Document:

exv10w9

Exhibit 10.9

LETTER AGREEMENT

THIS LETTER AGREEMENT, dated as of August 9, 2011 (this “Agreement”), by and among Gaston
L. Kearby (“Employee”), ZaZa Energy, LLC, a Texas limited liability company (“ZaZa”), and ZaZa
Energy Corporation, a Delaware corporation (the “Company”).

RECITALS:

WHEREAS, Employee is currently employed by ZaZa pursuant to the terms of an Employment Agreement
dated June 1, 2011, effective as of May 1, 2010, as amended (the “Employment Agreement”);

WHEREAS, an entity controlled by Employee is a member of ZaZa;

WHEREAS, concurrently with the execution of this Agreement, the Company, ZaZa, Toreador Resources
Corporation, a Delaware corporation (“Toreador”) and Thor Merger Sub Corporation, a Delaware
corporation (“Thor Merger Sub”), have entered into an Agreement and Plan of Merger and Contribution
(the “Merger Agreement”) pursuant to which ZaZa and Toreador have agreed, subject to the terms and
conditions of the Merger Agreement, to combine their respective businesses as set forth in the
Merger Agreement (the “Combination”);

WHEREAS, concurrently with the execution of this Agreement, the members of ZaZa are entering into
a Contribution Agreement (the “Contribution Agreement”) with the Company pursuant to which
such members will contribute all of the interests in ZaZa to the Company in exchange for cash
and/or notes and shares of the Company;

WHEREAS, the Merger Agreement restricts ZaZa’s ability to pay certain amounts to Employee that are
owed to Employee pursuant to the terms of the Employment Agreement, which, to the extent not paid
to Employee are defined in the Merger Agreement as “Additional Compensation;”

WHEREAS, Employee and the Company intend to enter into a new employment agreement on arms-length
terms to govern the Employee’s employment with the Company from and after the closing of the
transactions under the Merger Agreement and the Contribution Agreement; and

WHEREAS, the parties hereto are entering into this Agreement to evidence their mutual agreement to
terminate the Employment Agreement, effective at the Effective Time (as such term is defined in
the Merger Agreement) and to provide for the payment to Employee of the Additional Compensation
pursuant to the terms of a promissory note, as set forth herein.

NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as follows:

	1.	 	As of the Effective Time, as such term is defined in the Merger Agreement, the parties agree
that the Employment Agreement shall be terminated and shall be of no further force and
effect.

 

 

	2.	 	The Company will, upon termination of the Employment Agreement, assume ZaZa’s
obligation to pay to Employee all of the Additional Compensation (as such term is defined
in the Merger Agreement) owed to Employee under the Employment Agreement, less any amounts
thereof previously paid. The Company shall, upon termination of the Employment
Agreement, issue a promissory note to Employee, in the form attached hereto as Exhibit
A, in the original principal amount equal to such Additional Compensation (less any
amounts thereof previously paid), evidencing the Company’s agreement to pay such
Additional Compensation (less any amounts thereof previously paid) to Employee. Such
promissory note shall be secured by a lien on substantially all of the assets of the
Company, which lien shall be subordinated to the liens in favor of Senior Indebtedness (as
such term is defined in such note) on such terms as reasonably requested by the Senior
Indebtedness lender and pursuant to the terms of a security agreement on terms reasonably
acceptable to the Company and Employee.
	 
	3.	 	This Agreement shall be governed by and construed in accordance with the laws of the
State of Texas. This Agreement may be executed in multiple counterparts, each of which when
so executed and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. This Agreement may not be terminated or amended
without the consent of Toreador, who shall be an express third party beneficiary hereof,
provided that this Agreement shall terminate and be of no further force and effect upon any
termination of the Merger Agreement pursuant to the terms thereof.

IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly
delivered on their behalf on the day and year first written above.

	 	 	 	 	 	 	 

	 	 	ZAZA ENERGY CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	/s/ Todd Alan Brooks	 	 
	 

	 	 	 	 	 	 
	 	 	Name: 	Todd Alan Brooks	 	 
	 	 	Title:	President and Assistant Secretary	 	 
	 
	 	 	 	 	 	 
	 	 	ZAZA ENERGY, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	/s/ Todd Alan Brooks	 	 
	 

	 	 	 	 	 	 
	 	 	Name:	Todd Alan Brooks	 	 
	 	 	Title:	Manager	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Gaston L. Kearby	 	 
	 	 	 	 	 
	 	 	Gaston L. Kearby	 	 

 

 

EXHIBIT A

FORM OF PROMISSORY NOTE

	 	 	 

	$[          ]

	 	New York, New York
	 

	 	[·
], 2011

          ZaZa Energy Corporation, a Delaware corporation (“Maker”), hereby promises to pay to [•],
(“Payee”), on the fourth anniversary of the date hereof (the “Maturity Date”), in lawful money of
the United States of America, the principal amount
of [          ] DOLLARS ($[          ]), and to pay simple interest at the rate of 8% per
annum on the outstanding principal balance hereof from the date hereof until payment of the
principal balance in full or in part without premium or penalty on the Maturity Date (or any
extension thereof), pursuant to the terms and conditions set forth in this secured, non-negotiable,
non-transferable promissory note (this “Note”). Interest payments shall be made in cash on the last
day of each month and on the Maturity Date.

          If the obligation of Maker to pay any principal or interest on this Note becomes due on a
Saturday, Sunday or day on which banks in New York State are permitted or required to be closed,
then such due date shall be extended to the next succeeding day that is not a Saturday, Sunday or
a day on which banks in New York State are permitted or required to be closed. All payments of
principal and interest due hereunder shall be paid in lawful money of the United States of America
by wire transfer at the account specified by Payee.

          This Note shall be secured by a pledge of collateral in favor of Payee in accordance with
that certain pledge agreement executed by and between Maker and Payee concurrently with the
execution of this Note (the “Pledge Agreement”).

          The Maker may prepay all or a portion of the principal amount hereof, in whole or in part at
any time, and to repay any interest accrued on the principal amount hereof at any time and from
time to time, in each case, without premium or penalty. If Maker or any of its subsidiaries
consummate any debt or equity financing (other than a revolving credit facility), Maker shall,
within five (5) days of the consummation of such financing, prepay a portion of the Note equal to
the lesser of (i) all amounts of accrued interest and outstanding principal hereunder or (ii)
twenty percent (20%) of the net cash proceeds of such financing multiplied by a fraction, the
numerator of which is the outstanding balance of this Note and the denominator of which is the sum
of the outstanding balance of this Note and the other similar notes issued by Maker on or about the
date of this Note to [•] (a “Mandatory Prepayment”), which Mandatory Prepayment shall be applied
first to any interest accrued on the outstanding principal amount hereof at the time of such
prepayment and second to the outstanding principal amount hereof. Maker shall also make
prepayments, if applicable, as required under the terms of the Contribution Agreement (as
hereinafter defined).

          Payee represents that it is acquiring this Note for investment and not with a view to the
sale or distribution thereof.

          Maker represents, warrants and covenants that (i) the issuance and delivery of this Note has
been duly and validly authorized and (ii) this Note is a valid and

 

 

legally binding obligation of the Maker, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy and similar laws affecting creditors’ rights generally
and that the granting of specific performance lies at the discretion of a court in equity.

          This Note evidences secured, non-negotiable and non-transferable indebtedness of the Maker.

          If an Event of Default (as defined below) under this Note shall occur and be continuing, then
the Payee shall have the right to declare the entire principal balance and all accrued interest
under this Note due and payable. An “Event of Default” shall occur hereunder upon the occurrence of
any one or more of the following events with respect to Maker: (i) if Maker shall fail to make any
payment of principal or interest on this Note required hereby when due; (ii) any security interest
purported to be created by the Pledge Agreement shall cease to be, or shall be asserted by the
Maker not to be, a valid, perfected) security interest in the collateral covered thereby; (iii)
default shall be made in the due observance or performance by Maker of any covenant, condition or
agreement contained in the Pledge Agreement and such default shall continue unremedied for a period
of 30 days after the receipt of notice thereof by the Maker from the Payee, (iv) if, pursuant to or
within the meaning of the United States Bankruptcy Code or any other federal or state law relating
to insolvency or relief of debtors (a “Bankruptcy Law”), Maker shall (1) commence a voluntary case
or proceeding; (2) consent to the entry of an order for relief against it in an involuntary case;
(3) consent to the appointment of a trustee, receiver, assignee, liquidator or similar official;
(4) make an assignment for the benefit of its creditors; or (5) admit in writing its inability to
pay its debts as they become due; or (v) if a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (1) is for relief against Maker in an involuntary case; (2)
appoints a trustee, receiver, assignee, liquidator or similar official for Maker or substantially
all of Maker’s properties; or (3) orders the liquidation of Maker, and in each case the order or
decree is not dismissed within 30 days.

          All notices in respect of this Note shall be given by hand delivery, by a recognized overnight
courier service, or by registered or certified United States mail, return receipt requested, to
Maker or Payee and their respective agents at their addresses set forth in Section 7.02 of the
Contribution Agreement (the “Contribution Agreement”), dated as of August           , 2011, among the Maker, Payee and Toreador Resources Corporation, a Delaware corporation. Any notice deemed to have been given two business days after
delivery to the courier service or five days after deposited in the U.S. mail, as the case may be.

          This Note is not transferable or assignable by its holder without the prior written consent of
the Maker.

