Document:

Anavex Life Sciences Corp.: Exhibit 10.5 - Filed by newsfilecorp.com

THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES INTO
WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION
TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION
S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”).

NONE OF THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE 1933
ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED
HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION,
HEDGING TRANSACTIONS INVOLVING THIS SECURITY AND THE SECURITIES INTO WHICH THIS
SECURITY IS CONVERTIBLE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933
ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE
1933 ACT. 

Issue Date: February 22, 2010 

Conversion Price (subject to adjustment herein): USD
$2.35 share 

Principle Amount: USD $ 

ANAVEX LIFE SCIENCES CORP. 
20% CONVERTIBLE LOAN

FOR VALUE RECEIVED, ANAVEX LIFE SCIENCES CORP. (the
“Company”) promises to pay to ________________ or its registered
assigns (the “Holder”), the principal sum of _______________ ($) in
lawful currency of the United States (the “Principal Amount” ) on
February 22, 2012 or such earlier date as the Convertible Loan may be permitted
to be repaid as provided hereunder (the “Maturity Date”), and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Convertible Loan at the rate of 20% per annum, payable
on the earlier of (i) the Conversion Date (as hereafter defined) (and subject in
any event to the terms of Section 3, below) and (ii) the Maturity Date. Interest
shall be calculated on the basis of a 365-day year and shall accrue daily
commencing on the Issue Date until payment in full of the Principal Amount,
together with all accrued and unpaid interest and other amounts which may become
due hereunder, has been made. Interest shall cease to accrue with respect to any
part of the Principal Amount converted, provided that the Company in fact
delivers the Shares, within the time period required by Section 3.3. Interest
hereunder will be paid to the Person in whose name this Convertible Loan is
registered on the records of the Company regarding registration and transfers of
Convertible Loans. The Company may prepay any portion of the principal and
interest amount of this Convertible Loan at any time after 12 months from issue
date by giving 30 days written notice to the Holder. 

This Convertible Loan is part of an offering in which all
Holders of such Convertible Loans are equal as to all rights and the amounts
owing to each will be treated pari passu.

This Convertible Loan is subject to the following additional
provisions: 

	1. 	
      Subscription Agreement

	 	(a) 	
      This Convertible Loan has been issued pursuant to a
      subscription agreement between the Company and the Holder dated February
      22. 2010 (the “Subscription Agreement”) pursuant to which the
      Holder purchased this Convertible Loan, and this Convertible Loan is
      subject in all respects to the terms of the Subscription Agreement and
      incorporates the terms of the Subscription Agreement to the extent that
      they do not conflict with the terms of this Convertible Loan. This
      Convertible Loan is not transferable and may be exchanged or converted
      only in compliance with the terms hereof, the terms of the Subscription
      Agreement and applicable securities laws and regulations.

	 	 	 
	 	(b) 	
      The Holder acknowledges that finder’s fees may be payable
      by the Company in connection with this Convertible Loan.

	 	 	 
	 	(c) 	
      The Company hereby grants to Holder piggyback
      registration rights with respect to the shares underlying the Convertible
      Loan. The piggyback registration rights shall be in effect from the date
      of issuance of the shares until such time that the underlying shares are
      eligible for sale pursuant to Rule 144 of the General Rules and
      Regulations under the Securities Act of 1933, as
amended.

THE OBLIGATIONS UNDER THIS CONVERTIBLE LOAN AGREEMENT ARE
UNSECURED AGAINST THE ASSETS OF THE COMPANY AND THEREFORE OTHER CHARGES MAY HAVE
PRIORITY AGAINST THE COMPANY’S ASSETS BEFORE THE HOLDER OF THIS CONVERTIBLE
LOAN. THERE IS NO GUARANTEE THAT THE COMPANY WILL HAVE SUFFICIENT ASSETS UPON AN
EVENT OF DEFAULT TO PAY THE HOLDER WHAT IS OWED.

	2. 	
      Conversion

	 	 	 
		(a) 	
      At any time after six months from the Issue Date until
      this Convertible Loan is no longer outstanding, this Convertible Loan may
      be converted into Shares at the option of the Holder, in whole or in part
      at any time and from time to time. The Holder shall effect conversions by
      delivering to the Company the form of Notice of Conversion attached hereto
      as Annex A (a “Notice of Conversion”), specifying therein the
      principal amount to be converted. The date on which such conversion is to
      be effected (a “Conversion Date”) shall be the date that is five
      business days following delivery of the Notice of Conversion to the
      Company. To effect conversions hereunder, the Holder shall not be required
      to physically surrender the Convertible Loan to the Company unless the
      entire principal amount of this Convertible Loan plus all accrued and
      unpaid interest thereon has been so converted. Conversions hereunder shall
      have the effect of lowering the outstanding principal amount of this
      Convertible Loan in an amount equal to the applicable conversion. The
      Holder and the Company shall maintain records showing the principal amount
      converted and the date of such conversions. The Company shall deliver any
      objection to any Notice of Conversion within ten business days of receipt
      of such notice. The Holder, by acceptance of this Convertible Loan,
      acknowledges and agrees that, by reason of the provisions of this
      paragraph, following conversion of a portion of this Convertible Loan, the
      unpaid and unconverted principal amount of this Convertible Loan may be
      less than the amount stated on the face hereof. From and after the date of
      a Notice of Conversion until the Conversion Date, the Company shall have
      the right to prepay any or all of the principal amount and interest to be
      converted pursuant to such Notice of Conversion.

	 	 	 
		(b) 	
      The number of Shares issuable upon a conversion shall be
      determined by the quotient obtained by dividing (x) by (y)
      where (x) shall be equal to the outstanding principal amount of
      this Convertible Loan to be converted plus the amount of interest that has
      accrued thereon, and (y) is equal to the Conversion Price, as
      adjusted pursuant to this Convertible Loan.

	 	(c) 	
      Not later than ten Trading Days after any Conversion
      Date, the Company will deliver to the Holder a certificate or
      certificates, which shall bear such restrictive legends required by the
      Subscription Agreement, representing the number of Shares being acquired
      upon the conversion, including the conversion of accrued and unpaid
      interest through the Conversion Date.

	 	 	 
	 	(d) 	
      The conversion price in effect on any Conversion Date
      shall be equal to USD $2.35 (subject to adjustment herein).

	 	 	 
	 	(e) 	
      If the Company, at any time while this Convertible Loan
      is outstanding: (A) shall pay a stock dividend or otherwise make a
      distribution or distributions in shares of its Common Stock or any other
      equity or equity equivalent securities payable in shares of Common Stock,
      (B) subdivide outstanding shares of Common Stock into a larger number of
      shares, (C) combine (including by way of reverse stock split) outstanding
      shares of Common Stock into a smaller number of shares, or (D) issue by
      reclassification of shares of the Common Stock any shares of capital stock
      of the Company, then the Conversion Price shall be multiplied by a
      fraction of which the numerator shall be the number of shares of Common
      Stock (excluding treasury shares, if any) outstanding before such event
      and of which the denominator shall be the number of shares of Common Stock
      outstanding after such event. Any adjustment made pursuant to this Section
      shall become effective immediately after the record date for the
      determination of stockholders entitled to receive such dividend or
      distribution and shall become effective immediately after the effective
      date in the case of a subdivision, combination or
  reclassification.

	 	 	 
	 	(f) 	
      The Company covenants that it will at all times reserve
      and keep available out of its authorized and unissued shares of Common
      Stock solely for the purpose of issuance upon conversion of the
      Convertible Loans, each as herein provided, free from preemptive rights or
      any other actual contingent purchase rights of Persons other than the
      Holder, not less than such number of shares of the Common Stock as shall
      (subject to any additional requirements of the Company as to reservation
      of such shares set forth in the Subscription Agreement) be issuable upon
      the conversion of the outstanding principal amount of the Convertible
      Loan. The Company covenants that all shares of Common Stock that shall be
      so issuable shall, upon issue, be duly and validly authorized, issued and
      fully paid and nonassessable.

	 	 	 
	 	(g) 	
      Upon a conversion hereunder the Company shall not be
      required to issue stock certificates representing fractions of shares of
      the Common Stock, and the Holder shall be entitled to receive, in lieu of
      any final fraction of a share in excess of 0.50, one whole share of Common
      Stock.

	3. 	
      Notices

	 	 	 
		(a) 	
      Any and all notices or other communications or deliveries
      to be provided by the Holders hereunder, including, without limitation,
      any Notice of Conversion, shall be in writing and delivered personally, by
      facsimile, sent by a nationally recognized overnight courier service,
      addressed to the Company, at the address set forth above, facsimile number
      (250) 764-9701, Attn: President or such other address or facsimile
      number as the Company may specify for such purposes by notice to the
      Holder delivered in accordance with this Section. Any and all notices or
      other communications or deliveries to be provided by the Company hereunder
      shall be in writing and delivered personally, by facsimile, sent by a
      nationally recognized overnight courier service addressed to the Holder at
      the facsimile telephone number or address of such Holder appearing on the
      books of the Company, or if no such facsimile telephone number or address
      appears, at the principal place of business of the Holder. Any notice or
      other communication or deliveries hereunder shall be deemed given and
      effective on the earliest of (i) the date of transmission, if such notice
      or communication is delivered via facsimile at the facsimile telephone
      number specified in this Section prior to
5:30 p.m. (Pacific Standard Time), (ii) the date after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (Pacific
Standard Time) on any date and earlier than 11:59 p.m. (Pacific Standard Time)
on such date, (iii) the second business day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. 

	4. 	
      Definitions

	 	 	 	 
		(a) 	
      For the purposes hereof, in addition to the terms defined
      elsewhere in this Convertible Loan: (i) capitalized terms not otherwise
      defined herein have the meanings given to such terms in the Subscription
      Agreement, and (ii) the following terms shall have the following
      meanings:

	 	 	 	 
			(i) 	
      “Business Day” means any day except Saturday,
      Sunday and any day which shall be a federal legal holiday in the United
      States or Canada or a day on which banking institutions in the State of
      New York or the Province of British Columbia are authorized or required by
      law or other government action to close.

	 	 	 	 
			(ii) 	
      “Commission” means the Securities and Exchange
      Commission.

	 	 	 	 
			(iii) 	
      “Common Stock” means the common stock, par value
      $0.001 per share, of the Company and stock of any other class into which
      such shares may hereafter have been reclassified or changed.

	 	 	 	 
			(iv) 	
      “Conversion Date” shall have the meaning set forth
      in Section 3.1 hereof.

	 	 	 	 
			(v) 	
      “Exchange Act” means the Securities Exchange Act
      of 1934, as amended.

	 	 	 	 
			(vi) 	
      “Issue Date” shall have the meaning shown on the
      first page of this Convertible Loan.

	 	 	 	 
			(vii) 	
      “Maturity Date” shall be 24 months from Issue
      Date.

	 	 	 	 
			(viii) 	
      “Person” means a corporation, an association, a
      partnership, organization, a business, an individual, a government or
      political subdivision thereof or a governmental agency.

	 	 	 	 
			(ix) 	
      “Subscription Agreement” means the Securities
      Subscription Agreement, dated as of February 22, 2010, to which the
      Company and the Holder are parties, as amended, modified or supplemented
      from time to time in accordance with its terms.

	 	 	 	 
			(x) 	
      “Securities Act” means the Securities Act of 1933,
      as amended, and the rules and regulations promulgated
thereunder.

	 	 	 	 
			(xi) 	
      “Trading Day” means a day on which the shares of
      Common Stock are traded on a trading market on which the shares of Common
      Stock are then listed or quoted, provided , that in the event that the
      shares of Common Stock are not listed or quoted, then Trading Day shall
      mean a Business Day.

	5. 	
      Miscellaneous

Except as expressly provided herein, no provision of this
Convertible Loan shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the Principal Amount and interest on, this
Convertible Loan at the time, place, and rate, in United States currency, as
herein prescribed. This Convertible Loan is a direct debt obligation of the
Company. As long as this Convertible Loan is outstanding, the Company shall not
and shall cause it Subsidiaries not to, without the consent of the Holder, amend
its certificate of incorporation, bylaws or other charter documents so as to
materially and adversely affect any rights of the Holder. 

6.        
 Replacement of Convertible Loan if lost or destroyed 

If this Convertible Loan shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Convertible Loan, or in lieu of or in
substitution for a lost, stolen or destroyed Convertible Loan, a new Convertible
Loan for the principal amount of this Convertible Loan so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Convertible Loan, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Company. 

7.          Other
Indebtedness 

So long as any portion of this Convertible Loan is outstanding,
the Company will not and will not permit any Subsidiary or other affiliate to,
directly or indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness or liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom that is senior to, or pari passu with, in any respect,
the Company’s obligations under this Convertible Loan without the prior consent
of the Holder, provided however that all Convertible Loans that are part of the
same offering will be pari passu with each other and equal in all
respects. . 

8.          Governing
Law 

All questions concerning the construction, validity,
enforcement and interpretation of this Convertible Loan shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Nevada, without regard to the principles of conflicts of law thereof. 

9.          Waivers

Any waiver by the Company or the Holder of a breach of any
provision of this Convertible Loan shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Convertible Loan. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Convertible Loan on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Convertible Loan. Any waiver must be in writing. 

10.        Usury 

If any provision of this Convertible Loan is invalid, illegal
or unenforceable, the balance of this Convertible Loan shall remain in effect,
and if any provision is inapplicable to any Person or circumstance, it shall
nevertheless remain applicable to all other Persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
violates applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on this Convertible Loan as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted. 

11.        Next
business day 

Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day. 

 

IN WITNESS WHEREOF, the Company has caused this Convertible
Loan to be duly executed by a duly authorized officer as of the date first above
indicated. 

 

ANAVEX LIFE SCIENCES CORP

By: ________________________

Name: 
Title: 

ANNEX A 

NOTICE OF CONVERSION 

The undersigned hereby elects to convert principal and all
accrued and outstanding interest under the 20% Convertible Loan of Anavex Life
Sciences Corp., a Nevada corporation (the “ Company “), due on
__________, 20__, into shares ( “Shares” ) of common stock of the
Company, par value $0.001 per share (the “ Common Stock “) as of the date
written below. 

Conversion calculations: 

Date to Effect Conversion: 

Principal Amount of Convertible Loans to be Converted: 

Amount of issued and outstanding interest: 

Number of Shares of Common Stock to be issued: 

Signature: 

Name: 

 

Address:exh10_1.htm

     

    
      

      

    

    Exhibit
10.1

     

     

     

    
 

    PURCHASE AND SALE
AGREEMENT

    

     

    

    THIS PUCHASE AND SALE
AGREEMENT (this “Agreement”) is made and
entered into this 9th day
of April, 2010, by and between Provident Energy Associates of
Montana, LLC, a Montana limited liability company (“Seller”), and Knightwall Invest, Inc., a
corporation organized under the laws of the British Virgin Islands (“Buyer”).

    

    

    Background

    

    A.  Seller is
the owner of certain oil, gas and mineral leasehold estates and related assets
more particularly described elsewhere in this Agreement; and

    

    B.  Seller
desires to sell to Buyer, and Buyer desires to purchase from Seller, thirty
percent (30%) of the oil, gas and mineral leasehold estates and related assets
owned by Seller on the terms and conditions set forth in this
Agreement.

    

    

    Terms
and Conditions

    

    In consideration of the mutual benefits
to be derived from this Agreement, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound hereby, the parties hereto hereby agree as
follows:

    

    

    ARTICLE
I

    

    PURCHASE
AND SALE

    

    1.01           Assets Being Purchased and
Sold.  Effective as of 7:00 o'clock a.m., Mountain Daylight
Time, on the Closing Date, as such term is hereinafter defined (the “Effective Time”), subject to
the terms and conditions of this Agreement, Sellers agrees to sell and convey to
Buyer, and Buyer agrees to purchase and pay for, thirty percent (30%) of
Seller's right, title and interest in and to the following assets (the “Assets”):

    

    (a)  The oil,
gas and mineral leases and leasehold estates presently included in the Two
Medicine Cut Bank Sand Unit in Pondera and Glacier Counties, Montana, as more
particularly described in Annex “A” attached hereto and incorporated herein by
reference for all purposes (collectively, the “Leasehold
Interests”);

    

    (b)  The
personal and mixed property, irrespective of whether or not located on the
Leasehold Interests, that is attributable or allocable to the Leasehold
Interests and used or held for use in connection with the exploration,
development, operation or maintenance of any of the Leasehold Interests or the
production, treatment, measurement, storage gathering, transportation or
marketing of oil, gas or other hydrocarbons attributable to the Leasehold
Interests (or the interests of others therein), including, without limitation,
(i) all wells, equipment and facilities that, as of the Effective Time were used
or held for use in connection with the exploration, development, operation or
maintenance of any Leasehold Interests or the production, treatment,
measurement, storage, gathering, transportation or marketing of oil, gas or
other hydrocarbons attributable to the Leasehold Interests, including, without
limitation, wells, well equipment, casing, tanks, gas separation and field
processing units, portable and permanent well test equipment, buildings, tubing,
pumps, motors, fixtures, machinery, materials, supplies, inventory, telephone
and communication equipment, computing equipment and other equipment, pipelines,
gathering systems, power lines, telephone and telegraph lines, roads, vehicles,
gas processing plants and other property used in the operation thereof; (ii) all
oil and gas and other hydrocarbon volumes, produced on or after the Effective
Time; and (iii) all other rights, privileges, benefits, powers, tenements,
hereditaments and appurtenances conferred upon Seller or the owner and holder of
the Leasehold Interests, including, without limitation, all rights, privileges,
benefits and powers of Seller with respect to the use and occupation of the
surface of, and subsurface depths under, the land covered by each Leasehold
Interest, which may be necessary, convenient or incidental to the possession and
enjoyment of such Leasehold Interest;

     

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    
 

    (c)
 
Those
instruments and agreements under which Seller's interests in the Leasehold
Interests arise and all other agreements and contractual rights, easements,
rights-of-way, servitudes, and other estates to the extent relating to any Asset
described in clauses (a) through (e) above, including, without limitation, all
rights of Seller in, to and under or derived from all production sales
contracts, operating agreements, pooling, unitization or communitization
agreements, purchase, exchange or processing agreements, surface leases,
easements or rights-of-way, farmout or farmin agreements, dry hole or bottom
hole contribution agreements, seismic agreements, permits, licenses, options,
orders and all other contracts, agreements and instruments relating to the
exploration for, or the development, production, storage, gathering, treatment,
transportation, processing, or sale or disposal of oil, gas, other hydrocarbons,
other minerals, water, brine or other substances from any Leasehold Interest or
any units of which they are a part; and

     

    
      (d)  All oil, gas and associated
liquid and gaseous hydrocarbons stored upon or produced from the Leases after
the Effective Time.

    

     

     

    

    1.02           Assumed
Liabilities.  As of the Effective Time Buyer shall assume and
bear thirty percent (30%) of all of the following, insofar as they relate to the
Assets:

     

    
       (a)
  all
obligations of Seller to plug and abandon or remove and dispose of all wells,
structures, flow lines, pipelines and other facilities and equipment now or
hereafter located on the Leasehold Interests or used in connection
therewith;

    

    
      
         

      

      (b)    all
obligations of Seller to restore the premises of the Leasehold
Interests;

    

     

    
      (c)   all
obligations of the owner of Leasehold Interests which arise from or relate to
events occurring after the Effective Time under the oil, gas and mineral leases
included in the Assets and the contracts and agreements relating to the Assets;
and

       

      (d)   all other
costs, obligations and liabilities which arise from or relate to events
occurring after the Effective Time.

       

       

    

    

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

    

    ARTICLE
II

    

    PURCHASE
PRICE AND USE OF PROCEEDS

    

    2.01           Purchase Price and
Payment.  The purchase price for the Assets shall be Seven
Million and No/100 United States Dollars (USD $7,000,000.00) (the “Purchase Price”), which shall
be paid as follows:

    

    (a)  One
Million Five Hundred Thousand and No/100 United States Dollars (USD
$1,500,000.00) on or before April 9, 2010, by delivery of a wire transfer of
immediately available funds to a bank account designated by Seller;

    

    (b)  Two
Million and No/100 United States Dollars (USD $2,000,000.00) on or before June
8, 2010, by delivery of a wire transfer of immediately available funds to a bank
account designated by Seller;

     

    (c)  One
Million Six Hundred Thirty-two Thousand Nine Hundred Twenty-two and 77/100
United States Dollars (USD $1,632,922.47) on or before July 8, 2010, by delivery
of a wire transfer of immediately available funds to a bank account designated
by Seller; and

     

    (d)    
One Million Five Hundred Thousand and No/100 United States Dollars (USD
$1,500,000.00) at the Closing (as such term is defined in Section 3.01) by
delivery of a wire transfer of immediately available funds to a bank account
designated by Seller.

    

    

    ARTICLE
III

     

    CLOSING

     

    3.01           Time and Place of
Closing.  Subject to the conditions stated in this Agreement
and unless the parties agree otherwise the consummation of the transactions
contemplated hereby (the “Closing”) shall occur no
later than 10:00 o'clock a.m., Central Daylight Time, on August 6,
2010.  The Closing shall occur electronically, with the delivery of
signed documents by fax or email followed by delivery of signed originals by
overnight courier and the delivery of the funds as set forth in Section
2.01(d).

     

     

    3.02           Closing
Obligations.   At the
Closing, the following events shall occur:

     

     

    (a)  Buyer
shall pay the remainder of the Purchase Price as provided in Section 2.01 hereof
to Seller;

     

    (b)  Seller
and Buyer shall each execute, acknowledge and deliver to the other the
Assignment and Bill of Sale in substantially the form attached as Annex “B”
conveying the thirty percent (30%) of the Assets to Buyer;

     

    (c)  Seller
shall cause to be delivered to Buyer a signed consent from Aton Select Funds
Limited relating to the sale of thirty percent (30%) of the Assets to
Buyer;

     

    (d)  Seller
and Buyer shall each execute, and deliver the Joint Operating Agreement attached
hereto as Annex “C” and incorporated herein by reference for all
purposes.

     

     

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

     

    (e)  Seller
and Buyer shall each execute, acknowledge and deliver transfer orders or letters
in lieu thereof directing all parties paying for production to make payment to
Buyer of proceeds attributable to thirty percent (30%) of the production from
the Leasehold Interests after the Effective Time (to the extent such proceeds
have not previously been disbursed to Seller); and

     

    (f)  Seller
and Buyer shall each execute such other instruments and take such other action
as may be necessary to carry out its obligations under this
Agreement.

     

    

    

    ARTICLE
IV

    

    REPRESENTATIONS AND
WARRANTIES

    

    4.01           Representations and
Warranties of Seller.  Seller represents and warrants to Buyer
that the following are true and correct on the date of this Agreement and will
be true and correct on the Closing Date as if made on and as of such
date:

     

    (a) Organization and Good
Standing.  Seller is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Montana and is duly qualified to transact business and is in good standing in
the jurisdictions where it is required to qualify in order to conduct its
businesses as presently conducted.

    

    (b) Power.  Seller
has the power and authority to enter into this Agreement and perform this
Agreement and the transactions contemplated hereby.  The execution,
delivery and performance of this Agreement by Seller, and the consummation of
the transactions contemplated hereby, will not (i) violate or conflict with any
provision of the certificate of organization or regulations of Seller, (ii)
violate or conflict with any material agreement or instrument to which Seller is
a party or by which Seller or any of the Leasehold Interests are bound; (iii)
violate or conflict with any judgment, order, ruling, or decree applicable to
Seller as a party in interest, (iv) violate or conflict with any law, rule or
regulation applicable to Seller, or (v) result in the creation or imposition of
any lien, charge or other encumbrance upon the Assets.

    

    (c) Authorization.  The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all requisite
action on the part of Seller.  This Agreement has been duly executed
and delivered on behalf of Seller, and at the Closing all documents and
instruments required hereunder to be executed and delivered by Seller shall have
been duly executed and delivered.  This Agreement does, and such
documents and instruments shall constitute legal, valid and binding obligations
of Seller enforceable against Seller in accordance with their terms, subject,
however, to the effect of bankruptcy, insolvency, reorganization, moratorium and
similar laws from time to time in effect relating to the rights and remedies of
creditors, as well as to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law).

     

    

    (d) Use of
Proceeds.  Seller shall, among other things, use the net
proceed received as a part of the Purchase Price to do the
following:

     

    

    (i) Drill a
well to be designated the “Tribal – Max 1– 2817 Well” down and into the Bakken
formation to test that formation and then to come up-hole to drill and complete
a horizontal leg in the upper and/or lower Cut Bank formations;

     

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    
 

    (ii) 
 If the
test of the Bakken formation in the Tribal – Max 1– 2817 Well reflects the
possible existence of hydrocarbons in sufficient volume to warrant the drilling
and completion of a well in the Bakken formation, to drill and complete a well
in the Bakken formation;

     

    (iii) If the
test of the Bakken formation in the Tribal – Max 1– 2817 Well does not reflect
the possible existence of hydrocarbons in sufficient volume to warrant the
drilling and completion of a well in the Bakken formation, to drill and complete
two (2) additional horizontal wells in the upper and/or lower Cut Bank
formations;

     

    (iv) Reactivate
tank battery 29 and to put into production eight (8) additional wells in the
upper and/or lower Cut Bank formations; and

     

    (v) Cause
30,000lb diesel fracs to be performed on three(3) currently producing
wells.

