-dispute-resolution and arbitration procedures of this Agreement
                will be triggered. If Buyer does not respond to the final settlement
                statement by signing or objecting in writing within the thirty-day
                period,
                the statement will be deemed approved by Buyer. After approval of
                said
                final settlement statement, Seller will send a check or invoice to
                Buyer
                for the net amount.

            

    

    

    ARTICLE
      15. BROKER’S AND FINDER’S FEES

    

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

    

    ARTICLE
      16. COMMUNICATIONS

    

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

    

    
      	
              Seller:

            	
              Buyer:

            
	 	 
	
              Tag
                Operating Company 

            	
              Packard
                Gas Company

            
	
              7447
                Harwin Drive, Suite 145

            	
              2815
                E. Skelly Drive, Suite 823

            
	
              Houston,
                Texas 77036

            	
              Tulsa,
                Oklahoma 74105

            
	 	 
	
              Inland
                Gas Corporation

            	 
	
              7447
                Harwin Drive, Suite 145

            	 
	
              Houston,
                TX 77036

            	 

    

    

    ARTICLE
      17. SELLER’S DEFAULT

    

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    ARTICLE
      18. HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS

    ACT
      OF 1976

    

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

    

    ARTICLE
      19. DEPOSIT

    

    Upon
      execution of this Agreement by all the Parties hereto, Buyer shall deliver
      a non
      refundable deposit in the amount of $500,000.00 to Seller. Said deposit shall
      be
      deducted from the Base Purchase Price as set forth in 3.01 above, at
      closing.

    

    

    ARTICLE
      20. MISCELLANEOUS

    

    
      	
              20.01

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

            
	 	 
	
              20.02

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

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

            
	 	 
	
              20.03

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

            
	 	 
	
              20.04

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

            
	 	 
	
              20.05

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

            
	 	 
	
              20.06

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

            
	 	 
	
              20.07

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

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              20.08

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

            
	 	 
	
              20.09

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

            
	 	 
	
              20.10

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

            
	 	 
	
              20.11

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

            
	 	 
	
              20.12

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

            
	 	 
	
              20.13

            	
              Conflicts.
                If the text of this Agreement conflicts with the terms of any exhibit
                to
                this Agreement, then the text of this Agreement will
                control.

            
	 	 
	
              20.14

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

            
	 	 
	
              20.15

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

            
	 	 
	
              20.16

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

            
	 	 
	
              20.17

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

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

            

    

    

     

    
      	
              Tag
                Operating Company, Inc.

              a
                Texas Corporation

            	 	
              Packard
                Gas Company

              a
                Texas Corporation

            
	 	 
	 
 	 
 	 
 
	By:
              	 	By: 
	
              
                

              

              Name:

              
                

              

            	
              
                

              

              James
                L. Alexander

              Land
&
Contracts

            
	
              Title:                                                   &#1
                60; 

              
                

              

              
              

            	Date: 
              _______________
	
              Date: 

              
                

              

            	 

    

     

    Inland
      Gas Corporation

    a
      Texas
      Corporation

     

    By:
      __________________________

    Name:
      ________________________

    Title:
      _________________________

    Date:
      _________________________

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      “B” 

    

    To
      that
      certain Purchase and Sale Agreement effective October 1, 2005 by and between
      Tag
      Operating Company, Inc. and Inland Gas Corporation, as Sellers, and Packard
      Gas
      Company, As Buyer

    

    ASSIGNMENT
      AND BILL OF SALE

    

    OF
      OIL, GAS AND MJNERAL LEASES

     

    NOTICE
      OF CONFIDENTIALITY RIGHTS: IF YOU ARE ANA TURAL PERSON, YOU MAY REMOVE OR STRIKE
      ANY OF THE FOLLOWING INFORMA TION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR
      RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S
      LICENSE NUMBER. 

     

    STATE
      OF TEXAS 

     

    KNOW
      ALL MEN BY THESE PRESENTS, THAT: 

     

    COUNTY
      OF HARRIS

     

    This
      Assignment and Bill of Sale of Oil, Gas and Mineral Leases (this "Assignment")
      is
      made
      effective as of 7:00 a.m. the 31st day of October, 2005 (hereinafter referred
      to
      as the "Effective
      Date"), by
      and
      between Tag Operating Company, Inc. whose mailing address is 7447 Harwin Drive,
      Suite 145, Houston, Texas 77036, and Inland Gas Corporation whose mailing
      address is 7447 Harwin Drive, Suite 145, Houston, Texas 77036 (hereinafter
      referred to as collectively as the" Assignor") and Packard Gas Company whose
      mailing address is 2815 East Skelly Drive, Suite 823, Tulsa, Oklahoma 74105,
      (hereinafter referred to as the" Assignee"). 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    I.