          Maker covenants and agrees, and Payee by its acceptance of this Note likewise covenants and
agrees, that the payment of the principal of this Note is subordinated, to the extent and in the
manner provided herein, to the prior payment in full of all Senior Indebtedness (as hereinafter
defined) and that the subordination is for the

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benefit of the lenders under such Senior Indebtedness (the “Lenders”). Maker, and Payee by its
acceptance of this Note likewise, hereby (i) authorizes each Lender to demand specific performance
of the terms hereof, whether or not Maker shall have complied with any of the provisions hereof
applicable to it, at any time when Maker shall have failed to comply with any provisions hereof
which are applicable to it, and (ii) irrevocably waives any defense based on the adequacy of a
remedy at law, which might be asserted as a bar to such remedy of specific performance. Upon any
payment of any amounts hereunder by Maker to Payee, or upon any distribution of assets of Maker in
any dissolution, winding up, liquidation or reorganization (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or otherwise):

          (i) The Lenders shall first be entitled to receive payment in full in cash of
the Senior Indebtedness before Payee is entitled to receive any payment on account of any
obligations evidenced hereby; provided that so long as no Default or Event of
Default (as such terms are defined in the definitive agreements governing any Senior
Indebtedness) shall have occurred and continue under any definitive agreement governing any
Senior Indebtedness, Maker may pay to Payee and Payee may receive for itself and not for
the benefit of the Lenders regularly scheduled payments of interest hereunder and Mandatory
Prepayments in accordance with the terms hereof;

          (ii) Any payment or distribution of assets of Maker of any kind or character,
whether in cash, property or securities, to which Payee would be entitled except for the
provisions hereof, shall be paid by the liquidating trustee or agent or other person making
such payment or distribution directly to the Lenders, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid after giving effect to any
concurrent payment or distribution or provisions therefor to the Lenders; and

          (iii) In the event that notwithstanding the provisions hereof, any payment or
distribution of assets of Maker of any kind or character (other than regularly scheduled
interest and Mandatory Prepayments paid in accordance with clause (i) above), whether in
cash, property or securities, shall be received by Payee on account of this Note before all
Senior Indebtedness is paid in full, such payment or distribution shall be received and
held in trust for and shall be paid over to the Lenders for application to the payment of
the Senior Indebtedness until all of the Senior Indebtedness shall have been paid in full
in cash, after giving effect to any concurrent payment or distribution or provision
therefor to the Lenders.

          No right of any Lender or any other present or future holders of any Senior Indebtedness to
enforce the subordination provisions herein shall at any time in any way be prejudiced or impaired
by any act or failure to act on the part of Maker or Payee or by any act or failure to act, in good
faith, by any Lender, or by any noncompliance by Maker or Payee with the terms of this Note,
regardless of any knowledge thereof which any Lender may have or be otherwise charged with; and
such indebtedness of Maker to the Payee, if any Lender, after a Default or Event of Default (as
such terms are defined in the

3

 

definitive agreements governing any Senior Indebtedness) has occurred, so requests, shall be
collected, enforced and received by Payee as trustee for the Lenders and be paid over to the
Lenders on account of Senior Indebtedness, but without affecting or impairing in any manner the
liability of Maker under the provisions of this Note.

          As used herein, “Senior Indebtedness” means any obligation of Maker to any
unaffiliated third part for borrowed money which, by its express terms, is senior to the
obligations of Maker under this Note, and all obligations and liabilities (including all principal
and any interest accruing on the foregoing), fees, charges and collection expenses in connection
therewith; provided, however, that in no event shall the principal amount of the Senior
Indebtedness exceed $150,000,000.

          This Note shall be governed by and construed in accordance with the laws and the State of New
York, and the terms hereof may only be changed by written agreement duly executed by Maker and
Payee.

[Remainder of this page has been intentionally left blank]

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          IN WITNESS WHEREOF, the Maker has caused this Note to be executed and delivered as of the
date first above written.

	 	 	 	 	 	 	 

	 	 	ZAZA ENERGY CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:exv10w14

Exhibit 10.14

EXPLORATION AND DEVELOPMENT AGREEMENT

EAGLEFORD SHALE AREA

HESS CORPORATION

AND

ZAZA ENERGY, LLC

APRIL 28, 2010

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	I. Recitals
	 	 	1	 
	 
	 	 	 	 
	II. Definitions
	 	 	1	 
	 
	 	 	 	 
	III. Leasing Program Operations and Costs
	 	 	5	 
	 
	 	 	 	 
	IV. Collaboration in the Eagle Ford Trend Area
	 	 	7	 
	 
	 	 	 	 
	V. Area of Mutual Interest
	 	 	9	 
	 
	 	 	 	 
	VI. Prospect Areas and Wells
	 	 	12	 
	 
	 	 	 	 
	VII. Operating Agreement
	 	 	12	 
	 
	 	 	 	 
	VIII. Exploration and Development Tax Rider
	 	 	12	 
	 
	 	 	 	 
	IX. Miscellaneous
	 	 	13	 
	 
	 	 	 	 
	X. REPRESENTATION, WARRANTIES AND COVENANTS OF HESS
	 	 	15	 
	 
	 	 	 	 
	XI. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF ZAZA
	 	 	16	 

i

 

EXPLORATION AND DEVELOPMENT AGREEMENT

          This Exploration and Development Agreement is entered into this 28th day of April,
2010 (the “Effective Date”) between HESS Corporation, a Delaware corporation “HESS”, with offices
at One Allen Center, 500 Dallas Street, Houston, TX 77002 and ZaZa Energy, LLC, a Texas limited
liability company, hereinafter “ZAZA”, with offices at 600 Leopard Street, Suite 2100, Corpus
Christi, TX 78401. HESS and ZAZA will sometimes hereinafter be referred to individually as a
“Party” and collectively as the “Parties”.

I. Recitals

          1.1. The Parties have identified and shall continue to identify certain geographic areas
located in South West Texas and South East Texas available for leasing activities and subsequently
conducting exploration and production operations thereon, hereinafter the “Eagle Ford Trend Area”.

          1.2. The Parties have agreed upon the relative contributions, responsibilities, rights and
duties in connection with the Eagle Ford Trend Area, all in accordance with the terms and
conditions hereinafter contained.

          NOW, THEREFORE, in consideration of the mutual covenants set forth below and other good and
valuable consideration, the Parties agree as follows:

II. Definitions

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

          2.1. “Acquisition Costs” means the sum of all costs incurred and paid that are associated
with acquiring Subject Leases including, without limitation, land brokerage, title and curative
costs, land consulting services fees (excluding net profit incentives), and ten percent (10%) of
the Cash Bonus paid per Net Mineral Acre to ZAZA pursuant to Section 3.1.

          2.2. “Agreement” means this agreement and all exhibits attached hereto.

          2.3. “Carried Acreage Cap” means a maximum gross leasehold Acquisition Costs expenditure by
HESS of no more than $500,000,000 ($50,000,000.00 maximum net carry to ZAZA).

          2.4. “Carry Free of Costs” means a Working Interest ownership that is free and clear of
Exploration and Development Costs up to the Well Cap.

          2.5. “Cash Bonus” means the sum of all direct costs associated (incurred or paid) with
acquiring Net Mineral Acres pursuant to this Agreement, within the Eagle Ford Trend Area,
including, without limitation, landowner bonuses and/or third party

1

 

bonuses but explicitly excluding land brokerage, title and curative costs, and land consulting
services fees.

          2.6. “Eagle Ford Trend Area” means the counties shaded in brown on Exhibit “A”. The
Parties acknowledge that opportunities to expand the confines of the Eagle Ford Trend Area beyond
that depicted on Exhibit “A” may be presented as the Exploration and Development Program
progresses. In connection therewith, if and to the extent the Parties agree at any time to expand
the definition of the Eagle Ford Trend Area so as to include lands
contiguous to, or in the
vicinity of, the lands shaded in brown on Exhibit “A”, the Parties further agree to amend,
modify and supplement this Agreement by replacing Exhibit “A” with one or more revised
exhibits reflecting such expanded area(s) agreed to by the Parties.

          2.7. “Exploration and Development Costs” of the Wells means all actual third party direct
costs and expenses incurred or paid with respect to the Wells, including but not limited to (a)
location costs, costs of drilling, re-entering (excluding any Wells that have been previously
produced under this Agreement), logging, testing, completing, fracing and equipping such Well(s)
for production including flow-lines, tanks, flow meters and other equipment located on the drilling
unit, (b) that portion of drilling rate overhead charges allocated to such Well(s) under the
applicable JO A, and (c) costs of plugging and abandoning and surface restoration for any such well
completed as a dryhole, explicitly excluding Operating Costs

          2.8. “Existing Burdens” means (i) any royalty, overriding royalty, production payment, and
other similar burdens on production which burden the Subject Leases at the time of acquisition by
either Party, and (ii) the Reserved Overriding Royalty Interest.

          2.9. “Exploration Program” means the operations to be conducted by the Parties in the area
using 2-D, and or 3-D seismic, and other exploration technologies to explore for subsurface
geological formations and anomalies indicative of the existence of oil, gas and other hydrocarbons,
along with all necessary processing, review and analysis of such data, including without limitation
acquisition of new geophysical data or the reprocessing of existing available geophysical data
covering some or all of the Eagle Ford Trend Area or across other areas if the data will contribute
to the evaluation of the trend and the subsequent leasing of prospective areas.

          2.10. “HESS Corporation” or “HESS” has the meaning ascribed in the preamble to this Agreement,
with a mailing address of 500 Dallas, Houston, Texas 77002.

          2.11. “JOA” or “Operating Agreement” means the operating agreement referred to in Article VII
herein.

          2.11 “Prospect Area” means a single, or set of, geologic or geophysical leads or ideas within
the Eagle Ford Trend Area identified by the Exploration Program

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thought to be productive of oil or gas, together with the offsetting acreage necessary to protect
the geological structure or structures, if productive, from competitive drainage, as such Prospect
Areas may be identified and approved by the Parties from time to time, provided a single Prospect
Area shall not exceed thirty thousand (30,000) gross acres unless otherwise agreed to by the
Parties. Upon reaching the Carried Acreage Cap, any Prospect Area in excess of thirty thousand
(30,000) gross acres shall be automatically reduced, subject to ZAZA’s approval, to include only
the acreage leased within the respective Prospect Area and a one mile halo around such leased
acreage within the original Prospect Area. Prospect Areas that do not have any leasehold acres,
after the Carried Acreage Cap has been met and subject to ZAZA’s approval, shall automatically
terminate.

          2.12 “Net Mineral Acres” means shall be computed separately for each Lease and shall mean, for
each such Lease, the product of the number of gross acres in the lands covered by such Lease,
multiplied by (a) the undivided interest in the oil and gas or other mineral interest covered by
such Lease in such lands, multiplied by (b) the undivided working interest (expressed as a decimal)
in such Lease acquired by or for the benefit of the Parties insofar as it covers such lands
(provided that if items (a) and/or (b) vary as to different areas covered by the Lease, a separate
calculation shall be done for each such area).