     

                 (e) Title.  Seller
has good and marketable title to the Leasehold Interests, free of all liens,
security interests and encumbrances other than imperfections of title which do
not materially interfere with the use, operation and possession or materially
reduce the value of any particular Leasehold Interest or the production and sale
of hydrocarbons for the account of Seller therefrom.   The oil,
gas and mineral leases described in Annex “A” attached hereto constitute all of
the leases presently included in the Two Medicine Cut Bank Sand Unit and Seller
will, at the Closing, convey to Buyer a thirty percent (30%) working interest in
such leases, which working interest shall entitle Buyer to not less than
twenty-four percent (24%) of the net revenue received from the sale of oil, gas
and other minerals produced from the leases and Leasehold
Interests.

     

                  (f) Preferential Rights and
Restrictions on Assignment.  None of the Leasehold Interests
are subject to any preferential rights to purchase or restrictions on
assignment, including, but not limited to, requirements for consents from third
parties to any assignment.

    

    4.02           Representations and
Warranties of Buyer.  Buyer represents and warrants to Seller
that the following are true and correct on the date of this Agreement and will
be true and correct on the Closing Date as if made on and as of such
date:

    

    (a) Organization and Good
Standing.  Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the principality of
Liechtenstein, and is duly qualified to transact business and is in good
standing as a foreign corporation in the jurisdictions where it is required to
qualify in order to conduct its businesses as presently conducted.

    

    (b) Power.  Buyer
has the corporate power and authority to enter into and perform this Agreement
and the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Buyer, and the consummation of the transactions
contemplated hereby, will not violate or conflict with (i) any provision of the
certificate of incorporation or bylaws of Buyer, (ii) any material agreement or
instrument to which Buyer is a party or by which Buyer is bound, (iii) any
judgment, order, ruling, or decree applicable to Buyer as a party in interest,
or (iv) any law, rule or regulation applicable to Buyer.

     

    (c) Authorization. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Buyer.  This Agreement has been duly
executed and delivered on behalf of Buyer, and at the Closing all documents and
instruments required hereunder to be executed and delivered by Buyer shall have
been duly executed and delivered.  This Agreement does, and such
documents and instruments shall, constitute legal, valid and binding obligations
of Buyer enforceable against Buyer in accordance with their terms, subject,
however, to the effect of bankruptcy, insolvency, reorganization, moratorium and
similar laws from time to time in effect relating to the rights and remedies of
creditors, as well as to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law) and the
power of a court to deny enforcement of remedies generally based upon public
policy.

     

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    4.03           Disclaimer of Certain
Warranties.  NOTWITHSTANDING ANYTHING
HEREIN TO THE CONTRARY, SELLER MAKES NO WARRANTIES OF WHATSOEVER NATURE,
EXPRESS OR IMPLIED, CONCERNING THE EQUIPMENT AND FIXTURES INCLUDED IN THE
ASSETS, IT BEING THE INTENTION OF SELLER AND BUYER TO EXPRESSLY NEGATE AND TO
EXCLUDE ALL WARRANTIES CONCERNING SUCH EQUIPMENT AND FIXTURES, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
ANY PARTICULAR PURPOSE, WARRANTIES CREATED BY AN AFFIRMATION OF FACT OR PROMISE
OF BY ANY DESCRIPTION OF' ANY KIND WHATSOEVER CONTAINED IN OR CREATED BY THE
UNIFORM COMMERCIAL CODE AS ADOPTED IN MONTANA OR BY ANY OTHER APPLICABLE
LAW.  BUYER HEREBY WAIVES ANY CLAIM IT MAY OR MIGHT HAVE NOW OR IN THE
FUTURE AGAINST SELLER FOR ANY LOSS, DAMAGE OR EXPENSE CAUSED BY ANY OF THE
EQUIPMENT OR FIXTURES INCLUDED IN THE ASSETS OR BY DEFECT THEREIN, USE OR
MAINTENANCE THEREOF OR SERVICING OR ADJUSTMENT THERETO AND, AS TO SELLER,
PURCHASES THE THIRTY PERCENT (30%) INTEREST IN THE EQUIPMENT AND FIXTURES
INCLUDED IN THE ASSETS ON AN “AS IS -WHERE IS” BASIS.

     

     

    ARTICLE
V

     

    CONDITIONS
OF CLOSING

    

    5.01           Seller’s
Conditions.  Seller's obligation to consummate the transactions
provided for herein is subject to the satisfaction or waiver on or before the
Closing Date of the following conditions:

    

    (a) Representations and
Warranties.   The representations and warranties of Buyer
contained in Section 4.02 shall be true and correct in all material respects on
the date of Closing as though made on and as of that date.

    

    (b) Performance.  Buyer
shall have performed in all material respects the obligations, covenants and
agreements required hereunder to be performed by it at or prior to the
Closing.

    

    (c) Pending
Matters.  No suit, action or other proceeding by a
non-affiliated third party or a governmental authority shall be pending or
threatened which seeks substantial damages from Seller in connection with, or
seeks to restrain, enjoin or otherwise prohibit, the consummation of the
transactions contemplated by this Agreement.

    

    

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

    

    5.02           Buyer’s
Conditions.  Buyer's obligation to consummate the transactions
provided for herein is subject to the satisfaction or waiver on or before the
Closing Date of the following conditions:

    

    (a) Representations and
Warranties.  The
representations and warranties of Seller contained in Section 4.01 shall be true
and correct in all material respects on the date of Closing as though made on
and as of that date.

     

    (b) Consent.  Aton Select Funds Limited shall have
consented to the sale of thirty percent (30%) of the Assets to
Buyer.

    

    (c) Performance.  Seller
shall have performed in all material respects the obligations, covenants and
agreements required hereunder to be performed by it at or prior to the
Closing.

    

    (d) Pending Matters.   No suit, action
or other proceeding by a non-affiliated third party or a governmental authority
shall be pending or threatened which seek substantial damages from Buyer in
connection with, or seeks to restrain, enjoin or otherwise prohibit, the
consummation of the transactions contemplated by this Agreement.

    

     

    

     

    ARTICLE
VI

    

    TAXES

    

    6.01           Production
Taxes.  All taxes (other than franchise and income taxes)
attributable to the Assets that are imposed on or with respect to the production
of oil, natural gas or other hydrocarbons or minerals or the receipt of proceeds
therefrom (including but not limited to severance, production, and excise taxes)
shall be apportioned between the parties based upon the respective shares of
production taken by the parties.

     

     

    6.02           Ad Valorem and Property
Taxes.  To the extent applicable to the Assets, all ad valorem
taxes, real property taxes, personal property taxes and similar obligations
(“Property Taxes”)
attributable to the Assets shall be apportioned as of the Effective Time between
Seller and Buyer; provided, however, that any such Property Taxes which are
calculated based on the value or amount of production during a given period
shall be apportioned to the period during which such production occurred;
regardless of the date on which such taxes are assessed and/or
payable.

     

    

    6.03           Cooperation.  Each
party to this Agreement shall provide the other party with reasonable access to
all relevant documents, data and other information (other than that which is
subject to an attorney-client privilege) which may be required by the other
party for the purpose of preparing tax returns, filing refund claims and
responding to any audit by any taxing jurisdiction.  Each party to
this Agreement shall cooperate with all reasonable requests of the other party
made in connection with contesting the imposition of
taxes.  Notwithstanding anything to the contrary in this Agreement,
neither party to this Agreement shall be required at any time to disclose to the
other party any tax return or other confidential tax
information.  Except where disclosure is required by applicable law or
judicial order, any information obtained by a party pursuant to this Section
6.03 shall be kept confidential by such Party, except to the extent disclosure
is required in connection with the filing of any tax returns or claims for
refund or in connection with the conduct of an audit, or other proceedings in
response to an audit, by a taxing jurisdiction.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
 

    

    ARTICLE
XII

    

    MISCELLANEOUS

    

    7.01           Governing
Law.  THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MONTANA APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS.

    

    7.02           Dispute
Resolution. 
The parties to this Agreement acknowledge that disputes may arise between them,
and it is in their best interests to resolve such disputes in an orderly and
consistent manner, and agree as follows:

    

    (a) The
parties will attempt to resolve promptly any controversy or claim arising out of
or relating to this Agreement or the transactions contemplated or consummated
pursuant to this Agreement (a “Dispute”), by negotiating
directly and in good faith.  Both parties may seek the advice and
assistance of legal counsel in connection with any such
negotiation.

    

    (b) If the
parties cannot resolve and settle a Dispute by private negotiation within 60
days after one party gives the other written notice that a Dispute exists, the
parties mutually agree to submit the Dispute to non-binding mediation, as
follows:

    

    (i) Mediation
shall occur in the county in which Seller has it principal office, before a
single mediator, using the facilities and mediation rules of a professional
dispute-resolution organization selected by mutual agreement of the parties (the
“Mediation Organization”).  If
the parties cannot agree on a Mediation Organization, they will use the
facilities and mediation rules of the American Arbitration Association in the
county in which Seller has its principal office (“AAA”).

    

    (ii) The
parties shall jointly select a mediator from the panel of mediators maintained
by the Mediation Organization.  The mediator must be an attorney who
has no prior business or professional relationship with either
party.  If the parties are unable to agree on a mediator within 30
days after the Dispute is submitted to mediation, the Mediation Organization
will select a mediator who possesses the indicated qualifications.

    

    (iii) The
parties will share the mediation filing fee equally, but will otherwise
separately bear their own costs and expenses (including legal fees) of
participating in the mediation process. Each party agrees to send at least one
representative to the mediation conference who has authority to enter into
binding contracts on that party s behalf.  Each party further agrees
to sign a confidentiality agreement that prohibits the mediator from disclosing,
orally or in writing, any information the other party discloses to the mediator
in confidence at any stage of the mediation process.

    

    (iv) Either
party's failure or refusal to participate in mediation in accordance with this
Subsection 7.02(b) shall be considered a dispute subject to binding arbitration
in accordance with Subsection 7.02(c).

    

    

    
      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

    

    (c) If the
parties cannot fully resolve and settle a dispute through mediation within 30
days after the mediation conference concludes, all unresolved issues involved in
the Dispute shall be submitted to binding arbitration, as follows:

    

    (i) Either
party may make a demand for arbitration.

    

    (ii) Arbitration
proceedings shall be conducted in Houston, Texas, before a single arbitrator,
using the facilities and commercial arbitration rules of the Mediation
Organization or another professional dispute-resolution organization selected by
Seller and reasonably acceptable to Buyer (the “Arbitration Organization”).
If Seller selects an Arbitration Organization other than the Mediation
Organization and Buyer reasonably objects to Seller’s choice, the parties will
use AAA’s facilities and commercial arbitration rules.

    

    (iii) The
Arbitration Organization's expedited arbitration procedure shall apply to the
arbitration proceedings.  To the greatest extent permitted by law, the
parties waive the application of all rules of discovery and evidence the
Arbitration organization's expedited procedure does not expressly make
applicable.

    

    (iv) The
parties shall jointly select an arbitrator from the panel of arbitrators
maintained by the Arbitration Organization.  The arbitrator must be an
attorney who has no prior business or professional relationship with either
party and who agrees to follow and apply the express provisions of this
Agreement in determining his or her award.  If the parties are unable
to agree on an arbitrator within thirty (30) days after the arbitration demand
is filed, the Arbitration Organization will select an arbitrator who possesses
the indicated qualifications.

    

    (v) The
arbitrator‘s award shall be final and binding on all parties, and neither party
shall have any right to contest or appeal the arbitrator‘s award except on the
grounds expressly provided by the United States Arbitration Act (the “Arbitration Act”). The party
who demands arbitration shall pay the arbitration filing fee, but the parties
will otherwise separately bear their own costs and expenses (including legal
fees) of participating in the arbitration process.  Responsibility for
the arbitrator s fees and expenses shall be determined as part of the arbitrator
s award.

    

    (vi) The
procedures contemplated by and the enforceability of this Subsection 7.02(c)
shall be governed by the Arbitration Act and shall be interpreted and enforced
in accordance with United States federal judicial interpretations of the
Arbitration Act.

    

    (d) The
parties further agree to submit to the jurisdiction and venue of AAA and that
service of process by certified mail, return receipt requested, shall be
sufficient to confer in
personam jurisdiction over them.  Buyer specifically agrees to
waive all questions of personal jurisdiction or venue for the purpose of
carrying out this provision.

    

    (e) The party
which does not prevail in any Dispute submitted to binding arbitration as
required by this Agreement shall be responsible for all fees and expenses,
including attorneys’ fees, incurred by the prevailing party in connection with
such Dispute.

    

    7.03           Entire Agreement. This Agreement including all
Annexes and Schedules attached hereto and made a part hereof constitute the
entire agreement between the parties with respect to the subject matter hereof
and thereof and supersede all prior agreements, understandings, negotiations,
and discussions, whether oral or written, of the parties with respect to same.
No supplement, amendment, alteration, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the parties
hereto.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
 

    7.04           Waiver.  No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.

    

    7.05           Captions.  The captions in
this Agreement are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this
Agreement.

    

    7.06           Assignment.  This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Buyer has advised Seller that it
intends to transfer this Agreement and all rights and obligations under this
Agreement to a wholly owned subsidiary of Buyer, and Seller consents to this
assignment and agrees that the assignee will be substituted for Buyer for all
purposes under this Agreement at the time such assignment is made.

    

    7.07           Notices. Any notice
provided or permitted to be given under this Agreement shall be in writing, and
may be served by personal delivery or by depositing same in the mail, addressed
to the party to be notified, postage prepaid, and registered or certified with a
return receipt requested.  Notice deposited in the mail in the manner
hereinabove described shall be deemed to have been given and received on the
date of the delivery as shown on the return receipt.  Notice served in
any other manner shall be deemed to have been given and received only if and
when actually received by the addressee (except that notice given by telecopier
shall be deemed given and received upon receipt only if received during, normal
business hours and if received other than during normal business hours shall be
deemed received as of the opening of business on the next Business
Day).

    

    For
purposes of any notice provided or permitted to be given under this Agreement,
the addresses of the parties shall be as follows:

     

    

    To
Seller:

     
 

    Provident Energy Associates of Montana, LLC

     2441 High Timbers Dr., Suite 120

    The Woodlands, TX  77380

    Attention:  Pierre Mulacek, Manager

    Telecopy No.: 281-298-9558

     

    With copy to:

     

    Phillip A. Wylie

    8150 North Central Expressway

    Suite 1800

    Dallas, Texas 75206

    Telecopy No.: 214-691-2501

    

    

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

    

    To
Buyer:

    

    Knightwall
Invest, Inc.

    FL-9490
Vaduz

    Aeulestrasse
5

    Liechtenstein

    Attention:  David
Dawes, Director

    Telecopy
No.:  423-237 3771

     

    

    7.08           Preparation of
Agreement.  Each party to this Agreement acknowledges
that:  (i) the party had the advice of, or sufficient opportunity to
obtain the advice of, legal counsel separate and independent of legal counsel
for any other party hereto; (ii) the terms of the transactions contemplated by
this Agreement are fair and reasonable to such party; and (iii) such party has
voluntarily entered into the transactions contemplated by this Agreement without
duress or coercion.  Each party further acknowledges that such party
was not represented by the legal counsel of any other party hereto in connection
with the transactions contemplated by this Agreement, nor was he or it under any
belief or understanding that such legal counsel was representing his or its
interests.  Each party agrees that no conflict, omission or ambiguity
in this Agreement, or the interpretation thereof, shall be presumed, implied or
otherwise construed against any other party to this Agreement on the basis that
such party was responsible for drafting this Agreement.

     

    

    7.09           Expenses. Except as
otherwise provided herein, each party shall be solely responsible for all
expenses incurred by it in connection with this transaction (including, without
limitation, fees and expenses of its own counsel and consultants).

    

    7.10           Severability. If any
term or other provision of this Agreement is invalid, illegal or incapable of
being enforced under any rule of law, all other conditions, and provisions of
this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in a materially adverse manner with respect to either
party.

    

    7.11           No Third-Party
Beneficiary.  Except as expressly provided herein, this
Agreement is not intended to create, nor shall it be construed to create, any
rights in any third party under doctrines concerning third party
beneficiaries.

    

    7.12           Survival. The
representations, warranties, covenants and obligations of the parties under this
Agreement shall survive the Closing for a term of one (1) year and then
terminate.

     

    7.13           Counterparts; Signatures by
Facsimile.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party.  This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

    

    7.14           Strict
Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any
party.

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
 

    Signatures

    

    To evidence the binding effect of the
foregoing terms and condition, the parties have caused their respective duly
authorized representative to execute and deliver this Agreement on the date
first above written.

    

     

     

    
    

     

    
      	 	 Seller:
	 	 
	 	 PROVIDENT ENERGY ASSOCIATES
      OF
	 	 MONTANA, LLC
	 	 
	 	 
	 	 
	 	 By:
      By:             /s/
      Pierre
      Mulacek            
      
	 	              Pierre Mulacek,
  Manager
	 	 
	 	 
	 	 Buyer:
	 	 
	 	 
	 	 KNIGHTWALL INVEST,
      INC.
	 	 
	 	 
	 	 
	 	 By:
      By:     
              /s/ David
      Dawes                  
      
	 	            David Dawes,
  Director

    

     

     

    

    
      
        
           

        

        
          12

          
            

          

        

        
           

        

      

    

    

     

    ANNEX
“A”

    TO

     

    PURCHASE AND SALE
AGREEMENT

     

     

    Description
of Leases

     

     

    

     

    
      	
              1.  

            	
              Oil
      and Gas Lease dated August 3, 1960, from E. F. Switzer, as lessor, and
      Texaco,  Inc., as lessee, covering the following described
      acreage:

            

    

     

     

    
      	
               
      

            	
              T.31N., R.6W., Pondera
      Co., MT

            

    

    
      	
               
      

            	
              Sec.
      2, S1⁄2SW1⁄2

            

    

    
      	
               
      

            	
              Sec.
      11, W1⁄2NE1⁄4, NW 1⁄4

            

    

    
      	
               
      

            	
              Surface
      to top of Madison

            

    

     

     

    
      	
              2.  

            	
              Oil
      and Gas Lease dated November 16, 1959, from Robert L. Rieckhoff, Lawrence
      M. Rieckhoff and Phyllis R. Lincoln, individually and as Executors of the
      Estate of William F. Rieckhoff, deceased, as lessor, and Kye Trout, Jr.,
      as lessee, covering the following described
  acreage:

            

    

     

     

    
      	
               
      

            	
              TWP. 32N., R. 6W.,
      Glacier Co., MT

            

    

    
      	
               
      

            	
              Sec.
      22, SW1⁄2 SE1⁄4

            

    

    
      	
               
      

            	
              Sec.
      27, NW1⁄2 NE1⁄4, SE1⁄2 NE1⁄4

            

    

     

     

    
      	
              3.  

            	
              The
      following additional Oil and Gas
Leases:

            

    

     

     

     

    
    

     

    
      	 	 Blackfeet
    Tribal	  Gross
      Acres	 Net
      Acres	 Tract
      No.
	 	 	 	 	 
	 	 T. 31N., R. 6W.,
      Pondera Co. MT	 	 	 
	 	 Sec. 1; Lot
      4 	 120.48 	 120.48 	 52
	 	 Sec. 2; Lots 1
      and 2	 	 	 
	 	 	 	 	 
	 	 T.32N., R.6W., Glacier
      Co. MT	 120.00	 120.00	 53
	 	 Sec. 26,
      E1/2SW, NWSE	 	 	 
	 	 	 	 	 
	 	 T.32N., R.6W, Glacier
      Co. MT	 160.00 	 120.00 	  54
	 	 Sec. 35,
      W1/2NE, E1/2NW	 	 	 
	 	 	 	 	 
	 	 T.32N., R.6W., Glacier
      Co. MT	 120.00 	 90.00 	 55
	 	 Sec. 35,
      E1/2SE	 	 	 
	 	 Sec. 36,
      NWSW	 	 	 
	 	 	 	 	 
	 	 T.31N., R6W., Pondera
      Co. MT	 120.00	 120.00	 56
	 	 Sec 1, S1/2NW,
      NWSE	 	 	 
	 	 	 	 	 
	 	 T.31N., R.6W., Pondera
      Co. MT	 120.00	 120.00	 57
	 	 Sec. 2,
      S1/2NE, NWSE	 	 	 

    

     

    

    

    
      
        
           

        

        
          13

          
            

          

        

        
           

        

      

    

    

    
      	 	 	Gross
      Acres	Net
      Acres	Tract
      No.	 	 
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
               

            	T.32N., R.6W., Glacier Co.
    MT	
              150.00

            	112.50	
              

                58

              

            	 
      	
               

            
	 
      	
              Sec.
      25, E1/2NE

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      36, W1/2NWnW, SWNW,

            	 
      	 
      	 
      	 
      	 
      
	 
      	              
      W1/2E1/2NWNW	
                

            	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 	 	 
      	 
      
	 
      	
              T.32N., R6W., Glacier Co.
MT

            	160.00	
              120.00

            	59	
               

            	 
      
	 
      	
              Sec
      35, E1/2SW, W1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R6W., Glacier Co.
MT

            	320.00	
              320.00

            	35	
               

            	 
      
	 
      	
              Sec.
      28, E1/2

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Surface
      to top of Madison

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
               

            	T.31N., R.6W., Ponder Co.
    MT	
              220.00

            	220.00	
              

                36

              

            	 
      	
               

            
	 
      	
              Sec.
      1, S1/2NWSE, SWSE, S12SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      2, S1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32., R.6W., Ponder Co. MT

            	160.00	
              

                160.00

              

            	60	
               

            	 
      
	 
      	
              Sec.
      26, W1/2SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      27, E1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W, Glacier Co.
MT

            	160.00	
              

                160.00

              

            	39
      	
               

            	 
      
	 
      	
              Sec.
      32, NE1/4

            	 
      	 
      	 E1/2
      NE only 	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W; Glacier Co.
MT

            	160.00	
              

                160.00

              

            	40
      	
               

            	 
      
	 
      	
              Sec.
      32, SE1/4

            	 
      	 
      	E1/2
      SE only  	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R.6W., Pondera Co.
    MT

            	
               40.00

            	40.00	
              41

            	 
      	
               

            
	 
      	
              Sec.
      9, S1/2S1/2SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R.6W., Pondera Co.
    MT

            	
              160.00

            	

              160.00

            	
              42

            	 
      	
               

            
	 
      	
              Sec.
      11, SW1/4

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R.6W., Pondera Co.
    MT

            	
               80.00

            	80.00	
              43

            	 
      	
               

            
	 
      	
              Sec.
      12, NWNE, NENW

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W., Glacier Co.
    MT

            	160.00
      	
              

                160.00

              

            	46	
               

            	 
      
	 
      	
              Sec.
      33, NW1/4

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	

               

            	 	 
      	 
      
	 
      	
              T.32N., R.6W, Glacier Co.
MT

            	160.00	
                    
                160.00

              

            	47	
               

            	 
      
	 
      	
              Sec.
      33, SW1/4

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W., Glacier Co.
    MT

            	

              360.00

            	
              

                360.00

              

            	48	
               

            	 
      
	 
      	
              Sec.
      21, S1/2S1/2SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      28, W1/2

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      

    

    

    
      
        
           

        

        
          14

          
            

          

        

        
           

        

      

    

    

      
        	 	 	

                Gross
      Acres

              	

                Net
      Acres

              	Tract
      No.	 	 
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.32N., R.6W., Glacier Co.
    MT

              	320.00	
                

                  320.00

                

              	49	
                 

              	 
      
	 	Sec.
      33, E/12	
                 

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	T.31N., R.6W., Pondera Co.
    MT	
                40.00

              	
                40.00

              	50	
                 

              	 
      
	 	Sec.
      1, NWSW	
                 

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	T.31N., R.6W., Pondera Co.
    MT	
                40.00

              	
                40.00

              	51	
                 

              	 
      
	 	
                Sec.
      2, NESE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Galcier Co.
    MT

              	1040.00	
                

                  1040.00

                

              	64	
                 

              	 
      
	 	
                Sec.
      27, SW, W1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      34, E1/2NE, E1/2SE, W1/2Ne

              	 
      	 
      	 
      	 
      	 
      
	 	             
      E1/2NW, W1/2SE, E1/2SW,	
                 

              	 
      	 
      	 
      	 
      
	 	
                              W1/2W1/2

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      35, W1/2NW, W1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                399.63