     

    NOW,
      THEREFORE,
      for and
      in consideration of the sum of Ten and No/100 Dollars ($10.00), cash in hand
      paid, and other good and valuable consideration, the receipt an sufficiency
      of
      which is hereby acknowledged Assignor does hereby BARGAIN, SELL, ASSIGN and
      TRANSFER unto Assignee, subject to all royalty and overriding royalty interests,
      any other outstanding interests, depth limitations or reassignment obligations,
      if any, that may now burden Assignor's interest covered by this Assignment,
      and
      the Production Payment hereinafter reserved, the following interests, all of
      which are hereinafter sometimes referred to as the "
      Assigned Interests", to-wit:
      

     

    
      	
              a.
                

            	
              All
                of Assignor's right, title and interest in and to the Oil, Gas and
                Mineral
                Leases described in Exhibit" A " attached hereto and incorporated
                herein
                by reference for a]l purposes (the "Leases"),
                including,
                but not limited to, all of Assignor's leasehold estate and working
                interests, reversionary interests, recoupment rights and any other
                interests whatsoever in, to and under the Leases, such Leases entitling
                Assignee to the Working Interests and Net Revenue Interests in Wells
                located thereon described on Exhibit " A " and as provided in that
                certain
                Asset Purchase Agreement dated March 11, 2005, with Assignor and
                Assignee
                as parties (the "Purchase Agreement") SAVE AND EXCEPT any overriding
                royalty interest, mineral interest pr royalty interest in and to
                lands
                covered by the Leases in favor of Assignor, which are expressly reserved
                and excepted herefrom; 

            

    

     

    
      	
              b.
                

            	
              All
                of Assignor's right, title and interest in and to (i) all of the
                personal
                property, fixtures and improvements now situated thereon or appurtenant
                thereto, and all other equipment, including, but not limited to,
                the
                tanks, gun barrels, pumping units, dehydrators, tubing, wellhead
                equipment, flowlines and compressors, if any and (ii) all wellbores
                on the
                lands covered by the Leases; 

            

    

     

    
      	
              c.
                

            	
              All
                of Assignor's right, title and interest in and to all valid and existing
                rights-of- way, easements, surface leases, permits, or licenses now
                or
                hereafter affecting the Assigned Interests;

            

    

     

    
      	
              d.
                

            	
              All
                of Assignor's right, title and interest in and to any amendments,
                ratifications, renewals or extensions of the Leases; and
                

            

    

     

    
      	
              e.
                

            	
              All
                of Assignor's right, title and interest in and to all oil, gas and
                other
                minerals that may be produced from all oil and/or gas wells located
                on the
                Assigned Interests subsequent to the Effective Date hereof.
                

            

    

     

    
      	
              f.
                

            	
              All
                of Assignor’s right. title and interest in and to all valid and subsisting
                contracts insofar and only insofar as they are related to or affecting
                the
                foregoing specifically enumerated interests assigned hereunder and
                the
                oil, gas and all other hydrocarbons reduced therefrom including without
                limitation all operating agreements, exploration agreements, unit
                agreements, facilities use agreements, gas sales contracts, oil or
                other
                hydrocarbon sales contracts, processing agreements, transportation
                agreements, division orders, and all other valid contracts of whatever
                nature, including any and all amendments thereto.
                

            

    

     

    II.

     

    Assignee,
      in consideration of the mutual benefits to be derived hereunder, and by its
      acceptance hereof, understands and agrees to the following terms and conditions:
      

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              a.
                

            	
              Assignee
                assumes proportionate responsibility for and agrees to plug and abandon
                each and every well located on the Assigned Interests and to restore
                the
                surface of the Assigned Interests in accordance with applicable
                governmental rules, regulations, laws and orders, and as may be required
                under the Leases or other agreements affecting the Assigned Interests
                and
                if there is any financial assurance required by any law, rule, or
                regulation, then Assignee shall secure anew financial assurance in
                the
                required amount, and supply it to the regulatory body requiring such
                financial assurance, to the end that Assignor's financial assurance
                shall
                be released and discharged. In the event Assignee fails to do any
                of the
                foregoing, Assignee agrees to release, indemnify, defend and hold
                harmless
                Assignor for all liability for such failure.

            

    

     

    
      	
              b.
                