          2.13 “Operating Costs” of a Well means all costs incurred in producing such Well and disposing
of such production including, but not limited to:

     (i) labor and other services necessary for the maintenance and operation of
such Well;

     (ii) materials, equipment, supplies, transportation, repairs, and
replacements used in the maintenance and operation of such Well, including
replacements for all parts of machinery, equipment, tanks, or other equipment to
replace and/or repair original Well and/or lease equipment;

     (iii) reworking or re-equipping such Well;

     (iv) gathering, treating, processing, transporting, and marketing of
production from such Well, explicitly including all gathering lines and pipelines
(explicitly excluding flow-lines); and ad valorem, severance, gathering, windfall
profits, or other applicable taxes; and

     (v) that portion of cost and expenses allocated to such Well in accordance
with the usual and customary accounting practices and a COP AS Accounting
Procedure (including, but not limited to, overhead costs of the operator as set
out in the JO A) which, pursuant to such accounting practices, are determined to
be Operating Costs.

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          2.14 “Reserved Overriding Royalty Interest” means an overriding royalty interest in and to the
Subject Leases equal to and not more than three percent (3%) of 8/8ths, proportionately reduced in
accordance with Section 3.4 below.

          2.15 “Seismic Data” means, with respect to each separate and distinct seismic operation on the
Prospect Areas, the final gained and ungained migrated three dimensional survey (or two
dimensional) stack data obtained in connection with the Exploration Program.

          2.16 “Subject Leases” means the Oil, Gas and Mineral Leases, or individually
“Lease”, covering portions of the Prospect Areas acquired or to be acquired in connection with
exploration efforts to be conducted pursuant to this Agreement.

          2.17 “Term” means a period commencing from the Effective Date of this Agreement and ending
three years from that date or reaching the Carried Acreage Cap, whichever is first to occur, unless
extended by the mutual written agreement of the Parties. Notwithstanding the following, this
Agreement shall continue in full force and effect until all such obligations arising hereunder have
been completely satisfied by the respective Parties, including, without limitation Well Caps and
Reserved Overriding Royalty Interests in Prospect Areas and Section IV.

          2.18 “Well” means any well or wells drilled on the Subject Leases, or lands pooled therewith
and completed either as a producer or plugged and abandoned as a dry hole.

          2.19 “Well Cap” means the number of wells HESS is obligated to carry ZAZA in each Prospect
Area and shall be the number of wells derived by dividing the Net Mineral Acres retained in a
Prospect Area acreage (explicitly excluding any acreage that expires) by 640 gross mineral acres by
way of example: if the Prospect Area acreage totals 19,200 Net Mineral Acres and is divided by
640 acres, then the Well Cap would be 30 carried wells in that Prospect Area. The Well Cap shall
be reduced in proportion to acreage expiring during an AMI term. The Well Cap calculation shall be
performed on each respective Prospect Area to determine the Well Cap on a Prospect Area by Prospect
Area basis. During development of any Prospect Area, if a portion of the net acreage is condemned
and deemed non-productive by HESS the Well Cap shall be proportionately adjusted downward to
reflect the condemned net acreage. HESS shall then, upon the written request of ZAZA, re-assign
or otherwise convey its Working Interest in such condemned acreage to ZAZA. Notwithstanding the
foregoing, prior to making a written request for such condemned acreage, ZAZA shall not be
obligated to accept the condemned acreage.

          2.20 “Working Interest” means the cost-bearing leasehold estate and working interest in and to
the Subject Leases held by the Parties, subject to applicable participation elections.

          2.21 “ZaZa Energy, LLC (“ZAZA”)” has the meaning ascribed in the

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preamble to this Agreement, with a mailing address of 600 Leopard St., Suite 2100, Corpus Christi,
Texas 78401.

III. Leasing Program Operations and Costs

          3.1. Program Operator. ZAZA, as Operator, will conduct the Exploration and Development
Program across the approved Prospect Areas identified pursuant to Section 6.1 below. The Parties
agree that HESS shall pay to ZAZA an amount equal to ten percent (10%) of the Cash Bonus paid per
Net Mineral Acre on a Prospect Area, within thirty (30) days upon receipt of written notification
from ZAZA that funding out of the fund to be maintained pursuant to Section 3.3 has occurred for
each lease purchased in accordance with Section 3.2 below. The Parties acknowledge that: (i) HESS,
at its sole discretion, shall have the right to take over all operations including, but not limited
to, all drilling and production operations, at any time on or after one year from the spud date of
the first Well drilled on any Prospect Area upon not less than thirty (30) days prior written
notice to ZAZA; (ii) ZAZA, at its sole discretion, shall have the right to turn over all
operations, including, but not limited to, all drilling and production operations, to HESS, at any
time on or after one year from the spud date of the first Well drilled on any Prospect Area upon
not less than thirty (30) days prior written notice to HESS; and (iii) the duties of the Operator
(HESS or ZAZA as the case may be) may extend beyond the Term.

          3.2. Leasing. ZAZA shall, in good faith, use its best efforts to (a) obtain oil and gas
leases within Prospect Areas identified and mutually approved by the Parties and located in the
Eagle Ford Trend Area shown on Exhibit “A”, attached hereto and made a part hereof, on leasing
terms acceptable to HESS and substantially comparable to the current competitor leasing terms found
in the respective Prospect Area. HESS shall advise ZAZA of maximum approved royalty and bonus
terms in excess of such competitor leasing terms that it is willing to offer for leases in Prospect
Areas and ZAZA shall not offer in excess of such maximum approved royalty and bonus. HESS and ZAZA
shall periodically meet (at least once every month) to review leasing efforts and to discuss,
identify and solicit approval for the joint acquisition in jointly approved Prospect Areas and to
discuss other matters pertinent to lease acquisition. If HESS and ZAZA agree in writing on the
acquisition of certain Leases (to be identified by either land descriptions, a plat with an area
outlined, or by landowner), then such Leases shall be jointly acquired by ZAZA on behalf of the
Parties. HESS is under no obligation to accept any oil and gas lease acquired by ZAZA which does
not conform to the above procedures. Subject to the foregoing provisions of this Section 3.2, in
the event the Parties cannot agree on the joint acquisition of certain additional leases, or if
either HESS or ZAZA separately acquire additional leases within a Prospect Area without such
periodic meeting and subsequent agreement, then such leases shall be subject to the provisions of
Section 5.1.

          ZAZA is not entitled to collect a management fee from HESS for services performed under this
Agreement. However, ZAZA shall retain consultants and brokers, both full time and part time,
reasonably necessary to assist ZAZA and HESS in the

5

 

ongoing operations and development of the Eagle Ford Trend Area. HESS shall have the right to
approve any multi-year consulting terms. The associated fees and expenses of all consultants and
brokers related to the ongoing operations of the Exploration and Development Program will be billed
to HESS at cost (with supporting documentation) and HESS shall reimburse ZAZA within thirty (30)
days of HESS’ receipt of an invoice for such charges from ZAZA. All such consultants and brokers
shall be the contractors of ZAZA unless otherwise agreed to in writing by HESS and the consultants
and brokers in accordance with the provisions of this Section 3.2. ZAZA shall use its reasonable
efforts to assure that the consultants and brokers will be made available to continue to work under
HESS, if HESS so desires, and the consultants so agree, within the Prospect Area. ZAZA shall assign
to HESS, on a lease by lease basis, an undivided 90% of the working interest acquired in each Lease
and a proportionate share of the net revenue interest, reduced by a proportionate 90% share, if
applicable, of the Reserved Overriding Royalty Interest. The Reserved Overriding Royalty Interest
is to be reserved in favor of ZAZA and/or their assigns in all leasehold acquired pursuant to this
Agreement.

          3.3. Leasing Costs Carried Acreage Cap. HESS shall provide ZAZA a lease fund, in accordance
with this Agreement and a mutually agreed upon funding agreement, reasonably necessary to
facilitate Lease purchases within Prospect Areas approved by the Parties and located within the
Eagle Ford Trend Area. HESS shall deposit into the lease fund only those amounts necessary for the
acquisition of oil and gas leases that HESS has previously agreed in writing to acquire. Once a
Prospect Area has been established, ZAZA shall use its reasonable efforts to acquire oil and gas
leases within Prospect Areas in accordance with the provisions of Section 3.2. Of those oil and
gas leases acquired pursuant to Section 3.2, HESS shall acquire ninety percent (90%) working
interest in the Subject Leases and shall pay one hundred percent (100%) cost share of all
Acquisition Costs up to the Carried Acreage Cap. ZAZA shall retain an undivided ten percent (10%)
working interest in each Lease for its own account (proportionately reduced). ZAZA shall identify
areas available for lease within a Prospect Area and if for any reason ZAZA offers to HESS and
HESS declines to participate, ZAZA shall be free to pursue said acreage for its own account
outside of this Agreement for terms identical to or less favorable than those presented to HESS.
HESS shall have ten (10) business days to approve or decline an area for lease, unless otherwise
agreed to by the Parties where time is determined, in the reasonable opinion of the Parties, to be
of the essence. Once the Carried Acreage Cap is reached, the Parties shall have the option to
continue acquiring additional oil and gas leases in Prospect Areas identified by the Parties and
located within the Eagle Ford Trend Area pursuant to this Agreement and ZAZA shall have the right
but not the obligation to participate for a ten percent (10%) cost bearing working interest in the
additional leases purchased. The Net Mineral Acres attributable to Leases acquired after the
Carried Acreage Cap is reached shall not be included in the calculation of the Well Cap.

          3.4. Proportionate Reduction. To the extent that a Lease subject to this Agreement covers
less than the full interest in oil, gas and other minerals in the lands purported to be covered
under such Lease or if ZAZA’s interest in such Lease is less than the full leasehold interest,
then the Working Interest conveyed therein to HESS and

6

 

the Reserved Overriding Royalty Interest shall be reduced in proportion to the interest actually
covered by such Lease.