              	399.63	
                65

              	 
      	
                 

              
	 	
                Sec.
      2, Lots 3, 4, S1/2NW,

              	 
      	 
      	 
      	 
      	 
      
	 	            N1/2SW	
                 

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      3, E1/2SE, Lot 1, SENE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W, Pondera Co.
MT

              	80.00	
                 80.00

              	

                66

              	
                 

              	 
      
	 	
                Sec.
      8, S1/2S1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Dec.
      9, SWSE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                10.00

              	

                10.00

              	
                67

              	 
      	
                 

              
	 	
                Sec.
      1, S1/2N1/2NWSE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.32N., R.6W, Glacier Co.
MT

              	

                40.00

              	
                
                  40.00

                

              	68	
                 

              	 
      
	 	
                Sec.
      26, SWSE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.32N., R.6W., Glacier Co.
      MT

              	

                160.00

              	
                

                  160.00

                

              	61	
                 

              	 
      
	 	
                Sec.
      22, SW1/4

              	 
      	 
      	SENW
      only	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                Blackfoot
      Allotted

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                39.90

              	39.90	
                1

              	 
      	
                 

              
	 	
                Sec.
      4, Lot 1

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                39.84

              	

                39.84

              	
                2

              	 
      	
                 

              
	 	
                Sec.
      4, Lot 2

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                80.00

              	
                3

              	 
      	
                 

              
	 	
                Sec.
      10, N1/2SE

              	 
      	 
      	 
      	 
      	 
      

      

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

    
      
        	 	 	

                Gross
      Acres

              	

                Net
      Acres

              	Tract
      No.	 	 
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                20.00

              	20.00	
                5

              	 
      	 
      
	 	
                Sec.
      3, N1/2SWSW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	40.00	
                6

              	 
      	 
      
	 	
                Sec.
      4, N1/2SWSE, N1/2SESW

              	 
      	 
      	part
      	 
      	
                 

              
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                160.00

              	

                160.00

              	
                7

              	 
      	 
      
	 	
                Sec.
      9, NWNW, SENW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                200.00

              	

                200.00

              	
                8

              	 
      	 
      
	 	
                Sec.
      9, E1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec
      10, W1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      15, NWNW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                120.00

              	

                120.00

              	
                9

              	 
      	 
      
	 	
                Sec.
      10, S1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      15, NENE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  11

                

              	 
      	 
      
	 	
                Sec.
      16, NWNE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  12

                

              	 
      	 
      
	 	
                Sec.
      9, SENE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  13

                

              	 
      	 
      
	 	
                Sec.
      9, NWSE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                160.00

              	

                160.00

              	
                

                  15

                

              	 
      	 
      
	 	
                Sec.
      11, SE1/4

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  16

                

              	 
      	 
      
	 	
                Sec.
      9, SWNE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                79.83

              	

                79.83

              	
                

                  18

                

              	 
      	 
      
	 	
                Sec.
      5, Lot 1 SENE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                160.00

              	

                160.00

              	
                

                  20

                

              	 
      	 
      
	 	
                Sec
      4, W1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec
      9, N1/2NE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                200.00

              	

                200.00

              	
                

                  21

                

              	 
      	 
      
	 	
                Sec.
      8, E1/2NE, N1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                      
                              
      N1/2S1/2SE

                

              	
                 

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31.N., R.6W., Pondera Co.
    MT

              	
                239.85

              	

                239.85

              	
                

                  22

                

              	 
      	 
      

      

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

    
      
        	 	 	

                Gross
      Acres

              	

                Net
      Acres

              	Tract
      No.	 	 
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      3, Lot 2 SWNE, NENW, NESW

              	 
      	 
      	 
      	 
      	 
      
	 	           
      N1/2SESW,
      NWSE, N1/2SWSE	
                 

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31.N., R.6W., Pondera Co.
    MT

              	
                39.87

              	

                39.87

              	
                

                  25

                

              	 
      	
                 

              
	 	
                Sec.
      3, Lot 3

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.,
    MT

              	
                120.00

              	

                120.00

              	
                

                  26

                

              	 
      	
                 

              
	 	
                Sec.
      9, NENW, SWNW, NESW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                80.00

              	
                
                  27

                

              	 
      	
                 

              
	 	
                Sec.
      5, E1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  6

                

              	 
      	
                 

              
	 	
                Sec.
      4, S1/2SESW, S1/2SWSE

              	 
      	 
      	

                part

              	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                60.00

              	
                

                  28

                

              	 
      	
                 

              
	 	
                Sec.
      8, W1/2NE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                199.91

              	

                199.91

              	
                

                  29

                

              	 
      	
                 

              
	 	
                Sec.
      3, Lot 4, SWNW, NWSW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      4, SENE, SENW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W, Pondera Co.
MT

              	

                199.80

              	
                

                  199.80

                

              	

                30

              	
                 

              	 
      
	 	
                Sec.
      4, Lot 3, SWNE, NWSE

              	 
      	 
      	 
      	 
      	 
      
	 	           
      NESW,
      SENW	
                 

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  31

                

              	 
      	
                 

              
	 	
                Sec.
      3, S1/2SWSW

              	 
      	 
      	

                32
      part

              	 
      	 
      
	 	
                Sec.
      4, S1/2SESE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                79.74

              	

                79.74

              	
                

                  33

                

              	 
      	
                 

              
	 	
                Sec
      4, Lot 4 SWNW

              	 
      	 
      	

                33A

              	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                20.00

              	

                20.00

              	
                

                  32

                

              	 
      	
                 

              
	 	
                Sec.
      4, N1/2SESE

              	 
      	 
      	

                part

              	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                80.00

              	
                

                  24

                

              	 
      	
                 

              
	 	
                Sec.
      14, N1/2NW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.32N., R.6W., Pondera Co.
    MT

              	
                120.00

              	120.00
      	
                

                  4

                

              	 
      	
                 

              
	 	
                Sec.
      21, N1/2SW. N1/2S1/2SW

              	 
      	 
      	N1/2S1/2SW
      only	 
      	
                 

              
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                J.
      A. Gerspacher et ux

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N.R.6W., Pondera Co. MT

              	

                240.00

              	
                

                  4.4

                

              	

                79

              	
                 

              	 
      

      

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

    

      
        	 	 	

                Gross
      Acres

              	

                Net
      Acres

              	Tract
      No.	 
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      10, E1/2NE

              	 
      	 
      	79A	 
      
	 	
                Sec.
      11, E1/2NE

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      12, NWNW, SWNW

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Hazel
      Johnson

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                240.00

              	

                231.20

              	
                

                  79

                

              	 
      
	 	
                Sec.
      10, E1/2 NE

              	 
      	 
      	

                79A

              	 
      
	 	
                Sec.
      11, E1/2NE

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      12, NWNW, SWNW

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                A.
      E. Leach Co.

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                19.92

              	
                

                  82

                

              	 
      
	 	
                Sec
      15, NWNE

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                W.
      J. Renshaw

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                320.00

              	

                1.60

              	
                

                  70,
      71,

                

              	 
      
	 	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,
      73

              	 
      
	 	
                Sec.
      11,W1/2Ne, NW1/4

              	 
      	 
      	 
      	 
      
	 	
                   Surface
      to top of Madison

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Able
      Rutherford

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                280.00

              	

                280.00

              	
                

                  80

                

              	 
      
	 	
                Sec.
      12, S1/2SW, SWSE

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      13, N1/2NW

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      14, N1/2NE

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Charles
      and Pearl L. Stoltz

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                53.75

              	
                

                  76

                

              	 
      
	 	
                Sec.
      10, SENW, SWNE

              	 
      	 
      	

                77

              	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                180.00

              	

                180.00

              	
                

                  74

                

              	 
      
	 	
                Sec.
      3, S1/2SESW

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      10, NENW, E1/2SW

              	 
      	 
      	 
      	 
      
	 	
                Sec
      15, NENW

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                E.
      F. Sweitzer

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31.N.R.6W., Pondera Co.
MT

              	

                320.00

              	
                

                  1.60

                

              	

                70,71,

              	
                 

              
	 	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,73

              	 
      

      

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

    
      
        	 	 	

                Gross
      Acres

              	

                Net
      Acres

              	Tract
      No.	 
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      11, W1/2NE, NW1/4

              	 
      	 
      	 
      	 
      
	 	
                  Surface
      to top of Madison

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N.R.6W., Pondera Co. MT

              	240.00	
                

                  4.40

                

              	

                79

              	
                 

              
	 	
                Sec.
      10, E1/2NE

              	 
      	 
      	

                79A

              	 
      
	 	
                Sec.
      11, E1/2NE

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      12, NWNW, SWNW

              	 
      	 
      	 
      	 
      
	 	
                   Surface
      to top of Madison

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Alice
      Twedt

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                320.00

              	

                316.80

              	
                

                  70,71

                

              	 
      
	 	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,
      73

              	 
      
	 	
                Sec.
      11, W1/2NE, NW1/4

              	 
      	 
      	 
      	 
      
	 	
                   Surface
      to top of Madison

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Edward
      G. Haynes et ux

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                320.00

              	

                320.00

              	
                
                  83A

                

              	 
      
	 	
                Sec
      21, E1/2

              	 
      	 
      	 
      	 
      

      

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

    

     

    ANNEX
“B”

    TO

    PURCHASE AND SALE
AGREEMENT

     

    Form of Bill of Sale and
Assignment

     

    Assignment and
Conveyance

     

     

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

     

    

    ASSIGNMENT AND BILL OF
SALE

     

     

    

    THIS ASSIGNMENT AND BILL OF
SALE (this “Assignment”) is made
effective as of 7:00 o'clock a.m., Mountain Daylight Time, on the 6th day
of August, 2010 (the “Effective Time”), from Provident Energy Associates of
Montana, LLC, a Montana limited liability company (“Assignor”), to Knightwall Invest, Inc., a
corporation organized under the laws of the British Virgin Islands
(“Assignee”).

    

    

    Assignment
and Conveyance

    

    

    For and
in consideration of $10.00 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Assignor does hereby
bargain, sell, transfer, assign and convey to Assignee, and its successors and
assigns, thirty percent (30%) of Assignor's right, title and interest in and to
the following assets (the “Assets”):

    

    (a) The oil,
gas and mineral leases and leasehold estates presently included in the Two
Medicine Cut Bank Sand Unit in Pondera and Glacier Counties, Montana, as more
particularly described in Annex “A” attached hereto and incorporated herein by
reference for all purposes (collectively, the “Leasehold
Interests”);

    

    (b) The
personal and mixed property, irrespective of whether or not located on the
Leasehold Interests, that is attributable or allocable to the Leasehold
Interests and used or held for use in connection with the exploration,
development, operation or maintenance of any of the Leasehold Interests or the
production, treatment, measurement, storage gathering, transportation or
marketing of oil, gas or other hydrocarbons attributable to the Leasehold
Interests (or the interests of others therein), including, without limitation,
(i) all wells, equipment and facilities that, as of the Effective Time were used
or held for use in connection with the exploration, development, operation or
maintenance of any Leasehold Interests or the production, treatment,
measurement, storage, gathering, transportation or marketing of oil, gas or
other hydrocarbons attributable to the Leasehold Interests, including, without
limitation, wells, well equipment, casing, tanks, gas separation and field
processing units, portable and permanent well test equipment, buildings, tubing,
pumps, motors, fixtures, machinery, materials, supplies, inventory, telephone
and communication equipment, computing equipment and other equipment, pipelines,
gathering systems, power lines, telephone and telegraph lines, roads, vehicles,
gas processing plants and other property used in the operation thereof; (ii) all
oil and gas and other hydrocarbon volumes, produced on or after the Effective
Time; and (iii) all other rights, privileges, benefits, powers, tenements,
hereditaments and appurtenances conferred upon Assignor or the owner and holder
of the Leasehold Interests, including, without limitation, all rights,
privileges, benefits and powers of Seller with respect to the use and occupation
of the surface of, and subsurface depths under, the land covered by each
Leasehold Interest, which may be necessary, convenient or incidental to the
possession and enjoyment of such Leasehold Interest;

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    
 

    (c) Those
instruments and agreements under which Assignor’s interests in the Leasehold
Interests arise and all other agreements and contractual rights, easements,
rights-of-way, servitudes, and other estates to the extent relating to any Asset
described in clauses (a) through (e) above, including, without limitation, all
rights of Assignor in, to and under or derived from all production sales
contracts, operating agreements, pooling, unitization or communitization
agreements, purchase, exchange or processing agreements, surface leases,
easements or rights-of-way, farmout or farmin agreements, dry hole or bottom
hole contribution agreements, seismic agreements, permits, licenses, options,
orders and all other contracts, agreements and instruments relating to the
exploration for, or the development, production, storage, gathering, treatment,
transportation, processing, or sale or disposal of oil, gas, other hydrocarbons,
other minerals, water, brine or other substances from any Leasehold Interest or
any units of which they are a part; and

    

    (d) All oil,
gas and associated liquid and gaseous hydrocarbons stored upon or produced from
the Leases after the Effective Time.

    

    TO HAVE
AND TO HOLD the interests in and to the Assets herein conveyed, together with
all rights, privileges and appurtenances in any way belonging or pertaining
thereto, unto Assignee, its successors and assigns, forever, without warranty of
title except by, through and under Assignor and not otherwise, and warranty that
the interests in and to the Assets herein conveyed are free and clear of all
liens and encumbrances other than imperfections of title which do not materially
interfere with the use, operation and possession or materially reduce the value
of any particular Leasehold Interest or the production and sale of hydrocarbons
therefrom.

    

    This Assignment is accepted subject to, and by acceptance
of this Assignment Assignee agrees to assume and perform, any and all of the
liabilities and obligations associated with the interests in and to the Assets
herein conveyed which are required to be assumed and performed by Assignee
pursuant to that certain Purchase and Sale Agreement by and between Assignor and
Assignee dated April 9, 2010.

     

    THIS ASSIGNMENT IS EXECUTED, DELIVERED, AND ACCEPTED
INSOFAR AS IT APPLIES TO PERSONAL PROPERTY, WITHOUT ANY REPRESENTATION,
WARRANTY, OR COVENANT OF ANY KIND OR NATURE, EXPRESS, IMPLIED, OR STATUTORY,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MARKETABILITY, MERCHANTABILITY,
QUALITY, CONDITION, OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE
EXPRESSLY DISCLAIMED.

     

    This Assignment is subject to
the terms of the leases and of any prior assignment of the leases which is of
record.

     

    This Assignment shall inure to the benefit of and be
binding upon the parties hereto, their heirs, successors, and
assigns.

    

    
      
        
           

        

        
          21

          
            

          

        

        
           

        

      

    

    

     

    Execution and
Acknowledgement

     

     

     

    To evidence the binding effect of the
foregoing, Assignor has executed and delivered this Assignment to Assignee as of
the date first above written.

     

     

    

     

    
      	 	 Assignor:
	 	 
	 	 PROVIDENT ENERGY ASSOCIATES
      OF
	 	 MONTANA, LLC
	 	 
	 	 
	 	 By:                                                             
      
	 	       
      Pierre Mulacek,
  Manager
	 	 

    

     

     

     

     

    
      	 STATE OF
      TEXAS  	 §
	 	 §
	 COUNTY OF
      MONGOMERY 	 §

    

     

     

     

     

    This instrument was acknowledged before
me on this 6th day
of August, 2010, by Pierre Mulacek, Manager of Provident Energy Associates or
Montana, LLC., on behalf of that company.

     

     

     

    

    
    

     

    
      	 	                                                                                  
      
	 	 Notary Public
      in and for the State of Texas

    

     

     

     

    My
commission expires:  ______________

     

    

    
      
        
           

        

        
          22

          
            

          

        

        
           

        

      

    

    

    
      	
               
      

            	
               

            

    

     

    
      ATTACHMENT
“A”

    

    TO

    ASSIGNMENT
OF OIL, GAS AND MINERAL LEASES

    
 

    Description
of Leases

     

     

    

     

    
      	
              4.  

            	
              Oil
      and Gas Lease dated August 3, 1960, from E. F. Switzer, as lessor, and
      Texaco,  Inc., as lessee, covering the following described
      acreage:

            

    

     

    
      	
               
      

            	
              T.31N., R.6W., Pondera
      Co., MT

            

    

    
      	
               
      

            	
              Sec.
      2, S1⁄2SW1⁄2

            

    

    
      	
               
      

            	
              Sec.
      11, W1⁄2NE1⁄4, NW 1⁄4

            

    

    
      	
               
      

            	
              Surface
      to top of Madison

            

    

     

     

    

     

    
      	
              5.  

            	
              Oil
      and Gas Lease dated November 16, 1959, from Robert L. Rieckhoff, Lawrence
      M. Rieckhoff and Phyllis R. Lincoln, individually and as Executors of the
      Estate of William F. Rieckhoff, deceased, as lessor, and Kye Trout, Jr.,
      as lessee, covering the following described
  acreage:

            

    

     

     

    
      	
               
      

            	
              TWP. 32N., R. 6W.,
      Glacier Co., MT

            

    

    
      	
               
      

            	
              Sec.
      22, SW1⁄2 SE1⁄4

            

    

    
      	
               
      

            	
              Sec.
      27, NW1⁄2 NE1⁄4, SE1⁄2 NE1⁄4

            

    

     

     

    

     

    
      	
              6.  

            	
              The
      following additional Oil and Gas
Leases:

            

    

     

     

    

    
      	 	

              Blackfeet
      Tribal

            	Gross
      Acres	

              Net
      Acres

            	

              Tract
      No.

            	 	 
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T. 31N., R. 6W., Pondera Co.
    MT

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      1; Lot 4

            	120.48	120.48	52	
               

            	 
      
	 
      	
              Sec.
      2; Lots 1 and 2

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W., Glacier Co.
    MT

            	120.00	
              

                120.00

              

            	

              53

            	
               

            	 
      
	 
      	
              Sec.
      26, E1/2SW, NWSE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W, Glacier Co.
MT

            	

              160.00

            	
              

                120.00

              

            	

              54

            	
               

            	 
      
	 
      	
              Sec.
      35, W1/2NE, E1/2NW

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W., Glacier Co.
    MT

            	

              120.00

            	
              

                 90.00

              

            	

              55

            	
               

            	 
      
	 
      	
              Sec.
      35, E1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      36, NWSW

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R6W., Pondera Co.
MT

            	

              120.00

            	
              

                120.00

              

            	

              56

            	
               

            	 
      
	 
      	
              Sec
      1, S1/2NW, NWSE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R.6W., Pondera Co.
    MT

            	
              120.00

            	

              120.00

            	
              

                57

              

            	 
      	
               

            
	 
      	
              Sec.
      2, S1/2NE, NWSE

            	 
      	 
      	 
      	 
      	 
      

    

    

    
      
        
           

        

        
          23

          
            

          

        

        
           

        

      

    

    

    
      	 
      	 
      	

              Gross
      Acres

            	Net
      Acres	Tract
      No.	 
      	 
      
	 	 	 	 	 	 	 
	
               

            	T.32N., R.6W., Glacier Co.
    MT	
              150.00

            	112.50	
              

                58

              

            	
               

            	 
      
	 
      	
              Sec.
      25, E1/2NE

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      36, W1/2NWnW, SWNW,

            	 
      	 
      	 
      	 
      	 
      
	 
      	              
      W1/2E1/2NWNW	
                

            	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R6W., Glacier Co.
MT

            	

              160.00

            	
              

                120.00

              

            	

              59

            	 
      	 
      
	 
      	
              Sec
      35, E1/2SW, W1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R6W., Glacier Co.
MT

            	

              320.00

            	
              320.00

            	

              35

            	 
      	 
      
	 
      	
              Sec.
      28, E1/2

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Surface
      to top of Madison

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
               

            	

              T.31N., R.6W., Ponder Co.
MT

            	
              220.00

            	

              220.00

            	
              

                36

              

            	
               

            	 
      
	 
      	
              Sec.
      1, S1/2NWSE, SWSE, S12SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      2, S1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32., R.6W., Ponder Co. MT

            	

              160.00

            	
              
                160.00

              

            	

              60

            	 
      	 
      
	 
      	
              Sec.
      26, W1/2SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      27, E1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W, Glacier Co.
MT

            	

              160.00

            	
              

                160.00

              

            	

              39

            	 
      	 
      
	 
      	
              Sec.
      32, NE1/4

            	 
      	 
      	

              E1/2
      NE only

            	 
      	
               

            
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W; Glacier Co.
MT

            	

              160.00

            	
              

                160.00

              

            	40	 
      	 
      
	 
      	
              Sec.
      32, SE1/4

            	 
      	 
      	

              E1/2
      SE only

            	 
      	
               

            
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R.6W., Pondera Co.
    MT

            	
               40.00

            	40.00	
              

                41

              

            	
               

            	 
      
	 
      	
              Sec.
      9, S1/2S1/2SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R.6W., Pondera Co.
    MT

            	
              160.00

            	

              160.00

            	
              

                42

              

            	
               

            	 
      
	 
      	
              Sec.
      11, SW1/4

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.31N., R.6W., Pondera Co.
    MT

            	
               80.00

            	80.00	
              

                43

              

            	
               

            	 
      
	 
      	
              Sec.
      12, NWNE, NENW

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W., Glacier Co.
    MT

            	160.00	
              160.00

            	

              46

            	 
      	 
      
	 
      	
              Sec.
      33, NW1/4

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W, Glacier Co.
MT

            	

              160.00

            	
              160.00

            	

              47

            	 
      	 
      
	 
      	
              Sec.
      33, SW1/4

            	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
              T.32N., R.6W., Glacier Co.
    MT

            	

              360.00

            	
              360.00

            	

              48

            	 
      	 
      
	 
      	
              Sec.
      21, S1/2S1/2SW

            	 
      	 
      	 
      	 
      	 
      
	 
      	
              Sec.
      28, W1/2

            	 
      	 
      	 
      	 
      	 
      

    

    

    
      
        
           

        

        
          24

          
            

          

        

        
           

        

      

    

    

    
      	 	 	

              Gross
      Acres

            	

              Net
      Acres

            	Tract
      No.	 	 
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.32N., R.6W., Glacier Co.
    MT

            	

              320.00

            	
              320.00

            	

              49

            	
               

            	
               

            
	 	Sec.
      33, E/12	
               

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	

              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	
               40.00

            	

              50

            	
               

            	
               

            
	 	

              Sec.
      1, NWSW

            	
               

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	

              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	
               40.00

            	

              51

            	
               

            	
               

            
	 	
              Sec.
      2, NESE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Galcier Co.
    MT

            	

              1040.00

            	
              1040.00

            	

              64

            	
               

            	
               

            
	 	
              Sec.
      27, SW, W1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 	
              Sec.
      34, E1/2NE, E1/2SE, W1/2Ne

            	 
      	 
      	 
      	 
      	 
      
	 	

                           
      E1/2NW, W1/2SE, E1/2SW,

            	
               

            	 
      	 
      	 
      	 
      
	 	
                            W1/2W1/2

            	 
      	 
      	 
      	 
      	 
      
	 	
              Sec.
      35, W1/2NW, W1/2SW

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              399.63

            	

              399.63

            	
              

                65

              

            	 
      	 
      
	 	
              Sec.
      2, Lots 3, 4, S1/2NW,

            	 
      	 
      	 
      	 
      	 
      
	 	             N1/2SW	
               

            	 
      	 
      	 
      	 
      
	 	
              Sec. 3, E1/2SE, Lot 1, SENE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W, Pondera Co.
MT

            	

              80.00

            	
              80.00

            	

              66

            	
               

            	
               

            
	 	
              Sec.
      8, S1/2S1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 	
              Dec.
      9, SWSE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              10.00

            	

              10.00

            	
              

                67

              

            	 
      	 
      
	 	
              Sec.
      1, S1/2N1/2NWSE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.32N., R.6W, Glacier Co.
MT

            	

              40.00

            	
              40.00

            	

              68

            	
               

            	
               

            
	 	
              Sec.
      26, SWSE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.32N., R.6W., Glacier Co.
    MT

            	

              160.00

            	
              160.00

            	

              61

            	
               

            	
               

            
	 	
              Sec.
      22, SW1/4

            	 
      	 
      	

              SENW
      only

            	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              Blackfoot
      Allotted

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              39.90

            	

              39.90

            	
              

                1

              

            	 
      	 
      
	 	
              Sec.
      4, Lot 1

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              39.84

            	

              39.84

            	
              

                2

              

            	 
      	 
      
	 	
              Sec.
      4, Lot 2

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              80.00

            	

              80.00

            	
              

                3

              

            	 
      	 
      
	 	
              Sec.
      10, N1/2SE

            	 
      	 
      	 
      	 
      	 
      

    

    

    
      
        
           

        

        
          25

          
            

          

        

        
           

        

      

    

    

    
      	 	 	

              Gross
      Acres

            	

              Net
      Acres

            	Tract
      No.	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              20.00

            	

              20.00

            	
              

                5

              