            	
              Assignee
                hereby expressly assumes and agrees to be bound by and to perform
                all of
                the duties and obligations accruing after the Effective Date of this
                Assignment under the Leases or any agreement affecting the Assigned
                Interests proportionately attributable to the percentage interest
                herein
                assigned. ASSIGNEE, ITS SUCCESSORS AND ASSIGNS, HEREBY AGREES TO
                INDEMNIFY
                AND DEFEND ASSIGNOR, ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
                SUCCESSORS AND ASSIGNS, FROM AND AGAINST ALL CLAIMS, DEMANDS AND
                CAUSES OF
                ACTION, INCLUDING COSTS OF CLEAN-UP OR PLUGGING LIABILITIES FOR ANY
                AND
                ALL WELLS, BROUGHT BY ANY AND ALL PERSONS, INCLUDING (WITHOUT LIMIT
                A
                TION), ASSIGNEE'S AND ASSIGNOR'S EMPLOYEES, AGENTS, OR REPRESENTATIVES
                AND
                ALSO INCLUDING (WITHOUT LIMITATION) ANY PRIVATE CITIZENS, PERSONS,
                ORGANIZA TIONS, AND ANY AGENCY, BRANCH OR REPRESENT A TIVE OF FEDERAL,
                ST
                ATE OR LOCAL GOVERNMENT, ON ACCOUNT OF ANY PERSONAL INJURY OR DEA
                TH OR
                DAMAGE, DESTRUCTION, OR LOSS OF PROPERTY, CONTAMINATION OF NATURAL
                RESOURCE (INCLUDING SOIL, SURFACE WATER OR GROUND WATER) OR THE
                ENVIRONMENT, INCLUDING, WITHOUT LIMIT A TION, CLAIMS ARISING UNDER
                ENVIRONMENT AL LA WS RESULTING FROM OR ARISING OUT OF ANY LIABILITY
                CAUSED
                BY OR CONNECTED WITH THE PRESENCE, DISPOSAL OR RELEASE OF ANY MA
                TERIAL OF
                ANY KIND IN, ON OR UNDER THE ASSIGNED INTERESTS AT OR AFTER THE EFFECTIVE
                DA TE, WITHOUT REGARD TO ASSIGNOR'S (1) NEGLIGENCE, WHETHER SUCH
                NEGLIGENCE IS ACTIVE OR PASSIVE, JOINT, SOLE OR CONCURRENT, OR (2)
                STRICT
                LIABILITY. THIS INDEMNIFICA TION SHALL BE IN ADDITION TO ANY OTHER
                INDEMNITY PROVISIONS CONT AINED IN THIS ASSIGNMENT , AND IT IS EXPRESSL
                Y
                UNDERSTOOD AND AGREED THA T ANY TERMS OF THIS PARAGRAPH SHALL CONTROL
                OVER
                ANY CONFLICTING OR CONTRADICTING TERMS OR PROVISIONS CONT AINED ELSEWHERE
                IN THIS ASSIGNMENT . 

            

    

     

    
      	
              d.
                

            	
              The
                Assigned Interests have been utilized by Assignor for the purpose
                of
                exploration, development, and production of oil and gas. Assignee
                acknowledges that there may have been spills of crude oil and produced
                water or other material in the past on the Assigned Interests. In
                addition, some production equipment may contain asbestos and/or Naturally
                Occurring Radioactive Material (hereinafter referred to as "NORM").
                In
                this regard, Assignee expressly understands that NORM may affix or
                attach
                itself to the inside of the wells, materials and equipment as scale,
                or in
                other forms, and that said wells, materials and equipment located
                on the
                Assigned Interests may contain NORM and that NORM-containing material
                may
                be buried or otherwise disposed of on the Assigned Interests. Assignee
                also expressly understands that special procedures may be required
                for the
                removal and disposal of asbestos and NORM from the equipment and
                Assigned
                Interests where it may be found and that Assignee assumes all liability
                for assessment, removal and disposal of any such materials and associated
                activities. 

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              e.
                