IV. Collaboration in the Eagle Ford Trend Area

          4.1 Operating Teams. It is the intention of the Parties to collaborate in the exploration and
development of the Eagle Ford Trend Area through joint teams comprised of employees, consultants or
representatives of each Party. In this regard, the Parties shall form the working groups described
below (collectively the Operating Teams) to provide overall supervision, direction and coordination
of the lease acquisition, exploration, drilling, development and production operations under this
Agreement. The Operating Teams shall be composed of a minimum of five (5) separate joint teams: (i)
the Exploration Team, (ii) Engineering Team, (iii) the Land Team (iv) the Commercial Team and (v)
the Management Team. Each of the team may subdivide into separate sub-teams as the individual teams
deem appropriate. Unless otherwise provided, each Team shall consist of at least one (1) and no
more than five (5) representatives from each Party. The head of each team (“Team Lead”) shall
initially be a ZAZA employee except for the Commercial Team and the Management Team which HESS
shall chair. HESS shall, however, have the option after the initial well on the Eagle Ford Trend
Area is drilled to total depth to place a HESS employee as the Team Lead on any of the Operating
Teams. The work of each Party’s team members shall be performed independently at office locations
provided by the Party designating such members. However, from time to time either Party’s team
members may be seconded at the other Party’s offices in order to maximize team efficiencies. The
Operating Teams are teams specific to this Agreement and shall be independent from any study team
(in connection with the undertaking of a feasibility study) and/or any project team that may be
established pursuant to the terms of the Operating Agreement.

          4.2 Exploration Team. The Exploration Team will be responsible for conducting the
Exploration Program for the evaluation of the Eagle Ford Trend Area to identify the most desirable
drillable areas and to identify areas in the Eagle Ford Trend Area for future lease acquisitions
and exploration by the Parties. The Parties agree to disclose to each other their technical data
and interpretations of the Participation Area (unless such data and interpretation are subject
to third party confidential data restrictions). In any event, all such data or interpretations
disclosed shall be subject to the confidentiality provisions of the Operating Agreement. The
Exploration Team shall provide recommendations for the placement of drilling units and the location
of wells on any such drilling units and well evaluation procedures.

          4.3 Engineering Team. The Engineering Team shall include at least one (1) member from HESS’
Environmental, Health and Safety unit and shall be responsible for well design, completion and
fracturing and stimulation procedures, scheduling of drilling operations, compliance with
federal, state and local environmental, safety and operational regulations, and the
production of hydrocarbon resources throughout the term of this Agreement. The Engineering Team and
the Exploration Team shall work together to efficiently accomplish the responsibilities of each
Team.

7

 

          4.4 Land Team. The Land Team shall include one (1) member from HESS’ Legal Department and
shall be responsible for construction and implementation of all contracts and other instruments
necessary for the conduct of business under this Agreement. The Team shall also coordinate the
approval of Prospect Areas, lease negotiations and acquisitions, facilitate funding for lease
acquisitions and payment of acquisition costs. The Team shall conduct joint venture negotiations
with third parties, procurement of drillsite title opinions and preparation of unit declarations
and other matters relating to overall supervision of business matters, other than commercial, in a
Prospect Area.

          4.5 Commercial Team. The Commercial Team shall consist of at least one (1) but not more than
three (3) representatives from each Party and will be responsible for the planning and
implementation of transportation and marketing strategies for field production. The Commercial Team
shall identify, evaluate and attempt to agree upon the most commercially advantageous form of field
gathering system, and the assessment of any third party gathering proposals (including the review
of pertinent contracts in connection with any such proposals). The Commercial Team is expected to
develop effective and cost-efficient strategies and plans for the construction and/or installation
of production facilities intended to service numerous wells across a Prospect Area.

          4.6 Management Team. The Management Committee will be composed of a Vice President level
manager from HESS and a Managing Partner from ZAZA. The Management Team shall have the
responsibility for ensuring that (a) the Teams are properly formed, maintained and functioning in a
manner consistent with this Agreement; (b) effective coordination and cooperation of efforts exists
within the Operating Teams and the management of each of the Parties; and (c) that a forum exists
for prompt reconciliation of competing alternative views of a Party’s members of the respective
Teams. In particular, the Management Team shall (1) review, assess and approve reports and
recommendations from the respective Teams; (2) attempt to reconcile the views and proposals
supported by one Party’s Team members with the other Party’s members where practicable.
Additionally, the Management Team shall serve as a forum to resolve differences of opinion among
Team members as to matters such as appropriate AFE costs, geophysical data acquisition and
reprocessing, well locations, drilling schedules, completion procedures or health, safety and
environmental matters. The Management Team shall perform its purpose in good faith and use its
reasonable best efforts to arrive at unanimous solutions as expeditiously as possible. Failing to
reach a consensus view, the decision of HESS shall prevail.

          On a regularly scheduled basis, but no less than once a month, the respective Teams will
prepare a report to the Management Team of its recommendations on: (1) Prospect Areas to be
approved and any potential lease acquisitions and funding; (2) a subsurface review updated
to reflect new well results in the area; and (3) a tentative drilling schedule of wells for
the coming six (6) months.

8

 

V. Area of Mutual Interest

          5.1 AMI Procedures. The Parties agree to create a separate Area of Mutual
Interest for each Prospect Area (“AMI”) comprising all of the lands identified within
the respective Prospect Area under the terms of Section 6.1 below, which shall be
memorialized by separate agreement, identified by a number corresponding with each
subsequently created Prospect Area (e.g. AMI 1, AMI 2, Prospect Area 1, Prospect Area
2) and included within the provisions of the JOA for each separate Prospect Area. The
term of the AMI as to any Prospect Area shall expire seven (7) years from the effective
date of any amendment to the JOA incorporating such Prospect Area (the Parties
acknowledge that the AMI may extend beyond the Term). During the term of the AMI,
if any Party hereto (the “Acquiring Party”) acquires any oil and gas leasehold
interest, unleased mineral interest, or the right to earn any such interest, directly
or indirectly (whether through merger, sale of shares or other equity interests, joiner
in a joint operating agreement, participation agreement or otherwise) (through any
individual or entity associated or affiliated with such Party), the Acquiring Party
shall, within fifteen (15) business days following such acquisition, notify the other
Party to this AMI provision, or a counterpart thereof (the “Offeree”) of such
acquisition. To the extent a lease covers acreage inside and outside the AMI, the
portion situated outside the AMI shall also be offered to the Acquiring Party. If
the Offeree elects to purchase its proportionate share of the lease, the AMI shall be
amended to include the acreage outside the AMI. The notice from the Acquiring Party
to the Offeree shall include a copy of all instruments of acquisition and any other
pertinent available data, and an itemized statement of the actual costs and expenses
incurred by the Acquiring Party in acquiring such interest, excluding, however, costs
and expenses of its own personnel. The Offeree shall have ten (10) business days after
the receipt of such notice within which to notify the Acquiring Party of its election
to acquire its proportionate interest in the interest acquired by the Acquiring Party.
The proportionate interests will be based upon the Party’s respective Working
Interests, as the case may be but subject to the Carried Acreage Cap, the Reserved
Overriding Royalty Interest and the Carried Free of Costs rights of ZAZA. If the
Acquiring Party has not received actual notice of the election of an Offeree to acquire
its proportionate interest within the ten (10) business day period, it shall be
conclusively presumed that the Offeree has rejected the offer. If the Offeree notifies
the Acquiring Party within the aforesaid time period of its election to acquire its
proportionate interest in the interest acquired, the Acquiring Party shall promptly
invoice the Offeree for its proportionate part of the actual third party costs incurred
in the acquisition, along with a written agreement whereby the Offeree assumes its
proportionate share of all terms, conditions, provisions, obligations and liabilities
assumed by the Acquiring Party in connection with such acquisition.

          Notwithstanding any of the foregoing, however, if a well is being drilled within the AMI at
the time of acquisition, the result of which, is reasonably expected to impact the value of the
interest so acquired, the Acquiring Party shall so advise the Offeree, and the election to acquire
a proportionate interest in the acquired interest must be made within forty-eight (48) hours after
receipt of such notice. Failure of the Offeree to timely respond in either case to the Acquiring
Party shall be conclusively deemed an election

9

 

by such Party not to acquire its proportionate interest in the acquired interest. In the event
that a Party to this AMI provision, or a counterpart thereof, should elect not to acquire its
proportionate interest in such acquisition, or should fail to timely exercise its option, then
such Offeree will be deemed to have forfeited all rights to acquire any right, title and interest
in and to acquired interest.

          If the Offeree elects to acquire its proportionate interest and assumes its obligations, as
hereinabove set forth, the Acquiring Party shall, after such Offeree has paid the invoice amount
and executed and delivered the written agreement provided for above, execute and deliver a written
assignment in recordable form covering the Offeree’s proportionate share in the acquired interest,
and an attributable net working interest (net of the ZAZA Reserved Overriding Royalty Interest in
each Lease) which assignment shall be made without any warranty of title, express or implied,
except to claims of all persons claiming or to claim the same or any part thereof by, through or
under the Acquiring Party, but not otherwise. Such assignment shall also be made subject to the
terms of this Agreement.

          5.2 Existing AMI Areas. The Parties acknowledge that they may have existing areas of mutual
interest within the Eagle Ford Trend Area with third parties. The Parties agree these areas are
exempt from this Agreement. A list of such areas is attached hereto as Exhibit “C”.

          5.3 Excluded from the Eagle Ford Trend Area. Share acquisitions and mergers by either Party
are explicitly excluded from this Agreement.

          5.4 Non-Prospect Area Acquisitions within the Eagle Ford Trend Area. The Parties acknowledge
that acquisitions made by either Party for the Term and within the Eagle Ford Shale Trend Area,
shall be subject to this Agreement.

	 	5.4.1	 	HESS shall offer to ZAZA any acquisition of an oil and gas
lease, unleased mineral interest or the right to earn either such interest
(the “Opportunity”) offered to HESS: (i) by a third party; (ii) within the
Eagle Ford Trend Area; (iii) not in a Prospect Area; and (iv) during the Term
and ZAZA shall have the right, but not the obligation, to participate in such
Opportunity for a ten percent (10%) Working Interest, reduced in proportion
to the interest being offered through HESS, Carried Free of Costs but
explicitly excluding the amount equal to ten percent (10%) of the cash bonus
paid per Net Mineral Acre described under Section 3.1. ZAZA shall have no
more than ten (10) business days after its receipt of such offer within which
to notify HESS of ZAZA’s election to acquire a proportionately reduced ten
percent (10%) Working Interest in the Opportunity being offered to or already
acquired by HESS, unless otherwise agreed to by the Parties where time is of
the essence.