            	 
	 	
              Sec.
      3, N1/2SWSW

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              

                6

              

            	 
	 	
              Sec.
      4, N1/2SWSE, N1/2SESW

            	 
      	 
      	      
              part

            	 
	 	 
      	 
      	
               

            	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              160.00

            	

              160.00

            	
              

                7

              

            	 
	 	
              Sec.
      9, NWNW, SENW

            	 
      	 
      	 
      	 
	 	 
      	 
      	 	 	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              200.00

            	200.00	
              8

            	 
	 	
              Sec.
      9, E1/2SE

            	 
      	 
      	 
      	 
	 	
              Sec
      10, W1/2SW

            	 
      	 
      	 
      	 
	 	
              Sec.
      15, NWNW

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              120.00

            	

              120.00

            	
              

                9

              

            	 
	 	
              Sec.
      10, S1/2SE

            	 
      	 
      	 
      	 
	 	
              Sec.
      15, NENE

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              

                11

              

            	 
	 	
              Sec.
      16, NWNE

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              12

            	 
	 	
              Sec.
      9, SENE

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              

                13

              

            	 
	 	
              Sec.
      9, NWSE

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              160.00

            	

              160.00

            	
              

                15

              

            	 
	 	
              Sec.
      11, SE1/4

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	40.00	
              

                16

              

            	 
	 	
              Sec.
      9, SWNE

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              79.83

            	

              79.83

            	
              

                18

              

            	 
	 	
              Sec.
      5, Lot 1 SENE

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              160.00

            	

              160.00

            	
              

                20

              

            	 
	 	
              Sec
      4, W1/2SW

            	 
      	 
      	 
      	 
	 	
              Sec
      9, N1/2NE

            	 
      	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              200.00

            	

              200.00

            	
              

                21

              

            	 
	 	
              Sec.
      8, E1/2NE, N1/2SE

            	 
      	 
      	 
      	 
	 	
              

                           
      N1/2S1/2SE

              

            	
               

            	 
      	 
      	 
	 	 
      	 
      	 
      	 
      	 
	 	
              T.31.N., R.6W., Pondera Co.
    MT

            	
              239.85

            	

              239.85

            	
              22

            	 
	 	 
      	
               

            	 
      	 
      	 

    

     

     

     

    

    
      
        
           

        

        
          26

          
            

          

        

        
           

        

      

    

    

    
      	 	 	

              Gross
      Acres

            	

              Net
      Acres

            	Tract
      No.	 	 
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              Sec. 3, Lot 2 SWNE, NENW, NESW

            	 
      	 
      	 
      	 
      	 
      
	 	

                           N1/2SESW,
      NWSE, N1/2SWSE

            	
               

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31.N., R.6W., Pondera Co.
    MT

            	
              39.87

            	39.87	
              

                25

              

            	 
      	 
      
	 	
              Sec.
      3, Lot 3

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.,
    MT

            	
              120.00

            	

              120.00

            	
              

                26

              

            	

               

            	 
      
	 	
              Sec.
      9, NENW, SWNW, NESW

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              80.00

            	

              80.00

            	
              

                27

              

            	 
      	 
      
	 	
              Sec.
      5, E1/2SE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              

                6

              

            	 
      	 
      
	 	
              Sec.
      4, S1/2SESW, S1/2SWSE

            	 
      	 
      	

              part

            	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              80.00

            	

              60.00

            	
              

                28

              

            	 
      	 
      
	 	
              Sec.
      8, W1/2NE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              199.91

            	

              199.91

            	
              

                29

              

            	 
      	 
      
	 	
              Sec.
      3, Lot 4, SWNW, NWSW

            	 
      	 
      	 
      	 
      	 
      
	 	
              Sec.
      4, SENE, SENW

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W, Pondera Co.
MT

            	

              199.80

            	
              199.80

            	

              30

            	
               

            	 
      
	 	
              Sec.
      4, Lot 3, SWNE, NWSE

            	 
      	 
      	 
      	 
      	 
      
	 	           
      NESW,
      SENW	
               

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              

                31

              

            	 
      	 
      
	 	
              Sec.
      3, S1/2SWSW

            	 
      	 
      	

              32
      part

            	 
      	 
      
	 	
              Sec.
      4, S1/2SESE

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              79.74

            	

              79.74

            	
              

                33

              

            	 
      	 
      
	 	
              Sec
      4, Lot 4 SWNW

            	 
      	 
      	

              33A

            	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              20.00

            	

              20.00

            	
              

                32

              

            	 
      	 
      
	 	
              Sec.
      4, N1/2SESE

            	 
      	 
      	

              part

            	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              80.00

            	

              80.00

            	
              

                24

              

            	 
      	 
      
	 	
              Sec.
      14, N1/2NW

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.32N., R.6W., Pondera Co.
    MT

            	
              120.00

            	

              120.00

            	
              

                4

              

            	 
      	 
      
	 	
              Sec.
      21, N1/2SW. N1/2S1/2SW

            	 
      	 
      	

              N1/2S1/2SW
      only

            	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              J.
      A. Gerspacher et ux

            	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N.R.6W., Pondera Co. MT

            	

              240.00

            	
              

                4.4

              

            	

              79

            	
               

            	 
      

    

     

     

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    
 

    
      
        	 	 	

                Gross
      Acres

              	

                Net
      Acres

              	Tract
      No.	 	 
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      10, E1/2NE

              	 
      	 
      	79A	 
      	 
      
	 	
                Sec.
      11, E1/2NE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      12, NWNW, SWNW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                Hazel
      Johnson

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                240.00

              	

                231.20

              	
                

                  79

                

              	 
      	 
      
	 	
                Sec.
      10, E1/2 NE

              	 
      	 
      	

                79A

              	 
      	 
      
	 	
                Sec.
      11, E1/2NE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      12, NWNW, SWNW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                A.
      E. Leach Co.

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                19.92

              	
                

                  82

                

              	 
      	 
      
	 	
                Sec
      15, NWNE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                W.
      J. Renshaw

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                320.00

              	

                1.60

              	
                

                  70,
      71,

                

              	 
      	 
      
	 	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,
      73

              	 
      	 
      
	 	
                Sec.
      11,W1/2Ne, NW1/4

              	 
      	 
      	 
      	 
      	 
      
	 	
                   Surface
      to top of Madison

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                Able
      Rutherford

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                280.00

              	

                280.00

              	
                

                  80

                

              	 
      	 
      
	 	
                Sec.
      12, S1/2SW, SWSE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      13, N1/2NW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      14, N1/2NE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                Charles
      and Pearl L. Stoltz

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                53.75

              	
                

                  76

                

              	 
      	 
      
	 	
                Sec.
      10, SENW, SWNE

              	 
      	 
      	

                77

              	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                180.00

              	

                180.00

              	
                

                  74

                

              	 
      	 
      
	 	
                Sec.
      3, S1/2SESW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      10, NENW, E1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec
      15, NENW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                E.
      F. Sweitzer

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31.N.R.6W., Pondera Co.
MT

              	

                320.00

              	
                

                  1.60

                

              	

                70,71,

              	
                 

              	
                 

              
	 	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,73

              	 
      	 
      

      

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

      

        
          	 	 	

                  Gross
      Acres

                	

                  Net
      Acres

                	Tract
      No.	 	 
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                  Sec.
      11, W1/2NE, NW1/4

                	 
      	 
      	 
      	 
      	 
      
	 	
                    Surface
      to top of Madison

                	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                  T.31N.R.6W., Pondera Co. MT

                	

                  240.00

                	
                  

                    4.40

                  

                	

                  79

                	
                   

                	 
      
	 	
                  Sec.
      10, E1/2NE

                	 
      	 
      	

                  79A

                	 
      	 
      
	 	
                  Sec.
      11, E1/2NE

                	 
      	 
      	 
      	 
      	 
      
	 	
                  Sec.
      12, NWNW, SWNW

                	 
      	 
      	 
      	 
      	 
      
	 	
                     Surface
      to top of Madison

                	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                  Alice
      Twedt

                	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                  T.31N., R.6W., Pondera Co.
    MT

                	
                  320.00

                	

                  316.80

                	
                  

                    70,71

                  

                	 
      	
                   

                
	 	
                  Sec.
      2, S1/2SW

                	 
      	 
      	

                  72,
      73

                	 
      	 
      
	 	
                  Sec.
      11, W1/2NE, NW1/4

                	 
      	 
      	 
      	 
      	 
      
	 	
                     Surface
      to top of Madison

                	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                  Edward
      G. Haynes et ux

                	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                  T.31N., R.6W., Pondera Co.
    MT

                	
                  320.00

                	

                  320.00

                	
                  

                    83A

                  

                	 
      	
                   

                
	 	
                  Sec
      21, E1/2

                	 
      	 
      	 
      	 
      	 
      

        

        
          
             

          

          
            29

            
              

            

          

          
             

          

        

    

    

     

    ANNEX
“C”

    TO

    PURCHASE AND SALE
AGREEMENT

     

    Joint
Operating Agreement

     

    Attached

     

    

     

     

     

     

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

     

     

     

     

    

    A.A.P.L.
FORM 610-1982

    MODEL
FORM OPERATING AGREEMENT

    

    

    

    

    

    

    

    

    

    

    

    OPERATING
AGREEMENT

    

    

    DATED

    

    

    AUGUST
6, 2010

     
 

    

    OPERATOR:  PROVIDENT
ENERGY ASSOCIATES OF MONTANA, LLC

    

    

    CONTRACT AREA:  TWO
MEDICINE CUT BANK SAND UNIT

    

    

    COUNTIES
OF PONDERA AND GLACIER, STATE OF  MONTANA

    

    

    

    

    

    

    
      
 

       

       

      
 

    

     

    
      	 	
               COPYRIGHT
      1982 - ALL RIGHTS

               RESERVED
      AMERICAN ASSOCIATION OF 

              PETROLEUM
      LANDMEN, 4100 FOSSIL 

              CREEK
      BLVD., FORT WORTH, TEXAS, 

              76137-2791,
      APPROVED FORM. A.A.P.L. 

              NO.
      610 - 1982 REVISED

            	 

    

     

    

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
             

          

        

      

    

    

     

     

    
    

     

    
      	TABLE OF
    CONTENTS
	 	 
	 Article                                                                                        
      Title	 Page
	 	 
	 ARTICLE
      I.         
    DEFINITIONS	 3
	 	 
	 ARTICLE
      II.        
      EXHIBITS  	 4
	 	 
	 ARTICLE
      III.        INTERESTS OF
    PARTIES	 4
	  
      B.     Interests of Parties in Costs and
      Production	 4
	  
      C.     Excess Royalties, Overriding Royalties and
      Other Payments	 4
	  
      D.     Subsequently Created Interests	 5
	 	 
	 ARTICLE
      IV.        TITLES	 5
	  
      A.     Title Examination	 5
	 	 
	 ARTICLE
      V.          OPERATOR  	 6
	  
      A.     Designation and Responsibilities of
      Operator	 6
	  
      B.     Resignation or Removal of Operator and
      Selection of Successor	 6
	  
      C.     Employees	 6
	  
      D.     Drilling Contracts	 7
	 	 
	 ARTICLE
      VI.         DRILLING AND
      DEVELOPMENT     	 7
	  
      A.     Initial Well	 7
	  
      B.     Subsequent Operations	 7
	  
      C.     TAKING PRODUCTION IN KIND	 10
	   D.    
      Access to Contract Area and Information	 11
	  
      E.     Abandonment of Wells	 11
	 	 
	 ARTICLE
      VII.        EXPENDITURES AND LIABILITY
      OF PARTIES    	 12
	  
      A.     Liability of Parties	 12
	  
      B.     Liens and Payment Defaults	 12
	  
      C.     Payments and Accounting	 12
	  
      D.     Limitation of Expenditures	 13
	  
      E.     Rentals, Shut-In Well Payments and Minimum
      Royalties	 13
	  
      F.     Taxes	 14
	  
      G.     Insurance	 14
	 	 
	 ARTICLE
      VIII.      ACQUISITION, MAINTENANCE OR
      TRANSFER OF INTEREST	 14
	  
      A.     Surrender of Leases	 14
	  
      B.     Renewal or Extension of Leases	 15
	  
      C.     Acreage or Cash Contributions	 15
	   D.    
      Disposition of Interests	 16
	  
      E.     Waiver of Rights to Partition	 16
	 	 
	 ARTICLE IX.        
      INTERNAL REVENUE CODE ELECTION  	 16
	 	 
	 ARTICLE X.         
      CLAIMS AND LAWSUITS	 17
	 	 
	 ARTICLE XI.        
      FORCE MAJEURE	 17
	 	 
	 ARTICLE XII.       
      NOTICES	 17
	 	 
	 ARTICLE
      XIII.      TERM OF AGREEMENT	 17
	 	 

    

     

     

     

     

     

     

     

     

    
      
        (i)

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

     

     

    
      	ARTICLE
      XIV.      COMPLIANCE WITH LAWS AND
      REGULATIONS	 18
	   A.    
      Laws, Regulations and Orders	 18
	  
      B.     Governing Law	 18
	  
      C.     Regulatory Agencies	 18

    

     

    
      	 ARTICLE
      XV.       OTHER PROVISIONS	 19
	   A.    
      Operator Disbursements	 19
	  
      B.     Costs Deemed Prepaid 	 19
	  
      C.     Priority of Operations 	 19
	   D.    
      Deepening a Non-Consent Well 	 20
	 
       E.     Maintenance of Lease Acreage	 21
	  
      F.     Granting of Lien 	 21
	  
      G.     No Limitation on Right  to Take and Market
      Production	 22
	  
      H.     Advance Cost Prepayment	 22
	  
      I.      Applicability to Transferred Interest
      	 23
	  
      J.      Non-Consent Status in Presence of Lien
      	 23
	  
      K.     Multiple Operations 	 23
	 
       L.      Billing Additional Interests
    	 24
	  
      M.    Conflicts	 24
	  
      N.     Definitions	 24
	  
      O.     Unanimous Consent For Abandoning Commercial
      Production 	 24
	  
      P.      Taxes	 24
	  
      Q.     Savings Provision 	 24
	 
       R.     Mutiple Completion Attempts 	 24
	  
      S.     Construction	 25
	  
      T.     Separate Facilities 	 25
	  
      U.     Bankruptcy	 25
	 	 
	 	 
	 ARTICLE
      XVI.     MISCELLANEOUS	 25

    

     

     

     

    

    
      
        
          
            (ii)

          

           

        

        
           

          
            

          

        

        
           

          
             

          

        

      

    

    

    OPERATING
AGREEMENT

    

    THIS
AGREEMENT, entered into by and between Provident Energy Associates of
Montana, LLC, a Montana limited liability company (hereinafter designated
and referred to as "Operator"), and the signatory party or parties other than
Operator (sometimes hereinafter referred to individually herein as
"Non-Operator", and collectively as "Non-Operators").

    

    WITNESSETH:

    

    WHEREAS,
the parties to this agreement are owners of oil and gas leases and/or oil and
gas interests in the land identified in Exhibit "A", and the parties hereto have
reached an agreement to explore and develop these leases and/or oil and gas
interests for the production of oil and gas to the extent and as hereinafter
provided,

    

    NOW,
THEREFORE, it is agreed as follows:

    

    

    ARTICLE
I.

    DEFINITIONS

    

    As used in this agreement, the
following words and terms shall have the meanings here ascribed to
them:

    

    A. The
term "oil and gas" shall mean oil, gas, casinghead gas, gas condensate, and all
other liquid or gaseous hydrocarbons and other marketable substances produced
therewith, unless an intent to limit the inclusiveness of this term is
specifically stated.

    

    B. The
terms "oil and gas lease", "lease" and "leasehold" shall mean the oil and gas
leases covering tracts of land lying within the Contract Area which are owned by
the parties to this agreement.

    

    C. The
term "oil and gas interests" shall mean unleased fee and mineral interests in
tracts of land lying within the Contract Area which are owned by parties to this
agreement.

    

    D. The
term "Contract Area" shall mean all of the lands, oil and gas leasehold
interests and oil and gas interests intended to be developed and operated for
oil and gas purposes under this agreement Such lands, oil and gas leasehold
interests and oil and gas interests are described in Exhibit "A".

    

    E. The
term "drilling unit" shall mean the area fixed for the drilling of one well by
order or rule of any state or federal body having authority. If a drilling unit
is not fixed by any such rule or order, a drilling unit shall be the drilling
unit as establish ed by the pattern of drilling in the Contract Area or as fixed
by express agreement of the Drilling Parties.

    

    F. The
term "drillsite" shall mean the oil and gas lease or interest on which a
proposed well is to be located.

    

    G. The
terms "Drilling Party" and "Consenting Patty" shall mean a party who agrees to
join in and pay its share of the cost of any operation conducted under the
provisions of this agreement.

    

    H. The
terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who
elects not to participate in a proposed operation.

    

    Unless
the context otherwise clearly indicates, words used in the singular include the
plural, the plural includes the singular, and the neuter gender includes the
masculine and the feminine.

    

    

    
      
        
          
             

          

           

        

        
          (3)

          
            

          

        

        
           

          
             

          

        

      

    

    

    
      	
              ARTICLE
      II.

            

    

    
      	
              EXHIBITS

            

    

    

    The
following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:

    x           A.
Exhibit "A", shall include the following information:

    (1)
Identification of lands subject to this agreement,

    (2)
Restrictions, if any, as to depths, formations, or substances,

    (3)
Percentages or fractional interests of parties to this agreement,

    (4) Oil
and gas leases and/or oil and gas interests subject to this
agreement,

    (5)
Addresses of parties for notice purposes.

    □           B.
Exhibit "B", Form of Lease.

    x          C.
Exhibit "C", Accounting Procedure.

    □           D.
Exhibit "D", Insurance.

    □           E.
Exhibit "E", Gas Balancing Agreement.

    x          F.
Exhibit "F', Non-Discrimination and Certification of Non-Segregated
Facilities.

    □           G.
Exhibit "G", Tax Partnership.

    If any
provision of any exhibit, except Exhibit "E", is inconsistent with any provision
contained in the body of this agreement, the provisions in the body of this
agreement shall prevail.

    

    

    ARTICLE  III.

    INTERESTS
OF PARTIES

    

    A.           Oil and Gas
Interests:

    

    If any
party owns an oil and gas interest in the Contract Area, that interest shall be
treated for all purposes of this agreement and during the term hereof as if it
were covered by an oil and gas lease similar to those referenced in Exhibit”A”,
and the owner thereof shall be deemed to own both the royalty interest reserved
in such lease and the interest of the lessee thereunder.

    

    B.           Interests of Parties in Costs and
Production:

    

    Unless
changed by other provisions, all costs and liabilities incurred in operations
under this agreement shall be borne and paid, and all equipment and materials
acquired in operations on the Contract Area shall be owned, by the parties as
their interests are set forth in Exhibit "A".  In the same manner, the
parties shall also own all production of oil and gas from the Contract Area
subject to the payment of royalties to the extent of its proportionate share ,
subject to existing burdens only, which shall be borne as hereinafter set
forth.

    

    Regardless
of which party has contributed the lease(s) and/or oil and gas interest(s)
hereto on which royalty is due and payable, Operator shall bear and shall pay or
deliver, or cause to be paid or delivered, all royalties due on production from
the Contract Area. No party shall ever be responsible, however, on a price basis
higher than the price received by such party, to any other party's lessor or
royalty owner, and if any such other party's lessor or royalty owner should
demand and receive settlement on a higher price basis, the party contributing
the affected lease shall bear the additional royalty burden attributable to such
higher price.  Should Non-Operator take it’s production in kind
pursuant to Article VI.C., Non-Operator shall be responsible for distributing
its share of all lease burdens due.

    

    Nothing
contained in this Article III.B. shall be deemed an assignment or
cross-assignment of interests covered hereby.

    

    C.           Excess Royalties, Overriding
Royalties and Other Payments:

    

    Unless
changed by other provisions, if the interest of any party in any lease covered
hereby is subject to any royalty, overriding royalty, production payment or
other burden on production in excess of the amount stipulated in Article III.B.,
such party so burdened shall assume and alone bear all such excess obligations
and shall indemnify and hold the other parties hereto harmless from any and all
claims and demands for payment asserted by owners of such excess
burden.

     

     

    
      
        
        

      

      
        (4)

        
          

        

      

      
        
        

      

    

    
 

    D.           Subsequently Created Interests:

    

    If any
party should hereafter create an overriding royalty, production payment or other
burden payable out of production attributable to its working interest hereunder,
or if such a burden existed prior to this agreement and is not set forth in
Exhibit "A", or was not disclosed in writing to all other parties prior to the
execution of this agreement by all parties, or is not a jointly acknowledged and
accepted obligation of all parties (any such interest being hereinafter referred
to as "subsequently created interest" irrespective of the timing of its creation
and the party out of whose working interest the subsequently created interest is
derived being hereinafter referred to as "burdened party"), and:

    

    
      	
               
      

            	
              1.

            	
              If
      the burdened party is required under this agreement to assign or
      relinquish to any other party, or parties, all or a portion of its working
      interest and/or the production attributable thereto, said other party, or
      parties, shall receive said assignment and/or production free and clear of
      said subsequently created interest and the burdened party shall indemnify
      and save said other party, or parties, harmless from any and all claims
      and demands for payment asserted by owners of the subsequently created
      interest; and,

            

    

    

    
      	
               
      

            	
              2.

            	
              If
      the burdened party fails to pay, when due, its share of expenses
      chargeable hereunder, all provisions of Article VII.B. shall be
      enforceable against the subsequently created interest in the same manner
      as they are enforceable against the working interest of the burdened
      party.

            

    

    

    

    ARTICLE
IV.

    TITLES

    

    A.           Title
Examination:

    

    Title
examination shall be made on the drillsite of any proposed well prior to
commencement of drilling operations or, if the Drilling Parties so request,
title examination shall be made on the leases and/or oil and gas interests
included, or planned to be includ­ed, in the drilling unit around such well.
The opinion will include the ownership of the working interest, minerals,
royalty, overriding royalty and production payments under the applicable leases.
At the time a well is proposed, each party contributing leases and/or oil and
gas interests to the drillsite, or to be included in such drilling unit, shall
furnish to Operator all abstracts (including federal lease status reports),
title opinions, title papers and curative material in its possession free of
charge. All such information not in the possession of or made available to
Operator by the parties, but necessary for the examination of the title, shall
be obtained by Operator. Operator shall cause title to be examined by attorneys
on its staff or by outside attorneys. Copies of all title opinions shall be
furnished to each party hereto. The cost incurred by Operator in this title
program shall be borne as follows:

    

    □           
Option No. l:
Costs incurred by Operator in procuring abstracts and title examination
(including preliminary, supplemental, shut-in gas royalty opinions and division
order title opinions) shall be a part of the administrative overhead as provided
in Exhibit "C", and shall not be a direct charge, whether performed by
Operator's staff attorneys or by outside attorneys.

    

    x           
Option No. 2:
Costs incurred by Operator in procuring abstracts and fees paid outside
attorneys for title examination (including preliminary, supplemental, shut-in
gas royalty opinions and division order title opinions) shall be borne by the
Drilling Parties in the proportion that the interest of each Drilling Party
bears to the total interest of all Drilling Parties as such interests appear in
Ex­hibit "A". Operator shall make no charge for services rendered by its
staff attorneys or other personnel in the performance of the above
functions.

    

    Each
party shall be responsible for securing curative matter and pooling amendments
or agreements required in connection with leases or oil and gas interests
contributed by such party. Operator shall be responsible for the preparation and
recording of pooling designations or declarations as well as the conduct of
hearings before governmental agencies for the securing of spacing or pooling
orders. This shall not prevent any party from appearing on its own behalf at any
such hearing.

     

     

    
      
        
        

      

      
        (5)

        
          

        

      

      
        
        

      

    

    
 

    No well
shall be drilled on the Contract Area until after (1) the title to the drillsite
or drilling unit has been examined as above provided, and (2) the
title has been approved by the examining attorney or title has been accepted by
Operator, or at Operator’s election, all of the parties who are to
par­ticipate in the drilling of the well.

    

    B.           Loss of Title:

    

    All
losses of title incurred shall be joint losses and shall be borne by all parties
in proportion to their interests. There shall be no readjustment of interests in
the remaining portion of the Contract Area.

    

    

    ARTICLE
V.

    OPERATOR

    

    A.           Designation and Responsibilities of
Operator:

    

    Provident Energy Associates of
Montana, LLC, a Montana limited liability company, shall be the Operator
of the Contract Area, and shall conduct and direct and have full control of all
operations on the Contract Area as permitted and required by, and within the
limits of this agreement. It shall conduct all such operations in a good and
workmanlike manner, but it shall have no liability as Operator to the other
parties for losses sustained or liabilities incurred, except such as may result
from gross negligence or willful misconduct.