            	
              ASSIGNEE
                UNDERSTANDS AND AGREES THAT THIS TRANSFER IS MADE ON AN "AS IS, WHERE
                IS",
                AND "WITH ALL FAULTS" BASIS AND ASSIGNEE RELEASES ASSIGNOR FROM ANY
                LIABILITY WITH RESPECT THERETO WHETHER OR NOT CAUSED BY OR ATTRIBUTABLE
                TO
                ASSIGNOR'S NEGLIGENCE EXCEPT AS OTHERWISE EXPRESSLY AGREED UPON IN
                WRITING
                BY ASSIGNOR OR AS PROVIDED IN THIS PARAGRAPH. WITHOUT LIMITING THE
                ABOVE,
                AND EXCEPT AS EXPRESSL Y PROVIDED IN THISASSIGNMENT, ASSIGNEE WAIVES
                ITS
                RIGHT TO RECOVER FROM ASSIGNOR AND FOREVER RELEASES AND DISCHARGES
                ASSIGNOR FROM ANY AND ALL DAMAGES, CLAIMS, LOSSES, LIABILITIES, PENAL
                TIES, FINES, LIENS, JUDGMENTS, COSTS, OR EXPENSES, WHATSOEVER, (INCLUDING,
                WITHOUT LIMITATION, ATTORNEY'S FEES AND COSTS), WHETHER DIRECT OR
                INDIRECT, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THA T MA Y ARISE
                ON
                ACCOUNT OF OR IN ANY WAY BE CONNECTED WITH THE PHYSICAL CONDITION
                OF THE
                ASSIGNED INTERESTS OR ANY ENVIRONMENT AL LA W OR REGULA TION APPLICABLE
                THERETO. 

            

    

     

    III..

     

    This
      Assignment is made and executed by Assignor and accepted by Assignee subject
      to
      a proportionate part of the terms, conditions, reservations and exceptions
      set
      forth in the following: 

     

    
      	
              a.
                

            	
              the
                terms, provisions, covenants and royalties set forth in the Leases
                and any
                pooling, communitization and unitization agreements or orders affecting
                the Assigned Interests; 

            

    

     

    
      	
              b.
                

            	
              all
                overriding royalty interests, restrictions, exceptions, reservations,
                burdens, encumbrances, conditions, limitations, interests, assignments,
                instruments, agreements and other matters, if any, that may burden
                or
                affect Assignor's interest in the Assigned Interests;
                

            

    

     

    
      	
              c.
                

            	
              the
                terms and conditions contained in any Joint Operating Agreement covering
                the Assigned Interests; and 

            

    

     

    d.
      all
      Federal, State, and local laws and to all orders, rules, regulations and
      standards issued thereunder by all duly constituted political subdivisions
      and
      agencies having jurisdiction, and Assignee hereby warrants that it will comp]y
      with same. Further, Assignee specifically warrants that it will comply with
      any
      and al] laws, orders, rules, regulations and standards of all Federal, State
      and
      local political subdivisions and agencies applicable to ( I) a]] exploration,
      drilling, production, plugging, and abandonment procedures, and (2) the control,
      regulation and prevention of pollution, including, but not limited to, salt
      water discharge and contamination. 

     

    IV.

     