10

 

	 	5.4.1.1	 	The Opportunities discussed in Section 5.4.1 brought to HESS by an
individual landowner, a group of landowners or a brokerage
firm representing an individual land owner or group of land owners, if
acquired by ZAZA, shall be deemed Prospect Areas and therefore subject to this
Agreement. Carried Free of Costs and the Reserved Overriding Royalty Interest.

	 	5.4.1.1.1	 	The Reserved Overriding Royalty Interest provided for under
Section 5.4.1.1 shall be proportionately reduced in order to ensure
that HESS receives no less than a seventy-two percent (72%) net
revenue interest on all such acquired Leases.

	 	5.4.1.2	 	The Opportunities discussed in Section 5.4.1 brought to HESS, through direct
solicitation, by a company engaged in the exploration and production of oil
and gas, an oil and gas operating company or a brokerage firm representing either
such companies (the “Oil Company”), if acquired by ZAZA, shall be deemed
Prospect Areas and therefore subject to this Agreement, Carried Free of Costs but
not the Reserved Overriding Royalty Interest.
	 
	 	5.4.1.3	 	In the event an identical Opportunity is presented to ZAZA by an Oil Company,
the date the notice letter is transmitted from one Party to the other Party shall
be controlling in determining whether or not the Opportunity is
subject to Section 5.4.1. Those opportunities that are not subject to
Section 5.4.1 shall be offered to HESS subject to this Agreement.

	 	5.4.2	 	ZAZA shall offer to HESS any Opportunity offered to ZAZA: (i) by a third party; (ii)
within the Eagle Ford Trend Area (iii) not in a Prospect Area; and (iv) during the Term and
HESS shall have the right, but not the obligation, to participate in such Opportunity for a
ninety percent (90%) Working Interest, reduced in proportion to the interest being offered
through ZAZA. HESS shall have no more than ten (10) business days after its receipt of such
offer within which to notify ZAZA of HESS’ election to acquire a proportionately reduced
ninety percent (90%) Working Interest in the Opportunity being offered to or already
acquired by ZAZA, unless otherwise agreed to by the Parties where time is of the essence.
Opportunities discussed under this Section 5.4.2 shall be subject to this Agreement.

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VI. Prospect Areas and Wells

          6.1 Prospect Identification. For the Term the Parties shall jointly identify separate
Prospect Areas from the data obtained for the joint benefit of the Parties and mutually approved
Prospect Areas shall be further identified by a number corresponding with the each subsequently
created Prospect Area (e.g. Prospect Area 1, Prospect Area 2, etc...). Unless mutually agreed by
HESS and ZAZA, each Prospect Area shall consist of no more than thirty thousand (30,000) gross
acres. Each Party will have the option to participate in acquiring Subject Leases within the
respective Prospect Area in accordance with the terms of this Agreement. Upon identification and
approval of a Prospect Area and AMI, the Parties shall execute amendments to the JOA to include
such Prospect Area and AMI. Any area submitted by a Party for consideration as a Prospect Area
that the Parties do not mutually agree to identify as a Prospect Area shall be excluded from and
not subject to this Agreement.

          6.2 Wells. Drilling, completion, reworking and production operations on all wells drilled on
each approved Prospect Area will be conducted in accordance with the JOA. As to each well drilled
within a Prospect Area up to the Well Cap for that Prospect Area, ZAZA will retain a 10% carried
Working Interest on a Carry Free of Costs basis proportionately reduced to HESS’ Working Interest
in any such well(s). Once the Well Cap is reached within a Prospect Area, ZAZA shall have the right
to participate for a cost bearing 10% Working Interest on subsequent Wells within the Prospect Area
pursuant to the terms of the applicable JOA.

VII. Operating Agreement

          7.1 Concurrent with the execution of this Agreement, the Parties agree to be bound by the
terms of a JOA substantially in the form of the JOA attached as “Exhibit B”, with appropriate
revisions for the date of the agreement, the description of the Prospect Area and Leases covered,
and the interest of the Parties naming ZAZA as “Operator”, covering operations conducted with
respect to each approved Prospect Area and jointly owned Leases acquired pursuant to this
Agreement. The Parties shall execute each Prospect Area JOA; provided however, the execution of
any JOA with regard to a Prospect Area approved hereunder is pro forma only, it being understood
that each such Prospect Area shall be subject to the terms thereof with or without formal
execution. In the event of a conflict between the terms and provisions of this Agreement and the
JOA, the terms of this Agreement shall control.

VIII. Exploration and Development Agreement Tax Rider

          8.1 Tax Partnership. The Parties intend and expect that the transactions contemplated by this
Agreement will be treated, for purposes of federal income taxation and for purposes of certain
state income tax laws that incorporate or follow federal income tax principles, as resulting in
(a) the creation of a partnership (the “Tax Partnership”) in which HESS and ZaZa are treated as
partners, with the Tax Partnership being treated for Tax purposes as holding the Subject Leases
and engaging in all

12

 

activities of the Parties with respect to the Subject Leases and any other assets that may
subsequently be acquired by the Parties jointly pursuant to this Agreement; and (b) the realization
by the Tax Partnership of all items of income or gain and the incurrence by the Tax Partnership of
all items of costs or expenses attributable to the ownership, operation or disposition of such
assets and other assets that may subsequently be acquired by the Parties jointly, notwithstanding
that such items are realized, paid or incurred by the Parties individually, all as set forth in the
Tax Partnership Agreement attached as Exhibit “D”.

          With respect to any of the Subject Leases purchased by HESS pursuant to this Agreement as to
which HESS will be considered to own a ninety percent (90%) working interest (and regardless of how
title is taken), the Parties specifically intend that (a) HESS shall be treated as having purchased
such leases or other property for the Tax Partnership for an amount equal to all costs paid by HESS
with respect to such property (including, but not limited to, Acquisition Costs as defined in this
Agreement); (b) the Tax Partnership will be considered to have paid any amounts payable to ZaZa
pursuant to Sec. 3.1 of this Agreement as amounts described in Sec. 707(a) of the Internal Revenue
Code of 1986, (“Code”) for services rendered; and (c) the Reserved Overriding Royalty Interest
shall also be considered amounts payable to ZaZa by the Tax Partnership as amounts described in
Sec. 707(a) of the Code for services rendered.

IX. Miscellaneous

          9.1 Relationship of the Parties. It is not the purpose nor intention of this
Agreement to create, and this Agreement shall never be construed as creating, a joint venture,
mining partnership, or other relationship by and between the Parties whereby any Party shall be
held liable for the acts, either of omission or commission, of any other Party hereto. The rights
and liabilities of the Parties hereunder shall be several and not joint or collective.

          9.2 Confidentiality. The Parties shall keep this transaction and the information
obtained from the Exploration Program strictly confidential and agree that no Party shall disclose
in whole or in part, any such information to any third party without the other Party’s prior
written consent. It is agreed that the Parties may disclose the information to the following
persons only to the extent necessary to evaluate the participation in acquiring leases and drilling
a well or wells thereon: (a) the Parties’ (and their affiliates’ and nominees’) employees, officers
and directors who need to examine the information for purposes of evaluation; (b) any professional
consultant retained for the purpose of evaluating the information; (c) their respective working
interest owners or potential participants in a Prospect area or non-consent acreage; or (d) any
lender financing the Parties’ participation in the potential acquisition or drilling, including any
professional consultant retained by the lender for purposes of evaluating the information. In any
event, the disclosing Party shall be responsible for ensuring that any party to whom the
information is disclosed shall keep the information confidential in accordance with this provision.

13

 

          9.3 Exhibits. The exhibits attached hereto are hereby incorporated herein and made a part
hereof for all purposes.

          9.4 Binding Effect. This Agreement will be binding upon the parties hereto, their successors
and assigns. The AMI provisions hereof constitute covenants running with the land.

          9.5 Complete Agreement. This Agreement supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the subject matter hereof and contains
all of the covenants and agreements between the parties with respect to said matter. Time is of the
essence in this Agreement.

          9.6 Amendment. No change, modification, or alteration of this Agreement shall be binding upon
any Party unless made in writing and executed by all Parties.

          9.7 Construction. This Agreement shall be construed in accordance with and governed in all
respects by the laws of the State of Texas. This Agreement shall be deemed to have been executed in
Houston, Texas, and all payments hereunder shall be deemed payable in Harris County, Texas.

          9.8 Notices. Any and all notices, requests, consents, responses to notices, or other
communications permitted or required to be given under the terms of this Agreement shall be in
writing, properly addressed to the other Party as shown below, and delivered by mail (postage
paid), by hand delivery or by facsimile transmission. Notices sent by email are ineffective.
Notices or responses are effective when received by the receiving Party during that Party’s regular
business hours. Notices and responses shall be deemed received (a) if given by facsimile
transmission, when transmitted if transmitted on a business day and during normal business hours of
the recipient, and otherwise on the next business day following transmission, (b) if given by
certified mail, return receipt requested, postage prepaid, three (3) business days after being
deposited in the United States mails and (c) if given by Federal Express service or other means,
when received or personally delivered. All communications shall be sent to the respective Party at
the address set forth below or at such other address as such Party may designate by ten (10) days
advance written notice to the other Party hereto:

	 	 	 	 	 

	 

	 	Addresses for Notices:	 	 
	 	 
	 

	 	If to HESS:
	 	Hess Corporation
	 

	 	 	 	One Allen Center
	 

	 	 	 	500 Dallas St.
	 

	 	 	 	Houston, TX 77002
	 

	 	 	 	Attention: J.Y. Christopher
	 

	 	 	 	Facsimile: (713) 609-4041
	 
	 	 	 	 
	 

	 	If to ZAZA:
	 	ZAZA ENERGY, LLC
	 

	 	 	 	Attn: Gaston Kearby

14

 

	 	 	 	 	 

	 

	 	 	 	600 Leopard St., Ste. 2100
	 

	 	 	 	Corpus Christi, Texas 78473
	 

	 	 	 	Tel: (361) 816-8910
	 

	 	 	 	Fax: (361) 884-9107

          9.9 Arbitration. All disputes, controversies, or claims that may arise among the
parties relating to this Agreement will be submitted to, and determined by, binding arbitration.
The arbitration will be conducted before a single arbitrator pursuant to the Commercial Arbitration
Rules then in effect of the American Arbitration Association but without using the offices or
auspices of the AAA. Exclusive venue for the arbitration will be in Harris County. Texas. The
arbitrator will apply the laws of the State of Texas (without regard to conflict of law rules) to
the dispute, controversy, or claim. Evidentiary questions will be governed by the Texas Rules of
Evidence. The arbitrator’s award will be in writing and shall set forth findings and conclusions
upon which the arbitrator based the award. The prevailing Party in the arbitration will be
entitled to recover its reasonable attorneys’ fees, costs, and expenses incurred in connection with
the arbitration, as determined by the arbitrator. Any award pursuant to the arbitration will be
final and binding upon the Parties and judgment on the award may be entered in any federal or state
court sitting or located in Harris County, Texas, or in any other court having jurisdiction. The
provisions of this Section will survive the termination of this Agreement. Notwithstanding the
foregoing, this Section will not prevent any Party from seeking injunctive relief from a court of
competent jurisdiction under appropriate circumstances, provided, however, such action will not
constitute a waiver of the provisions of this Section.