    

    B.           Resignation or Removal of Operator
and Selection of Successor:

    

    1.           Resignation or Removal of
Operator: Operator may resign at any time by giving written notice
thereof to Non-Operators. If Operator terminates its legal existence, no longer
owns an interest hereunder in the Contract Area, or is no longer capable
of serving as Operator, Operator shall be deemed to have resigned without any
action by Non-Operators, except the selection of a successor. Operator may be
removed if it fails or refuses to carry out its duties hereunder, or becomes
insolvent, bankrupt or is placed in receivership, by the affirmative vote of one
(1) or more Non-Operators owning a majority interest based on ownership as shown
on Exhibit "A" remaining after excluding the voting interest of Operator. Such
resignation or removal shall not become effective until 7:00 o'clock A.M. on the
first day of the calendar month following the expiration of ninety (90) days
after the giving of notice of resignation by Operator or action by the
Non-Operators to remove Operator, unless a successor Operator has been selected
and assumes the duties of Operator at an earlier date. Operator, after effective
date of resignation or removal, shall be bound by the terms hereof as a
Non-Operator. A change of a cor­porate name or structure of Operator or
transfer of Operator's interest to any single subsidiary, parent or successor
corporation shall not be the basis for removal of Operator.

    

    2.           Selection of Successor
Operator: Upon the resignation or removal of Operator, a successor
Operator shall be selected by the parties. The successor Operator shall be
selected from the parties owning an interest in the Contract Area at the time
such successor Operator is selected. The successor Operator shall be selected by
the affirmative vote of one (1) or more parties owning a majority interest based
on ownership as shown on Exhibit "A"; provided, however, if an Operator which
has been removed fails to vote or votes only to succeed itself, the successor
Operator shall be selected by the affirmative vote of one (1) or more parties
owning a majority interest based on ownership as shown on Exhibit "A" remaining
after excluding the voting interest of the Operator that was
removed.

    

    C.           Employees:

    

    The
number of employees used by Operator in conducting operations hereunder, their
selection, and the hours of labor and the compensation for services performed
shall be determined by Operator, and all such employees shall be the employees
of Operator.

     

     

    
      
        
        

      

      
        (6)

        
          

        

      

      
        
        

      

    

    
 

    D.           Drilling
Contracts:

    

    All wells
drilled on the Contract Area shall be drilled on a competitive contract basis at
the usual rates prevailing in the area. If it so desires, Operator
may employ its own tools and equipment in the drilling of wells, but its charges
therefor shall not exceed the prevailing rates in the area and the rate of such
charges shall be agreed upon by the parties in writing before drilling
operations are commenced, and such work shall be performed by Operator under the
same terms and conditions as are customary and usual in the area in contracts of
in­dependent contractors who are doing work of a similar
nature.

    

    

    ARTICLE
VI.

    DRILLING
AND DEVELOPMENT

    

    A.           Initial
Well

    

    Not
applicable, as there are existing producing wells holding the leases referred to
in Exhibit “A’ attached hereto.

    

    B.           Subsequent
Operations:

    

    1.           Proposed Operations:
Should any party hereto desire to drill any well on the Contract Area, or to
recomplete, rework, deepen or plug back a dry hole drilled at the joint expense
of all parties or a well jointly owned by all the parties and not then capable
of producing in paying quantities, the party desiring to drill, recomplete,
rework, deepen or plug back such a well shall give the other parties written
notice of the proposed operation, specifying the work to be performed, the
location, proposed depth, objective forma­tion and the estimated cost of the
operation. The parties receiving such a notice shall have thirty (30) days after
receipt of the notice within which to notify the party wishing to do the work
whether they elect to participate in the cost of the proposed operation. If a
drill­ing rig is on location, notice of a proposal to drill, recomplete,
rework, plug back or drill deeper may be given by telephone and the response
period shall be limited to forty-eight (48) hours, exclusive of Saturday,
Sunday, and legal holidays. Failure of a party receiving such notice to reply
within the period above fixed shall constitute an election by that party not to
participate in the cost of the proposed operation. Any notice or response given by telephone shall be
promptly confirmed in writing.

    

    If all
parties elect to participate in such a proposed operation, Operator shall,
within ninety (90) days after expiration of the notice period of thirty (30)
days (or as
promptly as possible after the expiration of the forty-eight (48) hour period
when a drilling rig is on loca­tion, as the case may be), actually commence
the proposed operation and complete it with due diligence at the risk and
expense of all par­ties hereto; provided, however, said commencement date
may be extended upon written notice of same by Operator to the other parties,
for a period of up to thirty (30) additional days if, in the sole opinion of
Operator, such additional time is reasonably necessary to obtain permits from
governmental authorities, surface rights (including rights-of-way) or
appropriate drilling equipment, or to complete title ex­amination or
curative matter required for title approval or acceptance. Notwithstanding the
force majeure provisions of Article XI, if the actual operation has not been
commenced within the time provided (including any extension thereof as
specifically permitted herein) and if any party hereto still desires to conduct
said operation, written notice proposing same must be resubmitted to the other
parties in accor­dance with the provisions hereof as if no prior proposal
had been made.

    

    2.           Operations by Less than All
Parties: If any party receiving such notice as provided in Article
VI.B.I. or VII.D.1. (Option No. 2) elects not to participate in the proposed
operation, then, in order to be entitled to the benefits of this Article, the
party or parties giving the notice and such other parties as shall elect to
participate in the operation shall, within ninety (90) days after the expiration
of the notice period of thirty (30) days (or as promptly as possible after the
expiration of the forty-eight (48) hour period when a drilling rig is on
location, as the case may be) actually commence the proposed operation and
complete it with due diligence. Operator shall perform all work for the account
of the Consenting Parties; provided, however, if no drilling rig or other
equipment is on location, and if Operator is a Non-Consenting Party, the
Consenting Parties shall either: (a) request Operator to perform the work
required by such proposed opera­tion for the account of the Consenting
Parties, or (b) designate one (I) of the Consenting Parties as Operator to
perform such work. Con­senting Parties, when conducting operations on the
Contract Area pursuant to this Article VI.B.2., shall comply with all terms and
con­ditions of this agreement.

     

     

    
      
        
        

      

      
        (7)

        
          

        

      

      
        
        

      

    

    
 

    If less
than all parties approve any proposed operation, the proposing party,
immediately after the expiration of the applicable notice period, shall advise
the Consenting Parties of the total interest of the parties approving such
operation and its recommendation as to whether the Consenting Parties should
proceed with the operation as proposed. Each Consenting Party, within
forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after
receipt of such notice, shall advise the proposing party of its desire to (a)
limit par­ticipation to such party's interest as shown on Exhibit "A" or (b)
carry its proportionate part of Non-Consenting Parties' interests, and failure
to advise the proposing party shall be deemed an election under
(a).  In the event a drilling rig is on location, the time permitted
for such a response shall not exceed a total of forty-eight (48) hours (inclusive of
Saturday, Sunday and legal holidays). The proposing party, at its election, may
withdraw such proposal if there is insufficient participation and shall promptly
notify all parties of such decision.

    

    The
entire cost and risk of conducting such operations shall be borne by the
Consenting Parties in the proportions they have elected to bear same under the
terms of the preceding paragraph. Consenting Parties shall keep the leasehold
estates involved in such operations free and clear of all liens and encumbrances
of every kind created by or arising from the operations of the Consenting
Parties. If such an operation results in a dry hole, the Consenting Parties
shall plug and abandon the well and restore the surface location at their sole
cost, risk and expense. If any well drilled, recompleted, reworked, deepened or
plugged back under the provisions of this Article results in a pro­ducer of
oil and/or gas in paying quantities, the Consenting Parties shall complete and
equip the well to produce at their sole cost and risk, and the well shall then
be turned over to Operator and shall be operated by it at the expense and for
the account of the Consenting Par­ties. Upon commencement of operations for
the drilling, recompleting, reworking, deepening or plugging back of any such
well by Consenting Parties in accordance with the provisions of this Article,
each Non-Consenting Party shall be deemed to have relinquished to Consenting
Parties, and the Consenting Parties shall own and be entitled to receive, in
proportion to their respective interests, all of such Non-Consenting Party's
interest in the well and share of production therefrom until the proceeds of the
sale of such share, calculated at the well, or market value thereof if such
share is not sold, (after deducting production taxes, excise taxes, royalty,
overriding royalty and other in­terests not excepted by Article III.D.
payable out of or measured by the production from such well accruing with
respect to such interest until it reverts) shall equal the total of the
following:

    

    (a)           100%
of each such Non-Consenting Party's share of the cost of any newly acquired
surface equipment beyond the wellhead connections (including, but not limited
to, stock tanks, separators, treaters, pumping equipment and piping), plus 100%
of each such Non-Consenting Party's share of the cost of operation of the well
commencing with first production and continuing until each such
Non-­Consenting Party's relinquished interest shall revert to it under other
provisions of this Article, it being agreed that each Non­-Consenting
Party's share of such costs and equipment will be that interest which would have
been chargeable to such Non-Consenting Party had it participated in the well
from the beginning of the operations; and

    

    (b)           300%
of that portion of the costs and expenses of drilling, recompleting, reworking,
deepening, plugging back, testing and completing, after deducting any cash
contributions received under Article VIII.C., and 100% of that portion of the
cost of newly acquired equipment in the well (to and including the wellhead
connections), which would have been chargeable to such Non-Consenting Party if
it had participated therein.

    

    An
election not to participate in the drilling or the deepening of a well shall be
deemed an election not to participate in any recompleting, re­working or
plugging back operation proposed in such a well, or portion thereof, to which
the initial Non-Consent election applied that is conducted at any time prior to
full recovery by the Consenting Parties of the Non-Consenting Party's recoupment
account. Any such recompleting, reworking or plugging back operation conducted
during the recoupment period shall be deemed part of the cost of operation of
said well and there shall be added to the sums to be recouped by the Consenting
Parties one hundred percent (100%) of that portion of the costs of the
recompleting, reworking or plugging back operation which would have been
chargeable to such Non-Consenting Party had it participated therein. If such a
reworking or plugging back operation is proposed during such recoupment period,
the provisions of this Article VI.B. shall be ap­plicable as between said
Consenting Parties in said well.

    

    

    
      
        
          
             

          

           

        

        
          (8)

          
            

          

        

        
           

          
             

          

        

      

    

    

    During
the period of time Consenting Parties are entitled to receive Non-Consenting
Party's share of production, or the proceeds therefrom, Consenting Parties shall
be responsible for the payment of all production, severance, excise, gathering
and other taxes, and all royalty, overriding royalty and other burdens
applicable to Non-Consenting Party's share of production not excepted by
Ar­ticle III.D.

    

    In the
case of any testing, recompleting, reworking, plugging back or deeper drilling
operation, the Consenting Parties shall be permitted to use, free of cost, all
casing, tubing and other equipment in the well, but the ownership of all such
equipment shall remain unchanged; and upon abandonment of a well after such
reworking, plugging back or deeper drilling, the Consenting Parties shall
account for all such equip­ment to the owners thereof, with each party
receiving its proportionate part in kind or in value, less cost of salvage and
the proportionate share of pluggin and abandoning which each party would have
paid if the well had been plugged and abandoned at the time each party
participated in an operation on the well.

    

    Within
sixty (60) days after the completion of any operation under this Article, the
party conducting the operations for the Consenting Parties shall furnish each
Non-Consenting Party with an inventory of the equipment in and connected to the
well, and an itemized statement of the cost of drilling, deepening, plugging
back, testing, completing, and equipping the well for production; or, at its
option, the operating party, in lieu of an itemized statement of such costs of
operation, may submit a detailed statement of monthly bill­ings. Each month
thereafter, during the time the Consenting Parties are being reimbursed as
provided above, the party conducting the operations for the Consenting Parties
shall furnish the Non-Consenting Parties with an itemized statement of all costs
and liabilities in­curred in the operation of the well, together with a
statement of the quantity of oil and gas produced from it and the amount of
proceeds realized from the sale of the well's working interest production during
the preceding month. In determining the quantity of oil and gas produced during
any month, Consenting Parties shall use industry accepted methods such as, but
not limited to, metering or periodic well tests. Any amount realized from the
sale or other disposition of equipment newly acquired in connection with any
such operation which would have been owned by a Non-Consenting Party had it
participated therein shall be credited against the total unreturned costs of the
work done and of the equipment purchased in determining when the interest of
such Non-Consenting Party shall revert to it as above provided; and if there is
a credit balance, it shall be paid to such Non-Consenting Party.

    

    If and
when the Consenting Parties recover from a Non-Consenting Party's relinquished
interest the amounts provided for above, the relinquished interests of such
Non-Consenting Party shall automatically revert to it, and, from and after such
reversion, such Non­-Consenting Party shall own the same interest in such
well, the material and equipment in or pertaining thereto, and the production
therefrom as such Non-Consenting Party would have been entitled to had it
participated in the drilling, testing, recompleting, reworking, deepening or
plugging back of said well. Thereafter, such Non-Consenting Party shall be
charged with and shall pay its proportionate part of the further costs of the
operation of said well in accordance with the terms of this agreement and the
Accounting Procedure attached hereto.

    

    Notwithstanding
the provisions of this Article VI.B.2., it is agreed that without the mutual
consent of all parties, no wells shall be completed in or produced from a source
of supply from which a well located elsewhere on the Contract Area is producing,
unless such well conforms to the then-existing well spacing pattern for such
source of supply.

    

    The
provisions of this Article shall have no application whatsoever to the drilling
of the initial well described in Article VI.A. except (a) as to Article VIID.I.
(Option No. 2), if selected, or (b) as to the reworking, deepening and plugging
back of such initial well after if has been drilled to the depth specified in
Article VI.A. if it shall thereafter prove to be a dry hole or, if initially
completed for pro­duction, ceases to produce in paying
quantities.

    

    3.           Stand-By Time: When a
well which has been drilled or deepened has reached its authorized depth and all
tests have been completed, and the results thereof furnished to the parties,
stand-by costs incurred pending response to a party's notice proposing a
reworking, deepening, plugging back or completing operation in such a well shall
be charged and borne as part of the drilling or deepen­ing operation just
completed. Stand-by costs subsequent to all parties responding, or expiration of
the response time permitted, whichever first occurs, and prior to agreement as
to the participating interests of all Consenting Parties pursuant to the terms
of the second gram­matical paragraph of Article VI.B.2., shall be charged to
and borne as part of the proposed operation, but if the proposal is subsequently
withdrawn because of insufficient participation, such stand-by costs shall be
allocated between the Consenting Parties in the proportion each Consenting
Party's interest as shown on Exhibit "A" bears to the total interest as shown on
Exhibit "A" of all Consenting Par­ties.

     

     

    
      
        
        

      

      
        (9)

        
          

        

      

      
        
        

      

    

    
 

    4.           Sidetracking: Except
as hereinafter provided and except with respect to the first horizontal borehole of the first well drilled hereunder, those
provisions of this agreement applicable to a "deepening" operation shall also be
applicable to any proposal to directionally control and intentionally deviate a
well from vertical so as to change the bottom hole location (herein call
"sidetracking"), unless done to straighten the hole or to drill around junk in
the hole or because of other mechanical difficulties. Any party having the right
to participate in a proposed sidetracking operation that does not own an
interest in the affected well bore at the time of the notice shall, upon
electing to participate, tender to the well bore owners its proportionate share
(equal to its interest in the sidetracking operation) of the value of that
portion of the existing well bore to be utilized as follows:

    

    (a)           If
the proposal is for sidetracking an existing dry hole, reimbursement shall be on
the basis of the actual costs incurred in the initial drilling of the well down
to the depth at which the sidetracking operation is initiated.

    

    (b)           If
the proposal is for sidetracking a well which has previously produced,
reimbursement shall be on the basis of the well's salvable materials and
equipment down to the depth at which the sidetracking operation is initiated,
determined in accordance with the provisions of Exhibit "C", less the estimated
cost of salvaging and the estimated cost of plugging and
abandoning.

    

    In the
event that notice for a sidetracking operation is given while the drilling rig
to be utilized is on location, the response period shall be limited to
forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays;
provided, however, any party may request and receive up to eight (8) additional
days after expiration of the forty-eight (48) hours within which to respond by
paying for all stand-by time incurred during such extended response period. If
more than one party elects to take such additional time to respond to the
notice, stand by costs shall be allocated between the parties taking additional
time to respond on a day-to-day basis in the proportion each electing
par­ty's interest as shown on Exhibit "A" bears to the total interest as
shown on Exhibit "A" of all the electing parties.  In all other
in­stances the response period to a proposal for sidetracking shall be
limited to thirty (30) days.

    

    NOTWITHSTANDING
ANY TO THE CONTRARY HEREIN CONTAINED, THE PROVISIONS OF THIS SUBPARAGRAPH VI.B.4
WILL NOT APPLY TO WELLS DRILLED AS HORIZONTAL WELLBORES.

    

    C.           TAKING
PRODUCTION IN KIND:

    

    Each
party shall have the right to take in kind or separately dispose of its
proportionate share of all oil and gas produced from the Contract Area,
exclusive of production which may be used in development and producing
operations and in preparing and treating oil and gas for marketing purposes and
production unavoidably lost. Any extra expenditure incurred in the taking in
kind or separate disposition by any party of its proportionate
share of the production shall be borne by such party. Any party taking its share
of production in kind shall be required to pay for only its proportionate share
of such part of Operator’s surface facilities which it uses.

    

    Each
party shall execute such division orders and contracts as may be necessary for
the sale of its interest in production from the Contract Area, and, except as
provided in Article VII.B., shall be entitled to receive payment directly from
the purchaser thereof for its share of all production.

    

    In the
event any party shall fail to make the arrangements necessary to take in kind or
separately dispose of its proportionate share of the oil produced from the
Contract Area, Operator shall have the right, subject to the revocation at will
by the party owning it, but not the obligation, to purchase such oil or sell it
to others at any time and from time to time, for the account of the non-taking
party at the best price obtainable in the area for such production. Any such
purchase or sale by Operator shall be subject always to the right of the owner
of the production to exercise at any time its right to take in kind, or
separately dispose of, its share of all oil not previously delivered to a
purchaser. Any purchase or sale by Operator of any other party's share of oil
shall be only for such reasonable periods of time as are consistent with the
minimum needs of the industry under the particular circumstances, but in no
event for a period in excess of one (1) year.

     

     

    
      
        
        

      

      
        (10)

        
          

        

      

      
        
        

      

    

    
 

    In the
event one or more parties' separate disposition of its share of the gas causes
split-stream deliveries to separate pipelines and/or deliveries
which on a day-to-day basis for any reason are not exactly equal to a party's
respective proportionate share of total gas sales to be allocated to it, the
balancing or accounting between the respective accounts of the parties shall be
in accordance with any gas balancing agreement between the parties hereto,
whether such an agreement is attached as Exhibit "E", or is a separate
agreement.

    

    D.           Access to Contract Area and
Information:

    

    Each
party shall have access to the Contract Area at all reasonable times, at its
sole cost and risk to inspect or observe operations, and shall have access at
reasonable times to information pertaining to the development or operation
thereof, including Operator's books and records relating thereto. Operator, upon
request, shall furnish each of the other parties with copies of all forms or
reports filed with governmental agencies, daily drilling reports, well logs,
tank tables, daily gauge and run tickets and reports of stock on hand at the
first of each month, and shall make available samples of any cores or cuttings
taken from any well drilled on the Contract Area. The cost of gathering and
furnishing information to Non-Operator, other than that specified above, shall
be charged to the Non-Operator that re­quests the Information.

    

    E.           Abandonment of
Wells:

    

    1.           Abandonment of Dry
Holes: Except for any well drilled or deepened pursuant to Article
VI.B.2., any well which has been drilled or deepened under the terms of this
agreement and is proposed to be completed as a dry hole shall not be plugged and
abandoned without the consent of all parties. Should Operator, after diligent
effort, be unable to contact any party, or should any party fail to reply within
forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after
receipt of notice of the proposal to plug and abandon such well, such party
shall be deemed to have consented to the proposed abandonment. All such wells
shall be plugged and abandoned in accordance with applicable regulations and at
the cost, risk and expense of the parties who participated in the cost of
drilling or deepening such well. Any party who objects to plugging and
abandoning such well shall have the right to take over the well and conduct
further operations in search of oil and/or gas subject to the provisions of
Article VI.B by immediately assuming all costs, risk and liability of such
further obligations, including plugging and abandonment costs, risk and
liability. [No approval needed if requested by any tribal or governmental
authority.

    

    2.           Abandonment of Wells that
have Produced: Except for any well in which a Non-Consent operation has
been conducted hereunder for which the Consenting Parties have not been fully
reimbursed as herein provided, any well which has been completed as a producer
shall not be plugged and abandoned without the consent of all parties. If all
parties consent to such abandonment, the well shall be plugged and abandoned in
accordance with applicable regulations and at the cost, risk and expense of all
the parties hereto. If, within thirty (30) days after receipt of notice of the
proposed abandonment of any well, all parties do not agree to the abandonment of
such well, those wishing to continue its operation from the interval(s) of the
formation(s) then open to production shall tender to each of the other parties
its proportionate share of the value of the well's salvable material and
equipment, determined in accordance with the provisions of Exhibit "C", less the
estimated cost of salvaging and the estimated cost of plugging and abandoning.
Failure of any party to respnd within ninety (90) days after receipt of the
proposed abandonment shall be deemed as consent to such abandonment. Each
abandoning party shall assign the non-abandoning parties, without warranty,
express or implied, as to title or as to quantity, or fitness for use of the
equipment and material, all of its interest in the well and related equipment,
together with its interest in the leasehold estate as to, but only as to, the
in­terval or intervals of the formation or formations then open to
production. If the interest of the abandoning party is or includes an oil and
gas interest, such party shall execute and deliver to the non-abandoning party
or parties an oil and gas lease, limited to the interval or in­tervals of
the formation or formations then open to production, for a term of one (1) year
and so long thereafter as oil and/or gas is pro­duced from the interval or
intervals of the formation or formations covered thereby, such lease to provide
for a 20% lease royalty.  The assignments or leases so limited shall
encompass the “drilling unit” upon which the well is located.  The
payments by, and the assignments or leases to, the assignees shall be in a ratio
based upon the relationship of their respective percentage of participation in
the Contract Area to the aggregate of the percentages of participation in the
Contract Area of all assignees.  There shall be no readjustment of
interests in the remaining portion of the Contract Area.

     

     

    
      
        
        

      

      
        (11)

        
          

        

      

      
        
        

      

    

    
 

    Thereafter,
abandoning parties shall have no further responsibility, liability, or interest
in the operation of or production from the well in the interval
or intervals then open other than the royalties retained in any lease made under
the terms of this Article. Upon re­quest, Operator shall continue to operate
the assigned well for the account of the non-abandoning parties at the rates and
charges con­templated by this agreement, plus any additional cost and
charges which may arise as the result of the separate ownership of the assigned
well. Upon proposed abandonment of the producing interval(s) assigned or leased,
the assignor or lessor shall then have the option to repurchase its prior
interest in the well (using the same valuation formula) and participate in
further operations therein subject to the pro­visions hereof.

    

    3.           Abandonment of Non-Consent
Operations: The provisions of Article VI.E.1. or VI.E.2 above shall be
applicable as between Consenting Parties in the event of the proposed
abandonment of any well excepted from said Articles; provided, however, no well
shall be permanently plugged and abandoned unless and until all parties having
the right to conduct further operations therein have been notified of the
proposed abandonment and afforded the opportunity to elect to take over the well
in accordance with the provisions of this Article VI.E.  Further and
notwithstanding anything in this Agreement to the contrary, no consent to the
plugging and abandonment of a well shall be required if the plugging and
abandonment is mandated or ordered by a tribal or governmental
authority.

    

    ARTICLE
VII.

    EXPENDITURES
AND LIABILITY OF PARTIES

    

    A.           Liability of
Parties:

    

    The
liability of the parties shall be several, not joint or collective. Each party
shall be responsible only for its obligations, and shall be liable only for its
proportionate share of the costs of developing and operating the Contract Area.
Accordingly, the liens granted among the parties in Article VII.B. are given to
secure only the debts of each severally.  It is not the intention of
the parties to create, nor shall this agreement be construed as creating, a
mining or other partnership or association, or to render the parties liable as
partners.

    

    B.           Liens
and Payment Defaults:

    

    See
Article XV of this Agreement.

    

    C.           Payments and
Accounting:

    

    Except as
herein otherwise specifically provided, Operator shall promptly pay and
discharge expenses incurred in the development and operation of the Contract
Area pursuant to this agreement and shall charge each of the parties hereto with
their respective propor­tionate shares upon the expense basis provided in
Exhibit "C". Operator shall keep an accurate record of the joint account
hereunder, showing expenses incurred and charges and credits made and
received.