    ASSIGNEE
      ACKNOWLEDGES THAT ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY DISCLAIMS
      AND NEGATES: (a) ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, RELATING
      TO
      THE CONDITION OF ANY IMMOV ABLE PROPERTY, MOV ABLE PROPERTY, EQUIPMENT,
      INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY CONSTITUTING ANY PART
      OF
      THE ASSIGNED INTERESTS: (b) ANY AND ALL REPRESENTATIONS AND WARRANTIES AS TO
      ALL
      EQUIPMENT, PERSONAL PROPERTY, AND FIXTURES WHICH ARE SOLD AND CONVEYED ON AN
      "
      AS IS", "WHERE IS", AND "WITH ALL FAULTS" BASIS: (c) ANY WARRANTY OR
      REPRESENTATION, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING
      TO
      THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
      TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT;
      (d)
      ANY WARRANTY OF FITNESS FOR ANY PURPOSE: (e) ANY IMPLIED OR EXPRESS WARRANTY
      OF
      FREEDOM FROM REDHIBITORY VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER
      KNOWN OR UNKNOWN: (I) ANY AND ALL IMPLIED WARRANTIES EX.ISTING UNDER APPLICABLE
      LA W NOW OR HEREAFTER IN EFFECT. ASSIGNEE SHALL HAVE INSPECTED, OR WAIVED (AND
      UPON CLOSING SHALL BE DEEMED TO HA VE WAIVED) ITS RIGHT TO INSPECT, THE ASSIGNED
      INTERESTS FOR ALL PURPOSES AND SA TISFIED ITSELF AS TO THEIR PHYSICAL CONDITION,
      BOTH SURFACE AND SUBSURFACE. ASSIGNEE IS RELYING SOLELY UPON ITS OWN INSPECTION
      OF THE ASSIGNED INTERESTS, AND ASSIGNEE SHALL ACCEPT ALL OF THE SAME IN THEIR
      "
      AS IS, WHERE IS", AND "WITH ALL FAULTS" CONDITION. ALSO WITHOUT LIMITATION
      OF
      THE FOREGOING, ASSIGNOR MAKES NO WARRANTY OR REPRESENT A TION, EXPRESS, IMPLIED,
      ST A TUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,
      REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR
      HEREAFTER FURNISHED OR MADE AVAILABLE TO ASSIGNEE IN CONNECTION WITH THIS
      ASSIGNMENT INCLUDING, WITHOUT L.IMITATION, RELATIVE TO PRICING ASSUMPTIONS
      OR
      QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) A TTRIBUT ABLE TO THE
      ASSIGNED INTERESTS OR THE ABILITY OR POTENTIAL OF THE ASSIGNED INTERESTS TO
      PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE ASSIGNED INTERESTS
      OR
      ANY OTHER MATTERS CONTAINED IN THE MATERIALS FURNISHED OR MADE AVAILABLE TO
      ASSIGNEE BY ASSIGNOR OR BY ASSIGNOR'S AGENTS OR REPRESENTATIVES. ANY AND ALL
      SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS
      (WRITTEN OR ORAL) FURNISHED BY ASSIGNOR OR OTHERWISE MADE AVA.ILABLE OR
      DISCLOSED TO ASSIGNEE SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
      AGAINST ASSIGNOR AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT ASSIGNEE'S
      SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ASSIGNEE
      REPRESENTS AND WARRANTS THAT SUCH ASSIGNEE IS AN EXPERIENCED AND KNOWLEDGEABLE
      INVESTOR IN OIL AND GAS PROPERTIES, HAS THE FINANCIAL AND BUSINESS EXPERTISE
      TO
      EV ALUA TE THE MERITS AND RISKS OF THE TRANSACTIONS COVERED BY THIS ASSIGNMENT,
      AND HAS RELIED SOLEL YON THE BASIS OF ITS OWN INDEPENDENT INVESTIGATION OF
      THE
      ASSIGNED INTERESTS FOR ALL PURPOSES. ASSIGNEE ACKNOWLEDGES THAT IT HAS HAD
      THE
      OPPORTUNITY TO SEEK THE ADVICE OF PERSONS IT DEEMED APPROPRIATE CONCERNING
      THE
      CONSEQUENCES OF THE PROVISIONS OF THIS ASSIGNMENT AND HEREBY WAIVES ANY AND
      ALL
      RIGHTS TO CLAIM THAT IT IS AN UNSOPHISTICATED INVESTOR IN OIL AND GAS
      PROPERTIES. 

     

    V.

     

    It
      is the
      intention and agreement of Assignor and Assignee hereunder that the provisions
      of this Assignment be severable. Should the whole or any portion of a section
      or
      paragraph be judicially held to be void or invalid, such holding shall not
      affect other portions which can be given effect without the invalid or void
      portion. 

     

    Assignor
      and Assignee hereby agree that all of the covenants and agreements contained
      herein shall extend to and be obligatory upon the heirs, executors,
      representatives, administrators, successors, and assigns of Assignor and
      Assignee, and shall be covenants running with tJ:1e land. 

     

    TO
      HAVE
      AND TO HOLD the same unto the Assignees, their successors and assigns, according
      to the terms, covenants and conditions of the Leases and this Assignment.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Assignee
      joins in the execution hereof for the purpose of being bound by all of the
      terms, provisions, obligations and covenants herein specified. 

     

    Assignee
      acknowledges that all bolded provisions herein relating to indemnity
      obligations, releases and waivers are conspicuous, satisfy the express
      negligence rule under Texas law and represent a material bargained for
      allocation of risk between Assignor and Assignee. 

     

    IN
      WITNESS WHEREOF,
      this
      instrument is executed as of the acknowledgement date of each of the parties
      hereto, but shall be effective as of the Effective Date hereof. 

     

    
      	
            	 	
            
	Witnesses	
              ASSIGNOR:

               

              TAG
                OPERATING COMPANY, INC.

            
	
              
 
	 
 	 
 
	 	By:   	 
	
              
 	
              

            
	
               Name:

            	 

              

            
	
               Title:

            	 
	 	
              

            

    

    
       

      
        	 	 	
              
	Witnesses	
                ASSIGNOR:

                 

                INLAND GAS
                  CORPORATION

              
	
                
 
	 
 	 
 
	 	By:    
                 	
              
	
                

              	
                

              
	
                 Name:

              	 

                

              
	
                 Title:

              	 
	 	
                

              

         

        
          	 	 	 
	Witnesses	
                  ASSIGNEE:

                   

                  PACKARD GAS COMPANY

                
	
                  
 
	 
 	 
 
	 	By:    
                   	
                
	
                  

                	
                  

                
	
                   Name:

                	 

                  

                
	
                   Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}]]