          9.10 Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one instrument.

          9.11 Public Announcements. The Parties agree to consult with each other prior to issuing any
press release or making any public statement with respect to this Agreement and, except for any
press release or public announcements, the making of which are required by law or any listing
agreement with any notional securities exchange, shall not issue any such press release or make any
such public statement prior to such consultation and the consent of the other Party.

X. REPRESENTATION, WARRANTIES AND COVENANTS OF HESS

          HESS hereby represents, warrants, and covenants to ZAZA as follows:

          10.1 Organization, Good Standing and Qualification. HESS is duly organized, validly existing
and in good standing under the laws of the State of Delaware and is qualified to do business and
in good standing in the State of Texas. HESS has all requisite corporate power and authority to
execute and deliver this Agreement, and to carry out the provisions of this Agreement.

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          10.2 Requisite Power and Authority. HESS has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry out its provisions.
All action on HESS’ part required for the lawful execution and delivery of this Agreement has been
or will be taken prior to the Closing. Upon its execution and delivery, this Agreement will be a
valid and binding obligation of HESS enforceable in accordance with its terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights and (b) general principles of equity that
restrict the availability of equitable remedies.

XI. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF ZAZA

          ZAZA hereby represents, warrants, and covenants to HESS as follows:

          11.1 Organization, Good Standing and Qualification. ZAZA is duly organized, validly
existing and in good standing under the laws of the State of Texas and is qualified to do business
and in good standing in the State of Texas. ZAZA has all requisite company power and authority to
execute and deliver this Agreement, and to carry out the provisions of this Agreement.

          11.2 Requisite Power and Authority. ZAZA has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry out its provisions.
All action on ZAZA’s part required for the lawful execution and delivery of this Agreement has
been or will be taken prior to the Closing. Upon its execution and delivery, this Agreement will be
a valid and binding obligation of ZAZA, enforceable in accordance with its terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights and (b) general principles of equity that
restrict the availability of equitable remedies. ZAZA represents that it has obtained all
necessary consents and/or approvals of all of its partners to enter into this Agreement and to
perform its obligations set forth hereunder.

          11.3 No Conflict. The execution, delivery and performance by ZAZA of this Agreement and the
consummation of the transactions contemplated hereby do not and will not: (i) violate or conflict
with any provision of the charter documents or bylaws of ZAZA; (ii) violate any provision or
requirement of any domestic or foreign, national, state, or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any governmental entity applicable to ZAZA;
(iii) violate, result in a breach of, constitute (with due notice or lapse of time or both) a
default or cause any obligation, penalty, premium or right of termination to arise or accrue under
any contract; (iv) result in the creation or imposition of any lien, charge or encumbrance of any
kind whatsoever upon any of the properties or assets of ZAZA; and (v) result in the cancellation,
modification, revocation or suspension of any license, permit, certificate, franchise,
authorization or approval issued or granted by any governmental entity.

          11.4 Consents. No consents or notices are required to be obtained or given by

16

 

or on behalf of ZAZA before consummation of the transactions contemplated by this Agreement in
compliance with all applicable laws, rules, regulations, orders or governmental or other agency
directives, or the provisions of any document binding upon ZAZA.

          11.5 Books and Records. ZAZA has maintained its books, records and files accurately and in
accordance with generally accepted industry standards and all books, records and files are in
ZAZA’s possession and the accounting records have been maintained in accordance with generally
accepted accounting principles consistently applied.

          11.6 Legal Proceedings. There is no suit, action, claim, investigation by any person or
entity or by any administrative agency or governmental body, and no legal administrative or
arbitration proceeding pending or, to ZAZA’s best knowledge, threatened against ZAZA which has
materially adversely affected or may so affect the performance of ZAZA.

          11.7 No Third Party Beneficiaries. No third party has any rights under this Agreement or may
enforce any provision in this Agreement.

          11.8 Conflicts of Interest. Except as otherwise expressly provided in this Agreement, no
director, employee, or agent of any Party shall give to or receive from any director, employee or
agent of any other Party, or any Affiliate of any other Party, any commission, fee, rebate, gift,
or entertainment of significant cost or value in connection with this Agreement. In addition, no
director, employee, or agent of any Party shall enter into any business arrangement with any
director, employee, or agent of any other Party, or any Affiliate of any other Party, who is not
acting as a representative of such other Party or its Affiliate, without prior written notification
thereof to the other Party.

          11.9 Assignment of This Agreement. Neither Party may assign or transfer in whole or part its
rights and obligations under this Agreement without the prior written consent of the other
Party, which consent shall not be unreasonably withheld, conditioned or delayed. Any
purported assignment or transfer in breach of this obligation is void as between HESS and ZAZA.
However, either Party may assign any of its rights and obligations under this Agreement to an
Affiliate or subsidiary without the consent of the other Party.

          11.10 Limitation of Liability and No Responsibility for Extraordinary Damages. The Parties
acknowledge their sole obligation and liability to each other in connection with the subject matter
hereof shall be governed by the terms of this Agreement and the Operating Agreement. Each Party
mutually waives and releases to the fullest extent permitted by applicable law, all claims for
Consequential Loss, punitive or exemplary damages arising out of this Agreement, whether such
claims are made in connection with an indemnity, a breach of any obligation under this Agreement,
or otherwise. For the purposes of this Agreement, the phrase “Consequential Loss”
shall mean any of the following regardless of cause, whether

17

 

arising under common law, equity or contract, by virtue of any fiduciary duty, in tort or
delict (including negligence) as a consequence of breach of any duty (statutory or otherwise)
or under any other legal doctrine or principle whatsoever, irrespective of whether recoverable
in law or equity.

(A) Loss of production, failure or inability to produce, process, take delivery
of, transport or deliver or delay in producing, processing, taking
delivery of, transporting or delivering hydrocarbons.

(B) Any failure, loss or damage or expense directly or indirectly consequent upon
any of the foregoing, including any loss or damage incurred or liquidated or
pre-estimated damages or penalties of any kind whatsoever borne or payable, under
any contract [for the sale, exchange, transportation, processing, storage or other
disposal of hydrocarbons].

(C) Any loss associated with business interruption including the cost of overheads
incurred during business interruption or deferment of revenue or income, loss of or
failure to obtain any contract or other business opportunity or loss of profit.

(D) Any loss, damage, cost and expense arising out of any action, claim, suit,
demand or judgment resulting from or arising out of any of the foregoing.

(E) Loss of bargain, contract, expectation or opportunity in each case whether
direct or indirect.

(F) Any indirect or consequential loss under applicable law whether or not
foreseeable at the date of execution of this Agreement.

          IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate counterpart
originals to be effective as of the Effective Date.

	 	 	 	 	 	 	 	 	 	 	 

	HESS CORPORATION	 	 	 	ZAZA ENERGY, LLC	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ William T. Drener III
	 	 	 	By:
	 	/s/ Todd Alan Brooks	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 
	Name:

	 	William T. Drener III
	 	 	 	Name:
	 	Todd Alan Brooks	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	SVP Exploration
	 	 	 	Title:
	 	Managing Partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Date:

	 	April 28, 2010
	 	 	 	Date:
	 	4/28/2010	 	 

18

 

Exhibit “A”

Plat of Eagle Ford Trend Area

EAGLE FORD SHALE TREND

ACROSS TEXAS

EXHIBIT “A”

 

 

Exhibit “D”

ATTACHED TO AND MADE A PART OF THAT CERTAIN EXPLORATION
AND DEVELOPMENT AGREEMENT ENTERED INTO THE
28th
OF APRIL, 2010 BETWEEN HESS CORPORATION AND ZAZA ENERGY, LLC.

HESS & ZAZA EAGLE FORD TREND

TAX PARTNERSHIP PROVISIONS

1. General Provisions

1.1 Designation of Documents.

This
exhibit is referred to in, and is part of, that Agreement identified above and, if so
provided, a part of any agreement to which the Agreement is an exhibit. Such agreement(s)
(including all exhibits thereto, other than this exhibit) shall be hereinafter referred to as the
“Agreement;” and this exhibit is hereinafter referred to as the “Exhibit” or the “Tax Partnership
Provisions.” Except as may be otherwise provided in this Exhibit, terms defined and used in the
Agreement shall have the same meaning when used herein.

1.2 Relationship of the Parties.

The parties to the Agreement shall be hereinafter referred to as “Party” or “Parties.” The Parties
understand and agree that the arrangement and undertakings evidenced by the Agreement result in a
partnership for purposes of Federal income taxation and certain State income tax laws which
incorporate or follow Federal income tax principles as to tax partnerships. Such partnership for
tax purposes is hereinafter referred to as the “Partnership.” For every other purpose of the
Agreement the Parties understand and agree that their legal relationship to each other under
applicable State law with respect to all property subject to the Agreement is one of tenants in
common, or undivided interest owners, or lessee(s)-sublessee(s) and not a partnership; that the
liabilities of the Parties shall be several and not joint or collective; and that each Party shall
be responsible solely for its obligations.