    

    Operator,
at its election, shall have the right from time to time to demand and receive
from the other parties payment in advance of their respective shares of the
estimated amount of the expense to be incurred in operations hereunder during
the next succeeding month, which right may be exercised only by submission to
each such party of an itemized statement of such estimated expense, together
with an invoice for its share thereof. Each such statement and invoice for the
payment in advance of estimated expense shall be submitted on or before the 20th
day of the next preceding month. Each party shall pay to Operator its
proportionate share of such estimate within thirty (30) days after such estimate
and invoice is received. If any party fails to pay its share of said estimate
within said time, the amount due shall bear interest as provided in Exhibit "C"
until paid. Proper adjustment shall be made monthly between advances and actual
ex­pense to the end that each party shall bear and pay its proportionate
share of actual expenses incurred, and no more.

    

    

    
      
        
          
             

          

           

        

        
          (12)

          
            

          

        

        
           

          
             

          

        

      

    

    

    D.           Limitation of
Expenditures:

    

    1.           Drill or Deepen:
Without the consent of all parties, no well shall be drilled or deepened, except
any well drilled or deepened pursuant to the provisions of
Article V I.B.2. of this agreement Consent to the drilling or deepening shall
include:

    

    □           Option No. l: All
necessary expenditures for the drilling or deepening, testing, completing and
equipping of the well, including necessary tankage and/or surface
facilities.

    

    x           Option No. 2: All
necessary expenditures for the drilling or deepening and testing of the well.
When such well has reached its authorized depth, and all tests have been
completed, and the results thereof furnished to the parties, Operator shall give
immediate notice to the Non-Operators who have the right to participate in the
completion costs. The parties receiving such notice shall have forty-eight (48)
hours (exclusive of Saturday, Sunday and legal holidays) in which to elect to
participate in the setting of casing and the completion at­tempt. Such
election, when made, shall include consent to all necessary expenditures for the
completing and equipping of such well, in­cluding necessary tankage and/or
surface facilities. Failure of any party receiving such notice to reply within
the period above fixed shall constitute an election by that party not to
participate in the cost of the completion attempt If one or mote, but less than
all of the parties, elect to set pipe and to attempt a completion, the
provisions of Article VI.B.2. hereof (the phrase "reworking, deepening or
plugging back" as contained in Article VI.B.2. shall be deemed to include
"completing") shall apply to the operations thereafter conducted by less than
all parties.

    

    2.           Rework or Plug Back:
Without the consent of all parties, no well shall be reworked or plugged back
except a well reworked or plugged back pursuant to the provisions of Article
VI.B2. of this agreement. Consent to the reworking or plugging back of a well
shall include all necessary expenditures in conducting such operations and
completing and equipping of said well, including necessary tankage and/or
surface facilities.

    

    3.           Other Operations:
Without the consent of all parties, Operator shall not undertake any single
project reasonably estimated to require an expenditure in excess of One Hundred
Thousand and No/100 Dollars ($100,000.00) except in connection with a well, the
drilling, reworking, deepening, completing, recompleting, or plugging back of
which has been previously authorized by or pursuant to this agreement; provided,
however, that, in case of explosion, fire, flood or other sudden emergency,
whether of the same or different nature, Operator may take such steps and incur
such expenses as in its opinion are required to deal with the emergency to
safeguard life and property but Operator, as promptly as possible, shall report
the emergency to the other parties. If Operator prepares an authority for
expenditure (AFE) for its own use, Operator shall furnish any Non-Operator so
requesting an information copy thereof for any single project costing in excess
of One Hundred Thousand and No/100 Dollars ($100,000.00) but less than the
amount first set forth above in this paragraph.

    

    
      	
              E.  

            	
              Rentals,
      Shut-In Well Payments and Minimum
Royalties:

            

    

    

    Rentals,
shut-in well payments and minimum royalties which may be required under the
terms of any lease shall be paid by the party or parties who subjected such
lease to this agreement at its or their expense. In the event two or more
parties own and have con­tributed interests in the same lease to this
agreement, such parties may designate one of such parties to make said payments
for and on behalf of all such parties. Any party may request, and shall be
entitled to receive, proper evidence of all such payments. In the event of
failure to make proper payment of any rental, shut-in well payment or minimum
royalty through mistake or oversight where such pay­ment is required to
continue the lease in force, any loss which results from such non-payment shall
be borne in accordance with the provisions of Article IV.B.2.

    

    Operator
shall notify Non-Operator of the anticipated completion of a shut-in gas well,
or the shutting in or return to production of a producing gas well, at least
five (5) days
(excluding Saturday, Sunday and legal holidays), or at the earliest opportunity
permitted by circumstances, prior to taking such action, but assumes no
liability for failure to do so. In the event of failure by Operator to so notify
Non-Operator, the loss of any lease contributed hereto by Non-Operator for
failure to make timely payments of any shut-in well payment shall be borne
jointly by the parties hereto under the provisions of Article
IV.B.3.

     

     

     

    
      
        
        

      

      
        (13)

        
          

        

      

      
        
        

      

    

    
 

    F.           Taxes:

    

    Beginning
with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all property subject to this
agreement which by law should be rendered for such taxes, and it shall pay all
such taxes assessed thereon before they become delinquent Prior to the rendition
date, each Non-Operator shall furnish Operator information as to burdens (to
include, but not be limited to, royalties, overriding royalties and production
payments) on leases and oil and gas interests contributed by such
Non­Operator. If the assessed valuation of any leasehold estate is reduced
by reason of its being subject to outstanding excess royalties, over­riding
royalties or production payments, the reduction in ad valorem taxes resulting
therefrom shall inure to the benefit of the owner or owners of such leasehold
estate, and Operator shall adjust the charge to such owner or owners so as to
reflect the benefit of such reduc­tion. If the ad valorem taxes are based in
whole or in part upon separate valuations of each party's working interest, then
notwithstanding anything to the contrary herein, charges to the joint account
shall be made and paid by the parties hereto in accordance with the tax value
generated by each party's working interest Operator shall bill the other parties
for their proportionate shares of all tax payments in the manner provided in
Exhibit "C".

    

    If
Operator considers any tax assessment improper, Operator may, at its discretion,
protest within the time and manner pr scribed by law, and prosecute the protest
to a final determination, unless all parties agree to abandon the protest prior
to final deter­mination. During the pendency of administrative or judicial
proceedings, Operator may elect to pay, under protest, all such taxes and any
interest and penalty. When any such protested assessment shall have been finally
determined, Operator shall pay the tax for the joint ac­count, together with
any interest and penalty accrued, and the total cost shall then be assessed
against the parties, and be paid by them, as provided in Exhibit
"C"

    

    Each
party shall pay or cause to be paid all production, severance, excise, gathering
and other taxes imposed upon or with respect to the production or handling of
such party's share of oil and/or gas produced under the terms of this
agreement.

    

    G.           Insurance:

    

    At all
times while operations are conducted hereunder, Operator shall comply with the
workmen's compensation law of the state where the operations are being
conducted; provided, however, that Operator may be a self-insurer for liability
under said com­pensation laws in which event the only charge that shall be
made to the joint account shall be as provided in Exhibit "C". Operator shall
also carry or provide such insurance coverage for the benefit of the joint
account of the parties as is reasonable and customary for operations in the
general area where the lands subject to this agreement are
located.  Operator shall require all contractors engaged in work on or
for the Contract Area to comply with the workmen's compensation law of the state
where the operations are being conducted and to maintain such other insurance as
Operator may require.

    

    In the
event automobile public liability insurance is part of the insurance coverage
carried or provided by the Operator as specified herein, no direct charge shall
be made by Operator for premiums paid for such insurance for Operator's
automotive equipment.

    

    

    ARTICLE
VIII.

    ACQUISITION,
MAINTENANCE OR TRANSFER OF INTEREST

    

    A.           Surrender of
Leases:

    

    The
leases covered by this agreement, insofar as they embrace acreage in the
Contract Area, shall not be surrendered in whole or in part unless all parties
consent thereto.

    

    However,
should any party desire to surrender its interest in any lease or in any portion
thereof, and the other parties do not agree or consent thereto, the party
desiring to surrender shall assign, without express or implied warranty of
title, all of its interest in such lease, or portion thereof, and any well,
material and equipment which may be located thereon and any rights in production
thereafter secured, to the parties not consenting to such surrender. If the
interest of the assigning party is or includes an oil and gas in­terest, the
assigning party shall execute and deliver to the party or parties not consenting
to such surrender an oil and gas lease covering such oil and gas interest for a
term of one (1) year and so long thereafter as oil and/or gas is produced from
the land covered thereby.  Upon such assignment or lease, the
assigning party shall be relieved from all obligations thereafter accruing, but
not theretofore accrued, with respect to the interest assigned or leased and the
operation of any well attributable thereto, and the assigning party shall have
no further interest in the assigned or leased premises and its equipment and
pro­duction other than the royalties retained in any lease made under the
terms of this Article. The party assignee or lessee shall pay to the party
assignor or lessor the reasonable salvage value of the latter's interest in any
wells and equipment attributable to the assigned or leas­ed acreage. The
value of all material shall be determined in accordance with the provisions of
Exhibit "C", less the estimated cost of salvaging and the estimated cost of
plugging and abandoning. If the assignment or lease is in favor of more than one
party, the interest shall be shared by such parties in the proportions that the
interest of each bears to the total interest of all such parties.

     

     

    
      
        
        

      

      
        (14)

        
          

        

      

      
        
        

      

    

    
 

    Any
assignment, lease or surrender made under this provision shall not reduce or
change the assignor's, lessor's or surrendering party's interest
as it was immediately before the assignment, lease or surrender in the balance
of the Contract Area; and the acreage assigned, leased or surrendered, and
subsequent operations thereon, shall not thereafter be subject to the terms and
provisions of this agreement.

    

    B.           Renewal or Extension of
Leases:

    

    If any
party secures a renewal of any oil and gas lease subject to this agreement, all
other parties shall be notified promptly, and shall have the right for a period
of thirty (30) days following receipt of such notice in which to elect to
participate in the ownership of the renewal lease, insofar as such lease affects
lands within the Contract Area, by paying to the party who acquired it their
several proper pro­portionate shares of the acquisition cost allocated to
that part of such lease within the Contract Area, which shall be in proportion
to the interests held at that time by the parties in the Contract
Area.

    

    If some,
but less than all, of the parties elect to participate in the purchase of a
renewal lease, it shall be owned by the parties who elect to participate
therein, in a ratio based upon the relationship of their respective percentage
of participation in the Contract Area to the aggregate of the percentages of
participation in the Contract Area of all parties participating in the purchase
of such renewal lease. Any renewal lease in which less than all parties elect to
participate Shall not be subject to this agreement.

    

    Each
party who participates in the purchase of a renewal lease shall be given an
assignment of its proportionate interest therein by the acquiring
party.

    

    The
provisions of this Article shall apply to renewal leases whether they are for
the entire interest covered by the expiring lease or cover only a portion of its
area or an interest therein. Any renewal lease taken before the expiration of
its predecessor lease, or taken or contracted for within six (6) months after
the expiration of the existing lease shall be subject to this provision; but any
lease taken or con­tracted for more than six (6) months after the expiration
of an existing lease shall not be deemed a renewal lease and shall not be
subject to the provisions of this agreement.

    

    The
provisions in this Article shall also be applicable to extensions of oil and gas
leases.

    

    C.           Acreage or Cash
Contributions:

    

    While
this agreement is in force, if any party contracts for a contribution of cash
towards the drilling of a well or any other operation on the Contract Area, such
contribution shall be paid to the party who conducted the drilling or other
operation and shall be applied by it against the cost of such drilling or other
operation. If the contribution be in the form of acreage, the party to whom the
con­tribution is made shall promptly tender an assignment of the acreage,
without warranty of title, to the Drilling Parties in the proportions said
Drilling Parties shared the cost of drilling the well. Such acreage shall become
a separate Contract Area and, to the extent possible, be governed by provisions
identical to this agreement. Each party shall promptly notify all other parties
of any acreage or cash contributions it may obtain in support of any well or any
other operation on the Contract Area. The above provisions shall also be
applicable to op­tional rights to cam acreage outside the Contract Area
which are in support of a well drilled inside the Contract Area.

     

     

    
      
        
        

      

      
        (15)

        
          

        

      

      
        
        

      

    

    
 

    If any
party contracts for any consideration relating to disposition of such party's
share of substances produced hereunder, such consideration shall
not be deemed a contribution as contemplated in this Article
VIII.C.

    

    D.           Maintenance of Uniform
Interests:

    

    For the
purpose of maintaining uniformity of ownership in the oil and gas leasehold
interests covered by this agreement, no party shall sell, encumber, transfer or
make other disposition of its interest in the leases embraced within the
Contract Area and in wells, equipment and production unless such disposition
covers either:

    

    1.           the
entire interest of the party in all leases and equipment and production;
or

    

    2.           an
equal undivided interest in all leases and equipment and production in the
Contract Area.

    

    Every
such sale, encumbrance, transfer or other disposition made by any party shall be
made expressly subject to this agreement and shall be made without prejudice to
the right of the other parties.

    

    If, at
any time the interest of any party is divided among and owned by four or more
co-owners, Operator, at its discretion, may require such co-owners to appoint a
single trustee or agent with full authority to receive notices, approve
expenditures, receive billings for and approve and pay such party's share of the
joint expenses, and to deal generally with, and with power to bind, the
co-owners of such party's interest within the scope of the operations embraced
in this agreement; however, all such co-owners shall have the right to enter
into and execute all contracts or agreements for the disposition of their
respective shares of the oil and gas produced from the Contract Area and they
shall have the right to receive, separately, payment of the sale proceeds
thereof.

    

    E.           Waiver of Rights to
Partition:

    

    If
permitted by the laws of the state or states in which the property covered
hereby is located, each party hereto owning an undivided interest in the
Contract Area waives any and all rights it may have to partition and have set
aside to it in severalty its undivided interest therein.

    

    

    ARTICLE
IX.

    INTERNAL
REVENUE CODE ELECTION

    

    This
agreement is not intended to create, and shall not be construed to create, a
relationship of partnership or an association for profit between or among the
parties hereto. Notwithstanding any provision herein that the rights and
liabilities hereunder are several and not joint or collective, or that this
agreement and operations, hereunder shall not constitute a partnership, if, for
federal income tax purposes, this agreement and the operations hereunder are
regarded as a partnership, each party hereby affected elects to be excluded from
the application of all of the provisions of Subchapter "K", Chapter 1, Subtitle
"A", of the Internal Revenue Code of 1986, as per­mitted and authorized by
Section 761 of the Code and the regulations promulgated thereunder. Operator is
authorized and directed to ex­ecute on behalf of each party hereby affected
such evidence of this election as may be required by the Secretary of the
Treasury of the United States or the Federal Internal Revenue Service, including
specifically, but not by way
of limitation, all of the returns, statements, and the data required by
Federal Regulations 1.761. Should there be any requirement that each party
hereby affected give further evidence of this election, each such party shall
execute such documents and furnish such other evidence as may be required by the
Federal Internal Revenue Service or as may be necessary to evidence this
election. No such party shall give any notices or take any other action
inconsistent with the election made hereby.  If any present or future
income tax laws of the state or states in which the Contract Area is located or
any future income tax laws of the United States contain provisions similar to
those in Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code
of 1986, under which an election similar to that provided by Section 761 of the
Code is per­mitted, each party hereby affected shall make such election as
may be permitted or required by such laws. In making the foregoing
elec­tion, each such party states that the income derived by such party from
operations hereunder can be adequately determined without the computation of
partnership taxable income.

    

    

    
      
        
          
             

          

           

        

        
          (16)

          
            

          

        

        
           

          
             

          

        

      

    

    

    ARTICLE
X.

    CLAIMS
AND LAWSUITS

    

    Operator
may settle any single uninsured third party damage claim or suit arising from
operations hereunder if the expenditure does not exceed Fifty
Thousand and No/100 Dollars ($50,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement
ex­ceeds the above amount, the parties hereto shall assume and take over the
further handling of the claim or suit,
unless such authority is delegated to Operator. All costs and expenses of handling, settling, or
otherwise discharging such claim or suit shall be at the joint ex­pense of
the parties participating in the operation from which the claim or suit arises.
If a claim is made against any party or if any party is sued on account of any
matter arising from operations hereunder over which such individual has no
control because of the rights given Operator by this agreement, such party shall
immediately notify all other parties, and the claim or suit shall be treated as
any other claim or suit involving operations hereunder. All claims or suits
involving title to any interest subject to this agreement shall be treated as a
claim or suit against all parties hereto.

    

    

    ARTICLE
XI.

    FORCE
MAJEURE

    

    If any
party is rendered unable, wholly or in part, by force majeure to carry out its
obligations under this agreement, other than the obligation to make money
payments, that party shall give to all other parties prompt written notice of
the force majeure with reasonably full particulars concerning it; thereupon, the
obligations of the party giving the notice, so far as they are affected by the
force majeure, shall be suspending during, but no longer than, the continuance
of the force majeure. The affected party shall use all reasonable diligence to
remove the force majeure situation as quickly as practicable.

    

    The
requirement that any force majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or other labor
difficulty by the party involved, contrary to its wishes; how all such
difficulties shall be handled shall be entirely within the discretion of the
party concerned.

    

    The term
"force majeure", as here employed, shall mean an act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockade, public
riot, lightning, fire, storm, flood, explosion, governmental action,
governmental delay, restraint or inaction, unavailability of equipment, and any
other cause, whether of the kind specifically
enumerated above or otherwise, which is not reasonably within the control
of the party
claiming suspension.

    

    

    ARTICLE
XII.

    NOTICES

    

    All
notices authorized or required between the parties and required by any of the
provisions of this agreement, unless otherwise specifically provided, shall be
given in writing by mail or telegram, postage or charges prepaid, or by telex or
telecopier and addressed to the parties to whom the notice is given at the
addresses listed on Exhibit "A". The originating notice given under any
provision hereof shall be deemed given only when received by the party to whom
such notice is directed, and the time for such party to give any notice in
response thereto shall run from the date the originating notice is received. The
second or any responsive notice shall be deemed given when deposited in the mail
or with the telegraph company, with postage or charges prepaid, or sent by telex
or telecopier. Each party shall have the right to change its address at any
time, and from time to time, by giving written notice thereof to all other
parties.

    

    

    ARTICLE
XIII.

    TERM
OF AGREEMENT

    

    This
agreement shall remain in full force and effect as to the oil and gas leases
and/or oil and gas interests subject hereto for the period of time selected
below; provided, however, no party hereto shall ever be construed as having any
right, title or interest in or to any lease or oil and gas interest contributed
by any other party beyond the term of this agreement.

    
 

    
      
        
        

      

      
        (17)

        
          

        

      

      
        
        

      

    

     

    x          Option No. 1: So long
as any of the oil
and gas leases subject to this agreement remain or are continued
in force as to any part of the Contract Area,
whether by production, extension, renewal, or otherwise.

    

    □          Option No. 2: In the
event the well described in Article VI.A., or any subsequent well drilled under
any provision of this agreement, results
in production of oil and/or gas in paying quantities, this agreement shall
continue in force so long as any such well or wells produce, or are capable of
production, and for an additional period of _______days from cessation of all
production; provided, however, if, prior to the expiration of such additional
period, one or more of the parties hereto are engaged in drilling, reworking,
deepen­ing, plugging back, testing or attempting to complete a well or wells
hereunder, this agreement shall continue in force until such opera­tions
have been completed and if production results therefrom, this agreement shall
continue in force as provided herein. In the event the well described in Article
VI.A., or any subsequent well drilled hereunder, results in a dry hole, and no
other well is producing, or capable of producing oil and/or gas from the
Contract Area, this agreement shall terminate unless drilling, deepening,
plugging back or reworking operations are commenced within ________days from the
date of abandonment of said well.

    

    It is
agreed, however, that the termination of this agreement shall not relieve any
party hereto from any liability which has accrued or attached prior to the date
of such termination.

    

    

    ARTICLE
XIV.

    COMPLIANCE
WITH LAWS AND REGULATIONS

    

    A.           Laws, Regulations and
Orders:

    

    This
agreement shall be subject to the conservation laws of the state in which the
Contract Area is located, to the valid rules, regulations, and orders of any
duly constituted regulatory body of said state; and to all other applicable
federal, state, and local laws, or­dinances, rules, regulations, and
orders.

    

    B.           Governing Law:

    

    This
agreement and all matters pertaining hereto, including, but not limited to,
matters of performance, non-performance, breach, remedies, procedures, rights,
duties, and interpretation or construction, shall be governed and determined by
the law of the state in which the Contract Area is located.

    

    C.           Regulatory
Agencies:

    

    Nothing
herein contained shall grant, or be construed to grant, Operator the right or
authority to waive or release any rights, privileges, or obligations which
Non-Operators may have under federal or state laws or under rules, regulations
or orders promulgated under such laws in reference to oil, gas and mineral
operations, including the location, operation, or production of wells, on tracts
offset­ting or adjacent to the Contract Area.

    

    With
respect to operations hereunder, Non-Operators agree to release Operator from
any and all losses, damages, injuries, claims and causes of action arising out
of, incident to or resulting directly or indirectly from Operator's
interpretation or application of rules, rulings, regulations or orders of the
Department of Energy or predecessor or successor agencies to the extent such
interpretation or ap­plication was made in good faith. Each Non-Operator
further agrees to reimburse Operator for any amounts applicable to such
Non-­Operator's share of production that Operator may be required to refund,
rebate or pay as a result of such an incorrect interpretation or application,
together with interest and penalties thereon owing by Operator as a result of
such incorrect interpretation or application.

    

    Non-Operators
authorize Operator to prepare and submit such documents as may be required to be
submitted to the purchaser of any crude oil sold hereunder or to any other
person or entity pursuant to the requirements of the "Crude Oil Windfall Profit
Tax Act of 1980", as same may be amended from time to time ("Act"), and any
valid regulations or rules which may be issued by the Treasury Department from
time to time pursuant to said Act. Each party hereto agrees to furnish any and
all certifications or other information which is required to be furnished by
said Act in a timely manner and in sufficient detail to permit compliance with
said Act.

     

     

    
      
        
        

      

      
        (18)

        
          

        

      

      
        
        

      

    

    
 

    

    ARTICLE XV.

    OTHER
PROVISIONS

    

    
      	
              A.  

            	
              Operator
      Disbursements.

            

    

    

    If a
purchaser of any production from the Contract Area declines to disburse all
royalties, overriding royalties and other payments out of or with respect to
production from the Contract Area, Operator may, at its discretion, make such
disbursements at the request and on behalf of any
Non-Operator.  Operator will use its best efforts to make correct
disbursement of such amounts, but will be liable for incorrect disbursements
only in the event of gross negligence or willful misconduct.

    

    
      	
              B.  

            	
              Costs Deemed
      Prepaid.

            

    

    

    For
purposes of this Agreement, Knightwall Invest, Inc. shall be deemed to have
prepaid its proportionate share of the costs of drilling and completing the
Tribal – Max 1 – 2817 Well and a subsequent well in the Bakken formation (or two
[2] subsequent wells in the Cut Bank formation if the Bakken formation in the
Tribal – Max 1 – 2817 Well did not reflect the possible existence of
hydrocarbons in sufficient volume to warrant  drilling another well
into the Bakken formation) , as well as  its proportionate share of
the costs of reactivating tank battery 29 and putting back into production eight
(8) additional wells and three (3) desiel fracs on three (3) wells in the Cut
Bank formation, .

    

    
      	
              C.  

            	
              Priority Of
      Operations.

            

    

    

    When a
well which has been authorized under the terms of this Agreement as a vertical
well shall have been drilled to the objectives authorized in the AFE
("authorized depth"), and all tests have been completed and the results there of
furnished to the participating parties, and such parties cannot agree upon the
sequence and timing of further operations regarding said well, the following
proposals shall control in the order enumerated hereafter: (1) a proposal to do
additional logging, coring, or testing; (2) a proposal to attempt to complete
the well at the authorized depth in the manner set forth in the AFE (i.e., in
accordance with the casing, stimulation and other completion programs set forth
in the AFE); (3) a proposal to attempt to complete the well at the authorized
depth in a manner different than as set forth in the AFE; (4) a proposal to plug
back and attempt to complete the well at a depth shallower than the authorized
depth, with priority given to objectives in ascending order up the hole; (5) a
proposal to drill the well to a depth below the authorized depth, with priority
given to objectives in descending order; (6) a proposal to sidetrack the well to
a new target objective for a vertical or deviated hole, with priority given
first in ascending order to targets above the authorized depth, and then in
descending order to targets below the authorized depth and (7) a proposal to
drill a horizontal well, with priority given first to a lateral drain hole at
the authorized depth, and then to objectives in ascending order above the
authorized depth, and then to objectives in descending order below the
authorized depth.

     

    When a
well which has been authorized under the terms of this Agreement as a horizontal
well shall have been drilled to the authorized depth, and all tests have been
completed and the results thereof furnished to the participating parties, and
such parties cannot agree upon the sequence and timing of further operations
regarding said well, the following proposals shall control in the order
enumerated hereafter: (l) a proposal to do additional logging, coring, or
testing; (2) a proposal to attempt to complete the well at the authorized depth
in the manner set forth in the AFE (i.e., in accordance with the casing,
stimulation and other completion programs set forth in the AFE); (3) a proposal
to attempt to complete the well at the authorized depth in a mariner different
than as set forth in the AFE; (4) a proposal to
extend the length of the lateral drain hole for a specified number of feet in
the direction it is drilling, with priority given to the shortest additional
length proposed by any of the participating parties; (5) a proposal to drill a
new lateral drain hole in a different direction at the authorized depth; (6) a
proposal to drill a new lateral drain hole at a different depth, with priority
given in ascending order to objectives above the authorized depth, and then in
descending order to objectives below the authorized depth; (7) a proposal to
plug back and attempt to complete the well at a depth shallower than the authorized
depth, with priority given to objectives in ascending order up the hole; (8) a
proposal to deepen the well below the authorized depth; and (9) a proposal to
sidetrack the well to a new target objective, with priority given first in
ascending order to objectives above the authorized depth, and then in descending
order to objectives below the authorized depth.

     

     

    
      
        
        

      

      
        (19)

        
          

        

      

      
        
        

      

    

     

    In a
horizontal well, the Operator shall have the right to cease drilling at any
time, for any reason, after it has drilled a well to the
objective formation and has drilled laterally for a distance which is at least
equal to fifty percent (50%) of the length of the total horizontal displacement
(displacement from true vertical) proposed for the operation; if in such event
the well will be deemed to be at its "authorized depth" as that term is used in
this Agreement.

    

    If at the
time the parties are considering a proposed operation, the well is in such
condition, in the Operator's judgment, that a reasonably prudent operator would
not conduct such operation for fear of mechanical difficulties, placing the
hole, equipment or personnel in danger of loss or injury, or fear of loss of the
well for any reason without being able to attempt a completion at the authorized
depth, then the proposal shall be given no priority to any proposed operation
except for plugging and abandoning the well.

    

    
      	
              D.  

            	
              Deepening a Non-Consent
      Well.

            

    

     

    In the
event any Consenting Party desires to deepen a Non-Consent Well to a depth below
the authorized depth, suchparty shall give notice thereof, complying with the
requirements of Article VLB.1., to all parties (including Non-Consenting
Parties) , Thereupon Articles VI.B. I . and 2. shall apply and all parties
receiving such notice shall have the right to participate or not participate in
the deepening of such well pursuant to said Articles VI.B.I. and 2 . If a
deepening operation is approved pursuant to such provisions, and if any
Non-Consenting Party elects to participate in the deepening operation, such
Non-Consenting Party shall payor make reimbursement (as the case may be) of the
following costs and expenses:

     

    
      	
              (i)  

            	
              If
      the proposal to deepen is made prior to the completion of such well as a
      well capable of producing in paying
      quantities, such Non-Consenting Party shall pay (or reimburse Consenting
      Parties for, as the case may be) that share of costs and expenses incurred
      in connection with the drilling of said well from the surface to the
      authorized depth which Non-Consenting Party would have paid had such
      Non-Consenting Party agreed to participate therein, plus the
      Non-Consenting Party's share of the cost of deepening and of participating
      in any further operations on the well in accordance with the other
      provisions of this Agreement provided, however, all costs for testing and
      completion or attempted completion of the well incurred by Consenting
      Parties prior to the point of actual operations to deepen beyond the
      authorized depth shall be for the sole account of Consenting
      Parties.

            

    

     

    
      	
              (ii)  

            	
              If
      the proposal is made for a Non-Consent Well that has been previously
      completed as a well capable of producing
      in paying quantities, but is no longer capable of producing in paying
      Quantities, such Non- Consenting Party shall pay (or reimburse Consenting
      Parties for, as the case may he) its proportionate share of all costs of
      drilling, completing, and equipping said well from the surface to the
      authorized depth, calculated in the manner provided in paragraph (i)
      above, less those costs recouped by the Consenting Parties from the sale
      of production from the well.

            

    

     

    The
Non-Consenting Party shall also pay its proportionate share of all costs of
re-entering said well. The Non-Consenting Parties' proportionate part (based on
the percentage of such well Non-Consenting Party would have owned had it
previously participated in such Non-Consent Well) of the costs of salvable
materials and equipment remaining in the hole and salvable surface equipment
used in connection with such well shall be determined in accordance with Exhibit
"C". If the Consenting Parties have recouped the cost of drilling, completing,
and equipping the well at the time such deepening operation is conducted, then a
Non- Consenting Party may participate in the deepening of the well with no
payment for costs incurred prior to re­entering the well for
deepening.

    

    

    
      
        
          
             

          

           

        

        
          (20)

          
            

          

        

        
           

          
             

          

        

      

    

    

    
      	
              E.  

            	
              Maintenance of Lease
      Acreage.

            

    

    

    If
operations (including a completion attempt) are necessary to maintain lease acreage which would otherwise expire under the terms of
the lease or leases covering such acreage, or are required as a result of a
demand for drilling by a lessor, or are necessary to earn leasehold interests or
acreage under a farmout or other exploration agreement, the Non-Consent
provision shall be changed from that set forth in Article VI to require a
non-reversionary assignment of all rights, title, and interest by the party or
parties not participating in such operations as to that portion of the acreage
(but not any mineral interests owned by a party hereto except to the extent of
the lessee's interest under a lease effected under Article III.A hereof) and/or
leasehold interest which would otherwise have been lost or not earned without
such operations. The provisions of Article VI shall, however, continue to apply
to any portion of the Contract Area which is not so jeopardized or not to be
earned and which is within the same drilling, production or proration unit. The
interests of the parties in said unit shall be adjusted on a surface acreage
basis after recovery by the. Consenting Parties of the costs to be recouped
pursuant to Articles VI.B (2) (a) and (b) and/or VII.D (I), as applicable, with
respect to the Non-Consenting Party's interest in the unit subject thereto, and,
for avoidance of doubt, the reversion as to such interests not in jeopardy or
not to be earned shall occur at the same point in time as such reversion would
have occurred absent the forfeiture and assignment. The leasehold interests and
oil and gas interests so required to be forfeited and assigned (and the unit,
should it contain both forfeiture and reversionary interests) to the Consenting
Parties by the Non-Consenting Parties shall no longer' -subject to this
agreement but shall be subject to an orating agreement) identical to this
agreement changed only to reflect the names and new interests of the parties. If
operations are proposed on a lease, or on lands pooled therewith, within the
last six (6) months of the primary term of a lease not otherwise maintained by
other operations or production, such proposed operations will be considered as
operations necessary to maintain the lease.

    

    
      	
              F.  

            	
              Grant
      of Lien.

            

    

    

    Each
Non-Operator conveys and mortgages to Operator and grants Operator a lien upon,
and a security interest in, its oil and gas leasehold estates and "oil and gas
interests", as that term is defined in Article 1.0 above, in the Contract Area
to secure payment of its share of expense (including costs of investigation,
defense and payment of any final judgment or settlement for damages arising out
of operations hereunder) , together with interest thereon at the rate provided
in Exhibit "C". To the extent that operator has a security interest under the
Uniform Commercial Code, Operator shall be entitled to exercise the rights and
remedies of a secured party under the Code. The bringing of a suit and the
obtaining of judgment by a secured party to collect the secured indebtedness
shall not be deemed an election of remedies or otherwise affect the lien rights
or security interest as security for payment thereof. In addition, upon default
by any party in the payment of its share of expense, Operator shall have the
right, without prejudice to other rights or remedies, to collect rrom the
purchaser the proceeds rrom the sale of such defaulting party's share of oil or
gas until the amount owed by such defaulting party, plus interest, has been
paid. Operator grants a like mortgage, i.e., and security interest to the
Non-Operators to secure payment of Operator's share of expense.

     

    Subject
to the provisions of the foregoing subparagraph, each Non-Operator grants to the
Operator a lien upon all of the rights, titles and interests of such granting
party, whether now existing or hereafter acquired, in and to (i) the oil, gas
and other minerals in, on and under the Contract Area; (ii) any oil, gas, and
mineral leases covering the Contract Area or any portion thereof and (iii) any
oil and gas interest within the Contract Area. In addition, each Non-Operator
grants to the Operator a security interest in and to all of such granting
party's rights, titles, interests, claim, general intangibles, proceeds and
products thereof, whether now existing or hereafter acquired, in and to (i) all
oil, gas and other minerals produced from the Contract Area when produced, (ii)
all accounts receivable accruing or arising as a result of the sale of such oil,
gas and other minerals, (iii) all cash or other proceeds from the sale of such
oil, gas and other minerals once produced, and (iv) all oil and gas wells and
other surface and subsurface equipment and facilities of any kind or character
located on the Contract Area and the cash or other proceeds realized from the
sales thereof (collectively, the "Personal Property Collateral"). Some of the
Personal Property Collateral is or will become fixtures on the Contract Area,
and the interest of each party in and to the oil, gas and the oil, gas and other
minerals when extracted from the Contract Area and the accounts receivable
accruing or arising as the result of the sale thereof shall be financed at the
wellhead of the well or wells located on the Contract Area. This Agreement
(including a carbon, photographic or other reproduction hereof, or any extract
herefrom) shall constitute a non-standard form financing statement under the
terms of the Uniform Commercial Code of the state in which the Contract Area is
located and, as such, may be filed for record in the real estate records of any
county or parish in which the Contract Area is located and/or with the Secretary
of State.

     

     

    
      
        
        

      

      
        (21)

        
          

        

      

      
        
        

      

    

     

     

    Any
breach by a Non-Operator of any requirement to pay its share of expenses herein
shall constitute an event of default. On the occurrence of an
event of default, operator shall have available to it all of the rights and
remedies available to a mortgagee and secured party, including, without
limitation, the rights of judicial foreclosure attendant thereto.

    If any
party fails or is unable to pay its share of expense within sixty (60) days
after rendition of a statement therefor by Operator, the non-defaulting parties,
including Operator, shall, upon request by Operator, pay the unpaid amount in
the proportion that the interest of each such party bears to the interest of all
such parties. Each party so paying its share of the unpaid amount shall, to
obtain reimbursement thereof, be subrogated to the security rights described in
the foregoing subparagraphs.

    

    
      	
              G.  

            	
              No Limitation on Right to Take
      and Market Production.

            

    

    

    Nothing
herein shall limit a party's right to take and market its gross working interest
(including the Overriding Royalty Interest of a party hereto, if any) share of
production from a Well-in-Kind in accordance with Article VLC. of this
Agreement.

    

    
      	
              H.  

            	
              Advance Cost
      Payment.

            

    

    

    Notwithstanding
any other provisions herein, Operator shall have the right to request and
receive from each Non-Operator payment in advance of its respective share of (i)
the estimated dry hole cost and (ii) the estimated cost of any completion,
reworking, deepening or plugging back operations to which such Non-Operator has
consented (any such operation under Clause (i) or (ii) being herein called
“Drilling Operation”).  Such request for advance payment may be made
upon all Non-Operators or any one or more of them, to the exclusion of others,
and shall be made in writing no earlier than forty-five (45) days prior to the
anticipated commencement date for such Drilling Operation.

    

    A
Non-Operator receiving a request for advance payment shall within forty-eight
(48) hours of the receipt of such request if a drilling rig is on location and
within fifteen (15) days of the receipt of such request in all other cases, pay
to Operator in cash the full amount of such request or tender to Operator an
irrevocable bank letter of credit (which shall permit partial draws), or other
cash equivalent security, satisfactory to Operator for the full amount
due.  In the event payment is in cash, Operator shall credit the
amount to the Non-Operator’s account for the payment of such Non-Operator’s
share of the costs of such Drilling Operation, and following the end of each
month Operator shall charge such account with such Non-Operator’s share of
actual costs incurred during such month.

    

    Payment
of an advance shall in no event relieve a Non-Operator of its obligation to pay
its share of the actual cost of a Drilling Operation, and when the actual costs
have been determined, Operator shall adjust the accounts of the parties by
refunding any net amounts due or invoicing the parties for additional sums
owing, which additional sums shall be paid in accordance with the Accounting
Procedure.

    

    In the
event a Non-Operator from which a request for advance payment was made does not,
within the time and manner above provided, fully satisfy the request for advance
payment by depositing cash or furnishing a letter of credit or security as
aforesaid, then Operator shall make a second written request by certified mail
for such advance.  Non-Operator shall pay or give security for said
advance as aforesaid within two (2) days from receipt of such second
request.

    

    If a
Non-Operator fails to pay or furnish the aforesaid security within two (2) days
of the receipt of such second request, Non-Operator shall be deemed to have
relinquished any interest in the well to which the Drilling Operation relates
computed in the same manner and with the same force and effect as if such
Non-Operator had originally elected under Article VI.B.2. and/or Article
VI.C.I., Option 2, not to participate in such operation.

     

     

    
      
        
        

      

      
        (22)

        
          

        

      

      
        
        

      

    

    
 

    Notwithstanding
anything to the contrary, Operator shall have the right to sue a Non-Operator
who failed to pay or furnish the aforesaid security as provided
above for its proportionate share of expenses, in lieu of an assignment of all
Non-Operator’s Leasehold and contract rights within the Contract Area or in lieu
of obtaining a non-consent penalty as provided for in Article
VI.B.2.

    

    If the
Non-Operator fails to make such payment or furnish such security within two (2)
days of the receipt of such second request, Operator shall promptly notify all
other parties still participating in such Drilling Operation of the
relinquishment of an interest under this provision.  The parties who
wish to participate in the Drilling Operation shall have five (5) days from
receipt of such notice to elect to assume the costs chargeable to such
relinquished interest and shall share such relinquished interest, in proportion
to their assumption of such relinquished interest.

    

    
      	
              I.  

            	
              Applicability To Transferred
      Interest.

            

    

    

    Every
sale, encumbrance, transfer or other disposition made by any party shall be
expressly subject to this agreement and shall be made without prejudice to the
right of the other parties, and any transferee of an ownership interest in any
oil and gas lease or Interest shall be deemed a party to this agreement as to
the interest conveyed from and after the effective date of the transfer of
ownership; provided, however, that the other parties shall not be required to
recognize any such sale, encumbrance, transfer or other satisfactory evidence
thereof in writing from the transferor or transferee.  No assignment
or other disposition of interest by a party shall relieve such party of
obligations previously incurred by such party hereunder with respect to the
interest transferred, including without limitation the obligation of a party to
pay all costs attributable to an operation conducted hereunder in which such
party has agreed to participate prior to making such assignment, and the lien
and security interest granted herein shall continue to burden the interest
transferred to secure payment of such obligations.

    

    
      	
              J.  

            	
              Non-Consent Status In Presence
      Of Lien.

            

    

    

    Immediately
upon the occurrence of an event of default which would entitle a party to assert
the lien provided for in Article VII.B on a defaulting party’s interest in the
Contract Area, the defaulting party shall have no further access to the Contract
Area or information obtained in connection with operations hereunder and shall
not be entitled to vote on any matter hereunder.  As to any proposed
operation in which it otherwise would have the right to participate, such party
shall have the right to be a consenting party therein only if it pays the amount
it is in default before the expiration of the election period; otherwise, it
automatically shall be deemed a Non-Consenting Party to that
operation.

    

    
      	
              K.  

            	
              Multiple
      Operations.

            

    

    

    Notwithstanding
anything to the contrary in this agreement, the parties agree that none of them
shall be required to consider or make an election to participate in any proposed
operation to drill, rework, deepen, complete, recomplete, sidetrack, or plug
back any well while;

    

    
      	
              (i)     
        

            	
              Any
      drilling, reworking, deepening, completing, recompleting, side-tracking,
      or plugging back operation is in progress on any well covered by this
      agreement; or

            

    

    

    
      	
              (ii)       

            	
              Any
      proposal to drill, rework, deepen, completing, recompleting, sidetrack, or
      plug back on any well covered by this agreement is being considered by the
      parties.

            

    

    

    If,
however, any operation is proposed to comply with any express or implied
covenant provided for in any lease or interest subject to this Agreement, or if
any lease will expire at the end of its primary term in the absence of such
operation, the proposing party shall clearly include this information in its
notice of the proposed operation.  Should any party fail to elect
within thirty (30) days of receipt of such notice either to participate or
become a non-consenting party, such failure shall constitute an election by it
not to participate in the proposed operation.  Failure by any party to
asset or invoke the rights provided for herein shall not prejudice that party’s
right to assert or invoke such rights on any future occasion.

    

    

    
      
        
          
             

          

           

        

        
          (23)

          
            

          

        

        
           

          
             

          

        

      

    

    

    
      	
              L.  

            	
              Billing Additional
      Interests.

            

    

    

    Notwithstanding
anything to the contrary contained in this agreement, Operator
shall not be required to make more than one billing per billing period for the
entire interest credited to each party on Exhibit “A”.  If any party
hereto (the “Selling Party”) disposes of part of the interest credited to it on
Exhibit “A”, it shall remain primarily liable to the other parties for the
interest or interests assigned and shall make prompt payment to Operator for the
entire amount of statements and billings rendered to it.  Such Selling
Party shall be solely responsible for billing its assignee or
assignees.  If a Selling Party disposes of all of its interest, as set
out on Exhibit “A”, Operator shall continue to issue statements and billings to
the Selling Party for the interest conveyed until such time as Selling Party has
qualified a single assignee (whether the assignment is to one or several
assignees) to receive the billing for the entire interest.  To qualify
an assignee to receive and assume primary liability for the billing for the
entire interest credited to Selling Party on Exhibit “A”.  Selling
Party shall furnish to Operator the following:

    

    
      	
              (a)   
       

            	
              Written
      notice of the conveyance and copies of the assignments by which the
      transfer was made;

            

    

    

    
      	
              (b)  
        

            	
              The
      name and address of the assignee to be billed;
  and

            

    

    

    
      	
              (c)   
       

            	
              A
      written statement signed by such assignee in which it consents to be bound
      by this agreement and agrees to receive an assume primary liability for
      statements and billings for the entire interest credited to Selling Party
      together with such party’s agreement to handle any subsequent billings
      necessary by any division of interest credited to Selling Party on Exhibit
      “A”.

            

    

    

    
      	
              M.  

            	
              Conflicts.

            

    

    

    In the
event of a conflict between the provisions of this Article XV, and any other
provisions of this agreement, the provisions of this Article XV shall control
and prevail.

    

    
      	
              N.  

            	
              Definitions.

            

    

    

    Whenever
the printed words “drilled”, “deepen”, “reworking” or any variation thereof are
used in this agreement, such term or terms shall also include the words
“sidetracking”, “plugging back” and “recompleting”.

    

    
      	
              O.  

            	
              Unanimous Consent For
      Abandoning Commercial
Production.

            

    

    

    It is
agreed that without the mutual consent of all parties no reworking or other
operations shall be conducted under the provisions of Article VI, hereof so long
as any completion is producing in paying quantities in the well with respect to
which such proposal is made.

    

    
      	
              P.  

            	
              Taxes.

            

    

    

    If the
Operator is required hereunder to pay ad valorem taxes based in whole or in part
upon separate valuations of each party’s working interest, then notwithstanding
anything to the contrary herein, charges to the joint account shall be made and
paid by the parties thereto in accordance with the tax value generated by each
party’s working interest.

    

    
      	
              Q.  

            	
              Savings
      Provision.

            

    

    

    In the
event this Agreement or any provision hereof is or the operations contemplated
hereby are found to be inconsistent with or contrary to any law, rule,
regulation or order, the latter shall be deemed to control and this agreement
shall be regarded as modified accordingly, and as so modified, to continue in
full force and effect.  Operator shall prepare and furnish to any duly
constituted authority having jurisdiction on the premises through its proper
agency or department any and all reports, statements and information that may be
requested when such reports are required to be filed by Operator.

    

    
      	
              R.  

            	
              Multiple Completion
      Attempts.

            

    

    

    If
Operator is not successful with its first completion attempt and recommends a
completion attempt in another zone, or if less than all parties elect to
participate in a completion attempt in another zone, then any previous
Non-Consenting Parties shall be entitled to notice and the option to participate
regardless of their election on a previous completion attempt; however, to have
such options, such parties must have participated in all operations leading up
to the initial completion attempt.  This option is a recurring
right.

     

     

     

    
      
        
        

      

      
        (24)

        
          

        

      

      
        
        

      

    

    
 

    
      	
              S.  

            	
              Construction.

            

    

    

    If any
party to this Agreement, or any affiliate of any party to this Agreement,
proposes the construction, acquisition, and operation of a
pipeline and/or gathering line to transport production from the Contract Area,
then such party shall offer each of the non-proposing parties to this Agreement
the right to participate in the construction, operation and ownership in the
pipeline/gathering line, including the right of transporting production from the
Contract Area.  Should one or more non-proposing parties elect to
participate then between such participating parties, to the extent permitted by
governmental rules, regulations and laws there shall never be a transportation
charge for gas owned by a participant and transported from the Contract Area
through such pipeline/gathering line regardless if any or all other participants
own such gas or if all the participants own such gas but not in the same
proportion as the participating in such pipeline/gathering line.

    

    
      	
              T.  

            	
              Separate
      Facilities.

            

    

    

    In the
event of a transfer, sale, encumbrance or other disposition of interest within
the Contract Area which creates the necessity of separate measurement of
production, the party creating the necessity for such measurement shall alone
bear the cost of purchase, installation and operation of such
facilities.

    

    
      	
              U.  

            	
              Bankruptcy.

            

    

    

    If,
following the granting of relief under the Bankruptcy Code to any party hereto
as debtor thereunder, this Agreement should be held to be an executory contract
under the Bankruptcy Code, then any remaining party shall be entitled to a
determination by debtor or any trustee for debtor within thirty (30) days from
the date an order for relief is entered under the Bankruptcy Code as to the
rejection or assumption of this agreement. In the event of an assumption, such
party seeking determination shall be entitled to adequate assurances as to the
future performance of debtor’s obligation hereunder and the protection of the
interest of all parties.  The debtor shall satisfy its obligation to
provide adequate assurances by either advancing payments or depositing the
debtor’s proportionate share of expenses in escrow.

    

    

    ARTICLE
XVI.

    MISCELLANEOUS

    

    This
agreement shall be binding upon and shall inure to the benefit of the parties
hereto and to their respective heirs, devisees, legal representatives,
successors and assigns.

    

    This
instrument may be executed in any number of counterparts, each of which shall be
considered an original for all purposes.

    

    

    

    

    

    

    [REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK – SIGNATURE PAGE FOLLOWS

    

    
      
        
          
             

          

           

        

        
          (25)

          
            

          

        

        
           

          
             

          

        

      

    

    

    IN
WITNESS WHEREOF, the undersigned parties have caused this agreement to be
executed by their duly authorized representative effective as of the 6th day
of  August, 2010.

    

    

     

     

    
    

     

    
      	 	 OPERATOR
	 	 
	 	 PROVIDENT ENERGY ASSOCIATES
      OF
	 	 MONTANA,
LLC
	 	 
	 	 
	 	 By:                                                         
       
	 	      
      Pierre Mulacek, Manager
	 	 
	 	 
	 	 NON-OPERATORS
	 	 
	 	 KNIGHTWALL INVEST,
      INC.
	 	 
	 	 By:                                                          
        
	 	       
      David Dawes, Director
	 	 

    

     

    
 

    

    
      
        
          
             

          

           

        

        
          (26)

          
            

          

        

        
           

          
             

          

        

      

    

    

    EXHIBIT
“A”

    

    
      	
              1.  

            	
              All
      lands within the Two Medicine Cut Bank Sand Unit in Pondera and Glacier
      Counties, Montana.

            

    

    

    
      	
              2.  

            	
              No
      Restrictions as to depths, formations or
  substances.

            

    

    

    
      	
              3.  

            	
              Percentage
      Interests of the Parties:

            

    

    

    Provident
Energy Associates of Montana,
LLC                               
70%

    

    Knightwall
Invest,
Inc.                                                                           30%

    

    
      	
              4.  

            	
              Addresses
      of the parties for notice purposes;

            

    

    

    Provident
Energy Associates of Montana, LLC

     2441 High Timbers Dr., Suite
120

    The
Woodlands, TX  77380

    Attention:  Pierre
Mulacek, Manager

    Telecopy No.: 281-298-9558

    

    Knightwall Invest, Inc.

    FL-9490 Vaduz

    Aeulestrasse
5

    Liechtenstein

    Attention:  David Dawes,
Director

    Telecopy
No.:  423-237 3771

    

    
      	
              5.  

            	
              Oil
      and gas leases subject to this
Agreement:

            

    

    

    See
following page.

    

    
      
        
          
             

          

           

        

        
          (27)

          
            

          

        

        
           

          
             

          

        

      

    

    

    Description
of Leases

    

    
      	
              1.  