1.3 Priority of Provisions of this Exhibit.

If there is a conflict or inconsistency, whether direct or indirect, actual or apparent,
between the terms and conditions of this Exhibit and the terms and conditions of the
Agreement, or any other exhibit or any part thereof, the terms and conditions of this Exhibit
shall govern and control.

1.4 Survivorship.

1.4.1 Any termination of the Agreement shall not affect the continuing application of the Tax
Partnership Provisions for the termination and liquidation.

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1.4.2 Any termination of the Agreement shall not affect the continuing application of the Tax
Partnership Provisions for the resolution of all matters regarding Federal and State income
reporting.

1.4.3 These Tax Partnership Provisions shall inure to the benefit of, and be binding upon,
the Parties hereto and their successors and assigns.

1.4.4 Term. The effective date of the Agreement shall be the effective date of these Tax
Partnership Provisions. The Partnership shall continue in full force and effect from, and after
such date, until termination and liquidation.

2. Tax Reporting Partner and Tax Matters Partner

2.1 Tax Reporting Partner.

The Operator (or the Party listed in Sec. 9.1) as the Tax Reporting Partner (“TRP”) is responsible
for compliance with all tax reporting obligations of the Partnership, see Sec. 3.1, below. In the
event of any change in the TRP, the Party serving as TRP at the beginning of a given taxable year
shall continue as TRP with respect to all matters concerning such year.

2.2 If Small Partnership Exception Not Applicable.

If the Partnership does not qualify for the “small partnership exception” from, or if the
Partnership elects (see infra Elections at Secs. 4.1 and 9.2) to be subject to, §§6221 et seq.,
Subchapter C of Chapter 53 of Subtitle A (the “TEFRA rules”) of the Internal Revenue Code (the
“Code”) the TRP shall also be the Tax Matters Partner as defined in Code §6231 (a) (the “TMP”) and
references to the TRP shall then include references to the TMP and vice versa.

2.2.1 Expenses. The TMP shall not be required to incur any expenses for the preparation for, or
pursuance of, administrative or judicial proceedings, unless the Parties agree on a method for
sharing such expenses.

2.2.2 Information Request by the TMP. The Parties shall furnish the TMP, within two weeks from the
receipt of the request, the information the TMP may reasonably request to comply with the
requirements on furnishing information to the Internal Revenue Service.

2.2.3 The TMP shall not agree to any extension of the statute of limitations for making assessments
on behalf of the Partnership without first obtaining the written consent of all Parties. The TMP
shall not bind any other Party to a settlement agreement in tax audits without obtaining the
written concurrence of any such Party.

2.2.4 Any other Party who enters in a settlement agreement with the Secretary of the Treasury
with respect to any partnership items, as defined in Code §6231 (a)(3), shall notify the
other Parties of the terms within ninety (90) days from the date of such

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settlement.

2.2.5 Inconsistent Treatment of Partnership Items. If any Party intends to file a notice of
inconsistent treatment under Code §6222(b), such Party shall, prior to the filing of such notice,
notify the TMP of the (actual or potential) inconsistency of the Party’s intended treatment of a
partnership item with the treatment of that item by the Partnership. Within one week of receipt the
TMP shall remit copies of such notification to the other Parties. If an inconsistency notice is
filed solely because a Party has not received a Schedule K-l in time for filing of its income tax
return, the TMP need not be notified.

2.2.6 Request for Administrative Adjustment. No Party shall file pursuant to Code §6227 a request
for an administrative adjustment of partnership items without first notifying all other Parties. If
all other Parties agree with the requested adjustment, the TMP shall file the request on behalf of
the Partnership. If unanimous consent is not obtained within thirty (30) days from such notice, or
within the period required to timely file the request, if shorter, any Party, including the TMP,
may file a request for administrative adjustment on its own behalf.

2.2.7 Judicial Proceedings. Any Party intending to file with respect to any partnership item, or
any other tax matter involving the Partnership, a petition under Code §§6226, 6228, or any other
provision, shall notify the other Parties prior to such filing of the nature of the contemplated
proceeding. In the case where the TMP is the Party intending to file such petition, such notice
shall be given within a reasonable time to allow the other Parties to participate in the choice of
the forum for such petition. If the Parties do not agree on the appropriate forum, then the forum
shall be chosen by majority vote. Each Party shall have a vote in accordance with its percentage
interest in the Partnership for the year under audit. If a majority cannot agree, the TMP shall
choose the forum. If a Party intends to seek review of any court decision rendered as a result of
such proceeding, the Party shall notify the other Parties prior to seeking such review.

3. Income Tax Compliance and Capital Accounts

3.1 Tax Returns.

The TRP shall prepare and file all required Federal and State partnership income tax returns. Not
less than thirty (30) days prior to the return due date (including extensions), the TRP shall
submit to each Party for review a copy of the return as proposed.

3.2 Fair Market Value Capital Accounts.

The TRP shall establish and maintain for each Party fair market value (“FMV”) capital accounts and
tax basis capital accounts. Upon request, the TRP shall submit to each Party along with a copy of
any proposed partnership income tax return an accounting of such Party’s FMV capital accounts as of
the end of the return period.

3.3 Information Requests.

Each Party agrees to furnish to the TRP not later than sixty (60) days before the return

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due date (including extensions) such information relating to the operations conducted under
the Agreement as may be required for the proper preparation of such returns. Similarly, each Party
agrees to furnish to the TRP, as requested and timely, any the information and data necessary for
the preparation and/or filing of other required reports and notifications, and for the computation
of the capital accounts. As provided in Code §6050K(c), a Party transferring its interest must
notify the TRP to allow compliance with Code §6050K(a) (see also Sec. 8.1).

3.4 Best Efforts.

The TRP and the other Party(ies) shall use its/their best efforts to comply with
responsibilities outlined in this Section, and with respect to the service as TMP as
outlined Sec. 2.2, and in doing so shall incur no liability to any other Party.

4. Tax and FMV Capital Account Elections

4.1 General Elections.

For both income tax return and capital account purposes, the Partnership shall elect:

a) to deduct when incurred intangible drilling and development costs (“IDC”);

b) to use the maximum allowable accelerated tax method and the shortest permissible tax life for
depreciation;

c) the accrual method of accounting;

d) to report income on a calendar year basis;

and the Partnership shall also make any elections as specially noted in Sec. 9.2, below.

4.2 Depletion.

Solely for FMV capital account purposes, depletion shall be calculated by using simulated cost
depletion within the meaning of Treas. Reg.§1.704-1(b)(2)(iv)(k)(2), unless the use of simulated
percentage depletion is elected in Sec. 9.2, below. The simulated cost depletion allowance shall be
determined under the principles of Code §612 and be based on the FMV capital account basis of each
Lease. Solely for purposes of this calculation, remaining reserves shall be determined consistently
by the TRP.

4.3 Election Out Under Code §761(a).

4.3.1 The TRP shall notify all Parties of an intended election to be excluded from the application
of Subchapter K of Chapter 1 of the Code not later than sixty (60) days prior to the filing date or
the due date (including extensions) for the Federal partnership income tax return, whichever comes
earlier. Any Party that does not consent must provide the TRP with written objection within thirty
(30) days of such notice.

4.3.2 After an election-out, to avoid an unintended impairment of the election-out: The Parties
will avoid, without prior coordination, any operational changes which would terminate the
qualification for the election-out status; all Parties will monitor the continuing qualification of
the Partnership for the election-out status and will notify the other Parties if, in their opinion,
a change in operations will jeopardize the election-out;

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and, all Parties will use, unless agreed to by them otherwise, the cumulative gas balancing method
as described in Treas. Reg.§1.761-2(d)(2).

4.4 Consent Requirements for Other Tax or FMV Capital Account Elections. Unless stipulated
differently in Sec. 9.3, any election, other than those referenced above, must be approved by the
affirmative vote of two (2) or more Parties owning a majority of the working interest based upon
post-Payout ownership.

5. Capital Contributions and FMV Capital Accounts

The provisions of this Sec. 5 and any other provisions of the Tax Partnership Provisions relating
to the maintenance of the capital accounts are intended to comply with Treas. Reg. § 1.704-1(b)
and shall be interpreted and applied in a manner consistent with such regulations.

5.1 Capital Contributions.

The respective capital contributions of each Party to the Partnership shall be (a) each Party’s
interest in the oil and gas lease(s), including all associated lease and well equipment, committed
to the Partnership, and (b) all amounts of money paid by each Party in connection with the
acquisition, exploration, development, and operation of the lease(s), and all other costs
characterized as contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership shall be made by
each Party’s agreement to hold legal title to its interest in such leases or other property as
nominee of the Partnership.

5.2 FMV Capital Accounts.

The FMV capital accounts shall be increased and decreased as follows:

5.2.1 The FMV capital account of a Party shall be increased by:

(i) the amount of money and the FMV (as of the date of contribution) of any property contributed by
such Party to the Partnership (net of liabilities assumed by the Partnership or to which the
contributed property is subject);

(ii) that Party’s share of Partnership items of income or gain, allocated in accordance with Sec.
6.0; and

(iii) that Party’s share of any Code §705(a)(l)(B)item.

5.2.2 The FMV capital account of a Party shall be decreased by:

(i) the amount of money and the FMV of property distributed to a Party (net of liabilities assumed
by such Party or to which the property is subject);

(ii) that Party’s Sec. 6.1 allocated share of Partnership loss and deductions, or items thereof;
and,

(iii) that Party’s share of any Code §705(a)(2)(B) item.

5.2.3 “FMV” when it applies to property contributed by a Party to the Partnership shall be assumed
to equal the adjusted tax basis, as defined in Code §1011, of that property unless the Parties
agree otherwise as indicated in Sec. 9.2.

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5.2.4 FMV Capital Account Revaluation.

As
provided in Treas. Reg. §1.704-1(b)(iv)(e), the capital accounts will be adjusted to reflect
the manner in which the unrealized income, gain, loss and deduction inherent in distributed
property (not previously reflected in the capital accounts) would be allocated among the Parties
if there were a taxable disposition of such property at its FMV as of the time of distribution.
Furthermore, if so agreed to in Sec. 9.2, under the rules of Treas.
Reg. § 1.704-1(b)(iv)(f), the
FMV capital accounts shall be revalued to reflect value changes of the Partnership property.

6. Partnership Allocations

6.1 FMV Capital Account Allocations.

Each item of income, gain, loss, or deduction shall be allocated to each Party as follows:

6.1.1 Actual or deemed income from the sale, exchange, distribution or other disposition of
production shall be allocated to the Party entitled to such production or the proceeds from the
sale of such production. The amount received from the sale of production and the amount of the FMV
of production taken in kind by the Parties are deemed to be identical: accordingly, such items may
be omitted from the adjustments made to the Parties’ FMV capital accounts.

6.1.2 Exploration cost, IDC, operating and maintenance cost shall be allocated to each Party in
accordance with its respective contribution, or obligation to contribute, to such cost.

6.1.3 Depreciation shall be allocated to each Party in accordance with its contribution, or
obligation to contribute, to the cost of the underlying asset.

6.1.4 Simulated depletion shall be allocated to each Party in accordance with its FMV capital
account adjusted basis in each oil and gas property of the Partnership.

6.1.5 Loss (or simulated loss) upon the sale, exchange, distribution, abandonment or other
disposition of depreciable or depletable property shall be allocated to the Parties in the ratio of
their respective FMV capital account adjusted bases in the depreciable or depletable property.

6.1.6 Gain (or simulated gain) upon the sale, exchange, distribution, or other disposition of
depreciable or depletable property shall be allocated to the Parties so that the FMV capital
account balances of the Parties will most closely reflect their respective percentage or fractional
interests under the Agreement.

6.1.7 Costs or expenses of any other kind shall be allocated to each Party in accordance with its
respective contribution, or obligation to contribute, to such costs or expense.

6.1.8 Any other income item shall be allocated to the Parties in accordance with the

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manner in which such income is realized by each Party.

6.2 Tax Return and Tax Basis Capital Account Allocations.

6.2.1 Unless otherwise expressly provided in this Sec. 6.2, the allocations of the Partnership’s
items of income, gain, loss, or deduction for tax return and tax basis capital account purposes
shall follow the principles of the allocations under Sec. 6.1. However, the Partnership’s gain or
loss on the taxable disposition of a Partnership property in excess of the gain or loss under Sec.
6.1, if any, is allocated to the contributing Party to the extent of such Party’s pre-contribution
gain or loss.

6.2.2 The Parties recognize that under Code §613A(c)(7)(D) the depletion allowance is to be
computed separately by each Party. For this purpose, each Party’s share of the adjusted tax basis
in each oil and gas property shall be equal to its contribution to the adjusted tax basis of
such-property.

6.2.3 Under Code §613A(c)(7)(D) gain or loss on the disposition of an oil and gas property is to be
computed separately by each Party. According to Treas. Reg.
§1.704-1(b)(4)(v), the amount realized
is allocated as follows: (i) An amount that represents recovery of adjusted simulated depletion
basis is allocated (without being credited to the capital accounts) to the Parties in the same
proportion as the aggregate simulated depletion basis was allocated to such Parties under Sec. 5.2;
and (ii) any remaining realization is allocated in accordance with Sec. 6.1.6.

6.2.4 Depreciation shall be allocated to each Party in accordance with its contribution to the
adjusted tax basis of the depreciable asset.

6.2.5 In accordance with Treas. Reg. §1.1245-1(e), depreciation recapture shall be
allocated, to the extent possible, among the Parties to reflect their prior sharing of the
depreciation.

6.2.6 In accordance with the principles of Treas. Reg. §1.1254-5, any recapture of IDC is
determined and reported by each Party separately. Similarly, any recapture of depletion shall be
computed separately by each Party, in accordance with its depletion allowance computed pursuant to
Sec. 6.2.2.

6.2.7 For Partnership properties with FMV capital account values different from their adjusted tax
bases the Parties intend that the allocations described in this Section 6.2 constitute a
“reasonable method” of allocating gain or loss under Treas. Reg. §1.704-3(a)(l).

6.2.8 Take-in-kind.

If checked “Yes” in Sec. 9.2, below, each Party has the right to determine the market for its
proportionate share of production. All items of income, deductions, and credits arising from such
marketing of production shall be recognized by the Partnership and shall be

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allocated to the Party whose production is so marketed. 

7.
Termination and Liquidating Distribution

7.1 Termination of the Partnership.

7.1.1 Upon termination, as provided in Code §708(b)(l)(A), the business shall be wound-up and
concluded, and the assets shall be distributed to the Parties as described below, by the end of
such calendar year (or, if later, within ninety (90) days after the date of such termination). The
assets shall be valued and distributed to the Parties in the order provided in Sees. 7.1.2, 7.5,
and 7.7

7.1.2 Reversion. First, all cash representing unexpended contributions by any Party and any
property in which no interest has been earned by any other Party under the Agreement shall be
returned to the contributor.

7.2 Balancing of FMV Capital Accounts.

Second, the FMV capital accounts of the Parties shall be determined as described hereafter. The TRP
shall take the actions specified under this Sec. 7.2 in order to cause the ratios of the Parties’
FMV capital accounts to reflect, as closely as possible, their interests under the Agreement. The
ratio of a Party’s FMV capital account is represented by a fraction, the numerator of which is the
Party’s FMV capital account balance and the denominator of which is the sum of all Parties’ FMV
capital account balances. This is hereafter referred to as the “balancing of the FMV capital
accounts” and, when completed, the FMV capital accounts of the Parties shall be referred to as
“balanced.”

7.3 Deemed Sale Gain/Loss Charge Back.

The FMV of all Partnership properties shall be determined and the gain or loss for each property,
which would have resulted if sold at such FMV, shall be allocated in accordance with Sees. 6.1.5
and 6.1.6.

7.4 Deficit Make-Up Obligation.

If hereafter a Party has a negative FMV capital account balance, that is a balance of less than
zero, in accordance with of Treas. Reg. § 1.704-1 (b)(2)(ii)(b)(3) such Party is obligated to
contribute an amount of money to the Partnership sufficient to achieve a zero balance FMV capital
account (the “Deficit Make-Up Obligation”). Moreover, any Party may contribute an amount of cash to
the Partnership to facilitate the balancing of the FMV capital accounts. If after these adjustments
the FMV capital accounts are not balanced, Sees. 7.5 shall apply.

7.5 Distribution to balance capital accounts.

7.5.1 If all Parties agree, any cash or an undivided interest in certain selected properties shall
be distributed to one or more Parties as necessary for the purpose of balancing the FMV capital
accounts.

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7.5.2 Distribution of undivided interests.

Unless Sec.7.5.1 applies, an undivided interest in each and every property shall be distributed
to one or more Parties in accordance with the ratios of their FMV capital accounts.

7.6 FMV determination.

If a property is to be valued for purposes of balancing the capital accounts and making a
distribution under this Sec. 7, the Parties must first attempt to agree on the FMV of the
property; failing such an agreement, the TRP shall cause a nationally recognized independent
engineering firm to prepare an appraisal of the FMV of such property.

7.7 Final Distribution.

After the FMV capital accounts of the Parties have been adjusted pursuant to Secs.7.2 to 7.5,
all remaining property and interests then held by the Partnership shall be distributed to the
Parties in accordance with their positive FMV capital account balances.

8. Transfers, Indemnification, and Correspondence

8.1 Transfer of Partnership Interests.

Transfers of Partnership interests shall be governed by the Agreement. A Party transferring its
interest, or any part thereof, shall notify the TRP in writing within two weeks after such
transfer.

8.2 Correspondence.

All correspondence relating to the preparation and filing of the Partnership’s income tax returns
and capital accounts shall be sent to:

	 	 	 

	TRP

	 	“Att to:” reference
	 

	 	Att: Milton Mosk
	Hess Corporation

	 	500 Dallas St.
	 

	 	Box 2040
	 

	 	Houston, Texas 77252-2040
	Other Parties:
	 	 
	

ZaZa Energy, LLC

	 	Att: Gaston Kearby 
600 Leopard St., Ste. 2100

	 

	 	Corpus Christi, Texas 78473

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9. Elections and Changes to above Provisions

9.1 Operator not the TRP.

With respect to Sec. 2.1, (insert name of Party to be TRP instead of Operator,
or indicate “N/A”) Hess Corporation is designated as TRP.

9.2 Special Tax Elections

With respect to Sec. 4.1, the Parties agree (if not applicable insert “N/A” or strike):

	 	 	 
	 	Yes
	e) that the Partnership shall elect to account for dispositions of depreciable assets
under the general asset method to the extent permitted by Code §168(i)(4);

	 	Yes
	 
	 	 
	f) that the Partnership shall elect under Code §754 to adjust the basis of Partnership
property, with the adjustments provided in Code §734 for a distribution of property and in Code
§743 for a transfer of a partnership interest. In case of distribution of property the TRP
shall adjust all tax basis capital accounts. In the case of a transfer of a partnership
interest the acquiring party(ies) shall establish and maintain its (their) tax basis capital
account(s);

	 	Yes
	 
	 	 
	
g) that the Partnership shall elect under Code §6231 to be subject to the TEFRA rules.

	 	N/A
	 	 	 
	With respect to Sec. 4.2, Depletion, the Parties agree that the Partnership shall use
simulated percentage depletion instead of simulated cost depletion.

	 	N/A
	 	 	 
	With respect to Sec. .5.2.4, under the
rules of Treas. Reg. § 1.704-1(b)(iv)(f), the
Parties agree that the FMV capital accounts shall be revalued to reflect value changes of the
Partnership property upon the occurrence of the events specified in (5)(i) through (iii) of said
regulations.

	 	N/A
	 
	 	 
	
With respect to Sec. 6.2.8, the income attributable to take-in-kind production will be
reflected on the tax return.

	 	N/A

With respect to Sec. 5.2.3 the FMV for the listed properties are
determined as follows (mark as “N/A” if not applicable)

	 	 	 

	
Property Description

	 	FMV
	 

	 	N/A

9.3 Change of Majority for Other Tax Elections

Instead of the Sec. 4.4 majority for other tax elections, a majority shall be
considered if consisting of (specify or line out blanks) N/A

END OF EXHIBIT “D”

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