            	
              Oil
      and Gas Lease dated August 3, 1960, from E. F. Switzer, as lessor, and
      Texaco,  Inc., as lessee, covering the following described
      acreage:

            

    

    

    
      	
               
      

            	
              T.31N., R.6W., Pondera
      Co., MT

            

    

    
      	
               
      

            	
              Sec.
      2, S1⁄2SW1⁄2

            

    

    
      	
               
      

            	
              Sec.
      11, W1⁄2NE1⁄4, NW 1⁄4

            

    

    
      	
               
      

            	
              Surface
      to top of Madison

            

    

    

    
      	
              2.  

            	
              Oil
      and Gas Lease dated November 16, 1959, from Robert L. Rieckhoff, Lawrence
      M. Rieckhoff and Phyllis R. Lincoln, individually and as Executors of the
      Estate of William F. Rieckhoff, deceased, as lessor, and Kye Trout, Jr.,
      as lessee, covering the following described
  acreage:

            

    

    

    
      	
               
      

            	
              TWP. 32N., R. 6W.,
      Glacier Co., MT

            

    

    
      	
               
      

            	
              Sec.
      22, SW1⁄2 SE1⁄4

            

    

    
      	
               
      

            	
              Sec.
      27, NW1⁄2 NE1⁄4, SE1⁄2 NE1⁄4

            

    

    

    
      	
              3.  

            	
              The
      following additional Oil and Gas
Leases:

            

    

    

    
      
 

    

    
      
        	 	Blackfeet
      Tribal	Gross
      Acres	Net
      Acres	Tract
      No.
	 
      	 
      	 
      	 
      	 
      
	 
      	
                T. 31N., R. 6W., Pondera Co.
    MT

              	 
      	 
      	 
      
	 
      	
                Sec.
      1; Lot 4

              	120.48	120.48	52
	 
      	
                Sec.
      2; Lots 1 and 2

              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W., Glacier Co.
    MT

              	

                120.00

              	
                120.00

              	

                53

              
	 
      	
                Sec.
      26, E1/2SW, NWSE

              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W, Glacier Co.
MT

              	

                160.00

              	
                

                  120.00

                

              	54
	 
      	
                Sec.
      35, W1/2NE, E1/2NW

              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W., Glacier Co.
    MT

              	

                120.00

              	
                90.00

              	

                55

              
	 
      	
                Sec.
      35, E1/2SE

              	 
      	 
      	 
      
	 
      	
                Sec.
      36, NWSW

              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.31N., R6W., Pondera Co.
MT

              	

                120.00

              	
                120.00

              	

                56

              
	 
      	
                Sec
      1, S1/2NW, NWSE

              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.31N., R.6W., Pondera Co.
    MT

              	
                120.00

              	

                120.00

              	
                57

              
	 
      	
                Sec.
      2, S1/2NE, NWSE

              	 
      	 
      	 
      

      

      
        
           

        

        
          (28)

          
            

          

        

        
           

        

      

      
        	 	 	 Gross
      Acres	Net
      Acres	 Tract
      No.	 	 
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                 

              	

                T.32N., R.6W., Glacier Co.
    MT

              	
                150.00

              	

                112.50

              	
                
                  58

                

              	 
      	 
      
	 
      	
                Sec.
      25, E1/2NE

              	 
      	 
      	 
      	 
      	 
      
	 
      	
                Sec.
      36, W1/2NWnW, SWNW,

              	 
      	 
      	 
      	 
      	 
      
	 
      	              
      W1/2E1/2NWNW	
                  

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R6W., Glacier Co.
MT

              	

                160.00

              	
                

                  120.00

                

              	

                59

              	
                 

              	 
      
	 
      	
                Sec
      35, E1/2SW, W1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R6W., Glacier Co.
MT

              	

                320.00

              	
                320.00

              	

                35

              	
                 

              	 
      
	 
      	
                Sec.
      28, E1/2

              	 
      	 
      	 
      	 
      	 
      
	 
      	
                Surface
      to top of Madison

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                 

              	

                T.31N., R.6W., Ponder Co.
MT

              	
                220.00

              	

                220.00

              	
                

                  36

                

              	 
      	 
      
	 
      	
                Sec.
      1, S1/2NWSE, SWSE, S12SW

              	 
      	 
      	 
      	 
      	 
      
	 
      	
                Sec.
      2, S1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32., R.6W., Ponder Co. MT

              	

                160.00

              	
                160.00

              	

                60

              	
                 

              	 
      
	 
      	
                Sec.
      26, W1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 
      	
                Sec.
      27, E1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W, Glacier Co.
MT

              	

                160.00

              	
                160.00

              	

                39

              	
                 

              	 
      
	 
      	
                Sec.
      32, NE1/4

              	 
      	 
      	

                E1/2
      NE only

              	 
      	
                 

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W; Glacier Co.
MT

              	

                160.00

              	
                160.00

              	

                40

              	
                 

              	 
      
	 
      	
                Sec.
      32, SE1/4

              	 
      	 
      	

                E1/2
      SE only

              	 
      	
                 

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.31N., R.6W., Pondera Co.
    MT

              	
                 40.00

              	40.00	
                

                  41

                

              	 
      	 
      
	 
      	
                Sec.
      9, S1/2S1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.31N., R.6W., Pondera Co.
    MT

              	
                160.00

              	

                160.00

              	
                

                  42

                

              	 
      	 
      
	 
      	
                Sec.
      11, SW1/4

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.31N., R.6W., Pondera Co.
    MT

              	
                 80.00

              	80.00	
                

                  43

                

              	 
      	 
      
	 
      	
                Sec.
      12, NWNE, NENW

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W., Glacier Co.
    MT

              	

                160.00

              	
                160.00

              	

                46

              	
                 

              	 
      
	 
      	
                Sec.
      33, NW1/4

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W, Glacier Co.
MT

              	

                160.00

              	
                160.00

              	

                47

              	
                 

              	 
      
	 
      	
                Sec.
      33, SW1/4

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                T.32N., R.6W., Glacier Co.
    MT

              	

                360.00

              	
                360.00

              	

                48

              	
                 

              	 
      
	 
      	
                Sec.
      21, S1/2S1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 
      	
                Sec.
      28, W1/2

              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                 

              	
                 

              	
                

                  Gross
      Acres

                

              	Net
      Acres	Tract
      No.	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                 

              	T.32N., R.6W., Glacier Co.
    MT	
                320.00

              	

                320.00

              	
                

                  49

                

              	 
      	 
      
	 	Sec.
      33, E/12	 	 	 	 	 

      

      
        
           

        

        
          (29)

          
            

          

        

        
           

        

      

     

    
 

    
      
        	 	

                T.31N., R.6W., Pondera Co.
    MT

              	40.00	 40.00	

                50

              	 
	 	

                Sec.
      1, NWSW

              	
                 

              	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	T.31N., R.6W., Pondera Co.
    MT	
                

                   40.00

                

              	
                 40.00

              	

                51

              	
                 

              
	 	
                Sec.
      2, NESE

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Galcier Co.
    MT

              	

                1040.00

              	
                1040.00

              	

                64

              	
                 

              
	 	
                Sec.
      27, SW, W1/2SE

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      34, E1/2NE, E1/2SE, W1/2Ne

              	 
      	 
      	 
      	 
      
	 	              E1/2NW,
      W1/2SE, E1/2SW,	
                 

              	 
      	 
      	 
      
	 	
                              W1/2W1/2

              	 
      	 
      	 
      	 
      
	 	
                Sec.
      35, W1/2NW, W1/2SW

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                399.63

              	

                399.63

              	
                

                  65

                

              	 
      
	 	
                Sec.
      2, Lots 3, 4, S1/2NW,

              	 
      	 
      	 
      	 
      
	 	           
      N1/2SW	
                 

              	 
      	 
      	 
      
	 	
                Sec.
      3, E1/2SE, Lot 1, SENE

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W, Pondera Co.
MT

              	 80.00	
                 80.00

              	

                66

              	
                 

              
	 	
                Sec.
      8, S1/2S1/2SE

              	 
      	 
      	 
      	 
      
	 	
                Dec.
      9, SWSE

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                10.00

              	

                10.00

              	
                

                  67

                

              	 
      
	 	
                Sec.
      1, S1/2N1/2NWSE

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.32N., R.6W, Glacier Co.
MT

              	

                40.00

              	
                40.00

              	

                68

              	
                 

              
	 	
                Sec.
      26, SWSE

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.32N., R.6W., Glacier Co.
    MT

              	

                160.00

              	
                160.00

              	

                61

              	
                 

              
	 	
                Sec.
      22, SW1/4

              	 
      	 
      	

                SENW
      only

              	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                Blackfoot
      Allotted

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                39.90

              	

                39.90

              	
                

                  1

                

              	 
      
	 	
                Sec.
      4, Lot 1

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                39.84

              	

                39.84

              	
                

                  2

                

              	 
      
	 	
                Sec.
      4, Lot 2

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                80.00

              	
                

                  3

                

              	 
      
	 	
                Sec.
      10, N1/2SE

              	 
      	 
      	 
      	 
      
	 	
                 

              	
                

                  Gross
      Acres

                

              	
                

                  Net
      Acres

                

              	

                Tract
      No.

              	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                20.00

              	

                20.00

              	
                

                  5

                

              	 
      
	 	
                Sec.
      3, N1/2SWSW

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
      MT

              	
                40.00

              	

                40.00

              	
                

                  6

                

              	 
      
	 	
                Sec.
      4, N1/2SWSE, N1/2SESW

              	 
      	 
      	

                part

              	 
      

      

      
        
           

        

        
          (30)

          
            

          

        

        
           

        

      

    

      
        	 	T.31N., R.6W., Pondera Co.
    MT	

                160.00

              	160.00	

                7

              	 	 
	 	
                Sec.
      9, NWNW, SENW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                200.00

              	

                200.00

              	
                

                  8

                

              	 
      	
                 

              
	 	
                Sec.
      9, E1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec
      10, W1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      15, NWNW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                120.00

              	

                120.00

              	
                

                  9

                

              	 
      	
                 

              
	 	
                Sec.
      10, S1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      15, NENE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  11

                

              	 
      	
                 

              
	 	
                Sec.
      16, NWNE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  12

                

              	 
      	
                 

              
	 	
                Sec.
      9, SENE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  13

                

              	 
      	
                 

              
	 	
                Sec.
      9, NWSE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                160.00

              	

                160.00

              	
                

                  15

                

              	 
      	
                 

              
	 	
                Sec.
      11, SE1/4

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                40.00

              	

                40.00

              	
                

                  16

                

              	 
      	
                 

              
	 	
                Sec.
      9, SWNE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                79.83

              	

                79.83

              	
                

                  18

                

              	 
      	
                 

              
	 	
                Sec.
      5, Lot 1 SENE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                160.00

              	

                160.00

              	
                

                  20

                

              	 
      	
                 

              
	 	
                Sec
      4, W1/2SW

              	 
      	 
      	 
      	 
      	 
      
	 	
                Sec
      9, N1/2NE

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                200.00

              	

                200.00

              	
                

                  21

                

              	 
      	
                 

              
	 	
                Sec.
      8, E1/2NE, N1/2SE

              	 
      	 
      	 
      	 
      	 
      
	 	
                

                              N1/2S1/2SE

                

              	
                 

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31.N., R.6W., Pondera Co.
    MT

              	
                239.85

              	

                239.85

              	
                

                  22

                

              	 
      	
                 

              
	 	
                 

              	
                

                  Gross
      Acres

                

              	
                

                  Net
      Acres

                

              	

                Tract
      No.

              	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                Sec.
      3, Lot 2 SWNE, NENW, NESW

              	 
      	 
      	 
      	 
      	 
      
	 	           
      N1/2SESW,
      NWSE, N1/2SWSE	
                 

              	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31.N., R.6W., Pondera Co.
    MT

              	
                39.87

              	

                39.87

              	
                

                  25

                

              	 
      	
                 

              
	 	
                Sec.
      3, Lot 3

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.,
    MT

              	
                120.00

              	

                120.00

              	
                

                  26

                

              	 
      	
                 

              
	 	
                Sec.
      9, NENW, SWNW, NESW

              	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      	 
      
	 	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                80.00

              	
                

                  27

                

              	 
      	
                 

              

      

      
        
           

        

        
          (31)

          
            

          

        

        
           

        

      

    
      	 	
               

            	 
      	 
      	 
      	 
      
	 	

              Sec.
      5, E1/2SE

            	 	 	 	 
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              

                6

              

            	 
      
	 	
              Sec.
      4, S1/2SESW, S1/2SWSE

            	 
      	 
      	

              part

            	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              80.00

            	

              60.00

            	
              

                28

              

            	 
      
	 	
              Sec.
      8, W1/2NE

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              199.91

            	

              199.91

            	
              

                29

              

            	 
      
	 	
              Sec.
      3, Lot 4, SWNW, NWSW

            	 
      	 
      	 
      	 
      
	 	
              Sec.
      4, SENE, SENW

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W, Pondera Co.
MT

            	

              199.80

            	
              199.80

            	

              30

            	
               

            
	 	
              Sec.
      4, Lot 3, SWNE, NWSE

            	 
      	 
      	 
      	 
      
	 	           
      NESW,
      SENW	
               

            	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              40.00

            	
              

                31

              

            	 
      
	 	
              Sec.
      3, S1/2SWSW

            	 
      	 
      	

              32
      part

            	 
      
	 	
              Sec.
      4, S1/2SESE

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              79.74

            	

              79.74

            	
              

                33

              

            	 
      
	 	
              Sec
      4, Lot 4 SWNW

            	 
      	 
      	

              33A

            	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              20.00

            	

              20.00

            	
              

                32

              

            	 
      
	 	
              Sec.
      4, N1/2SESE

            	 
      	 
      	

              part

            	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              80.00

            	

              80.00

            	
              

                24

              

            	 
      
	 	
              Sec.
      14, N1/2NW

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.32N., R.6W., Pondera Co.
    MT

            	
              120.00

            	

              120.00

            	
              

                4

              

            	 
      
	 	
              Sec.
      21, N1/2SW. N1/2S1/2SW

            	 
      	 
      	

              N1/2S1/2SW
      only

            	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              J.
      A. Gerspacher et ux

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N.R.6W., Pondera Co. MT

            	

              240.00

            	
              

                4.4

              

            	

              79

            	
               

            
	 	
               

            	
              

                Gross
      Acres

              

            	
              

                Net
      Acres

              

            	

              Tract
      No.

            	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              Sec.
      10, E1/2NE

            	 
      	 
      	

              79A

            	 
      
	 	
              Sec.
      11, E1/2NE

            	 
      	 
      	 
      	 
      
	 	
              Sec.
      12, NWNW, SWNW

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              Hazel
      Johnson

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              240.00

            	

              231.20

            	
              

                79

              

            	 
      
	 	
              Sec.
      10, E1/2 NE

            	 
      	 
      	

              79A

            	 
      
	 	
              Sec.
      11, E1/2NE

            	 
      	 
      	 
      	 
      
	 	
              Sec.
      12, NWNW, SWNW

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              A.
      E. Leach Co.

            	 
      	 
      	 
      	 
      
	 	 
      	 
      	 
      	 
      	 
      
	 	
              T.31N., R.6W., Pondera Co.
    MT

            	
              40.00

            	

              19.92

            	
              

                82

              

            	 
      

    

    

    
      
        
           

        

        
          (32)

          
            

          

        

        
           

        

      

    

    
 

    
      
        	

                Sec
      15, NWNE

              	 	 	 	 
	 
      	 
      	 
      	 
      	 
      
	
                W.
      J. Renshaw

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                T.31N., R.6W., Pondera Co.
    MT

              	
                320.00

              	

                1.60

              	
                

                  70,
      71,

                

              	 
      
	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,
      73

              	 
      
	
                Sec.
      11,W1/2Ne, NW1/4

              	 
      	 
      	 
      	 
      
	
                   Surface
      to top of Madison

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                Able
      Rutherford

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                T.31N., R.6W., Pondera Co.
    MT

              	
                280.00

              	

                280.00

              	
                

                  80

                

              	 
      
	
                Sec.
      12, S1/2SW, SWSE

              	 
      	 
      	 
      	 
      
	
                Sec.
      13, N1/2NW

              	 
      	 
      	 
      	 
      
	
                Sec.
      14, N1/2NE

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                Charles
      and Pearl L. Stoltz

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                T.31N., R.6W., Pondera Co.
    MT

              	
                80.00

              	

                53.75

              	
                

                  76

                

              	 
      
	
                Sec.
      10, SENW, SWNE

              	 
      	 
      	

                77

              	 
      
	 
      	 
      	 
      	 
      	 
      
	
                T.31N., R.6W., Pondera Co.
    MT

              	
                180.00

              	

                180.00

              	
                

                  74

                

              	 
      
	
                Sec.
      3, S1/2SESW

              	 
      	 
      	 
      	 
      
	
                Sec.
      10, NENW, E1/2SW

              	 
      	 
      	 
      	 
      
	
                Sec
      15, NENW

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                E.
      F. Sweitzer

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                T.31.N.R.6W., Pondera Co.
MT

              	

                320.00

              	
                

                  1.60

                

              	

                70,71,

              	
                 

              
	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,73

              	 
      
	
                 

              	
                

                  Gross
      Acres

                

              	
                

                  Net
      Acres

                

              	

                Tract
      No.

              	 
      
	 
      	 
      	 
      	 
      	 
      
	
                Sec. 11, W1/2NE, NW1/4

              	 
      	 
      	 
      	 
      
	
                  Surface
      to top of Madison

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                T.31N.R.6W., Pondera Co. MT

              	

                240.00

              	
                

                  4.40

                

              	

                79

              	
                 

              
	
                Sec.
      10, E1/2NE

              	 
      	 
      	

                79A

              	 
      
	
                Sec.
      11, E1/2NE

              	 
      	 
      	 
      	 
      
	
                Sec.
      12, NWNW, SWNW

              	 
      	 
      	 
      	 
      
	
                   Surface
      to top of Madison

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                Alice
      Twedt

              	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                T.31N., R.6W., Pondera Co.
    MT

              	
                320.00

              	

                316.80

              	
                

                  70,71

                

              	 
      
	
                Sec.
      2, S1/2SW

              	 
      	 
      	

                72,
      73

              	 
      
	
                Sec.
      11, W1/2NE, NW1/4

              	 
      	 
      	 
      	 
      
	
                   Surface
      to top of Madison

              	 
      	 
      	 
      	 
      

      

      
        
           

        

        
          (33)

          
            

          

        

        
           

        

      

    

      
        	Edward
      G. Haynes et ux	 	 	 	 
	 
      	 
      	 
      	 
      	 
      
	
                T.31N., R.6W., Pondera Co.
    MT

              	
                320.00

              	

                320.00

              	
                

                  83A

                

              	
                 

              
	
                Sec
      21, E1/2

              	 
      	 
      	 
      	 
      

      

    
      
        
          
             

          

           

        

        
          (34)

          
            

          

        

        
           

          
             

          

        

      

    

    

    EXHIBIT
“B”

    

    None

     

     

     

     

     

     

     

     

     

     

     

     

     

    

    
      
        
          
             

          

           

        

        
          (35)

          
            

          

        

        
           

          
             

          

        

      

    

    

    EXHIBIT
“C”

    

    See
Attached COPAS Accounting Procedure

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    

    
      
        
          
             

          

           

        

        
          (36)

          
            

          

        

        
           

          
             

          

        

      

    

    

     

    ACCOUNTING
PROCEDURE

    JOINT
OPERATIONS

    

     

    I.   GENERAL
PROVISIONS

     

    1.           Definitions

     

    

    
      	
              ·  

            	
              "Joint
      Property" shall mean the real and personal property subject to the
      agreement to which this Accounting Procedure is
  attached.

            

    

    
      	
              ·  

            	
              "Joint
      Operations" shall mean all operations necessary or proper for the
      development, operation, protection and maintenance of the Joint
      Property.

            

    

    
      	
              ·  

            	
              "Joint
      Account" shall mean the account showing the charges paid and credits
      received in the conduct of the Joint Operations and which are to be shared
      by the Parties.

            

    

    
      	
              ·  

            	
              "Operator"
      shall mean the party designated to conduct the Joint
      Operations.

            

    

    
      	
              ·  

            	
              "Non-Operators"
      shall mean the Parties to this agreement other than the
      Operator.

            

    

    
      	
              ·  

            	
              "Parties"
      shall mean operator and
Non-Operators.

            

    

    
      	
              ·  

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

            

    

    
      	
              ·  

            	
              “Technical
      Employees" shall mean those employees having special and specific
      engineering, geological or other professional skills, and whose primary
      function in Joint Operations is the handling of specific operating
      conditions and problems for the benefit of the Joint
    Property.

            

    

    
      	
              ·  

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

            

    

    
      	
              ·  

            	
              "Material"
      shall mean personal property, equipment or supplies acquired or held for
      use on the Joint Property.

            

    

    
      	
              ·  

            	
              "Controllable
      Material" shall mean Material which at the time is so classified in the
      Material Classification Manual as most recently recommended by the Council
      of Petroleum Accountants Societies.

            

    

    

    2.           Statement
and Billings

    

    Operator
shall bill Non-Operators on or before the last day of each month for their
proportionate share of the Joint Account for the preceding month. Such bills
will be accompanied by statements which identify the authority for expenditure,
lease or facility, and all charges and credits summarized by appropriate
classifications of investment and expense except that items of Controllable
Material and unusual charges and credits shall be separately identified and
fully described in detail.

    

    

    3.           Advances
and Payments by Non-Operators

    

    
      	
               
      

            	
              A.

            	
              Unless
      otherwise provided for in the agreement, the Operator may require the
      Non-Operators to advance their share of estimated cash outlay for the
      succeeding month's operation within fifteen (15) days after receipt of the
      billing or by the first day of the month for which the advance is
      required, whichever is later. Operator shall adjust each monthly billing
      to reflect advances received from the
  Non-Operators.

            

    

    

    
      	
               
      

            	
              B.

            	
              Each
      Non-Operator shall pay its proportion of all bills within fifteen (15)
      days after receipt. If payment is not made within such time, the unpaid
      balance shall bear interest monthly at the prime rate in effect at Bank of
      America on the first day of the month in which delinquency occurs plus 1%
      or the maximum contract rate permitted by the applicable usury laws in the
      state in which the Joint Property is located, whichever is the lesser,
      plus attorney's fees, court costs, and other costs in connection with the
      collection of unpaid amounts.

            

    

     

     

     

     

     

    
      
        
        

      

      
        (37)

        
          

        

      

      
        
        

      

    

     

     

    
 

    4.           Adjustments

    

    Payment
of any such bills shall not prejudice the right of any Non-Operator to protest
or question the correctness thereof; provided, however, all bills and statements
rendered to Non-Operators by Operator during any calendar year shall
conclusively be presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said twenty-four
(24) month period a Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory of
Controllable Material as provided for in Section V.

    

    5.           Audits

    

    
      	
               
      

            	
              A.

            	
              A
      Non-Operator, upon notice in writing to Operator and all other
      Non-Operators, shall have the right to audit Operator's accounts and
      records relating to the Joint Account for any calendar year within the
      twenty-four (24) month period following the end of such calendar year,
      provided, however, the making of an audit shall not extend the time for
      the taking of written exception to and the adjustments of accounts as
      provided for in Paragraph 4 of this Section 1.
      Where there are two or more Non-Operators, the Non-Operators shall make
      every reasonable effort to conduct a joint audit in a manner which will
      result in a minimum of inconvenience to the Operator. Operator shall bear
      no portion of the Non-Operators' audit cost incurred under this paragraph
      unless agreed to by the Operator. The audits shall not be conducted more
      than once each year without prior approval of Operator, except upon the
      resignation or removal of the Operator, and shall be made at the expense
      of those Non-Operators approving such
audit.

            

    

    

    
      	
               
      

            	
              B.

            	
              The
      Operator shall reply in writing to an audit report within 180 days after
      receipt of such report.

            

    

    

    
      	
               
      

            	
              C.

            	
              Operator
      shall respond to any claims of discrepancies within four (4) months after
      receipt of such claims.  If Operator is unable to respond to
      claims during the four (4) month period, Operator will be permitted one
      (1) extension of two (2) months upon presentment of notice, in writing, to
      the Non-Operator.  Claims unanswered after the above (4) month
      period and the additional two (2) month extension shall be created
      forthwith to the joint account as originally submitted, until all
      discrepancies are resolved.

            

    

    

    6.           Approval
By Non-Operators

    

    Where an
approval or other agreement of the Parties or Non-Operators is expressly
required under other sections of this Accounting Procedure and if the agreement
to which this Accounting Procedure is attached contains no contrary provisions
in regard thereto, operator shall notify all Non-Operators of the Operator's
proposal, and the agreement or approval of a majority in interest of the
Non-Operators shall be controlling on all Non-Operators.

    

    

    II.   DIRECT
CHARGES

    

    Operator
shall charge the Joint Account with the following items:

    

    1.           Ecological
and Environmental

    

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

    

    

    
      
        
          
             

          

           

        

        
          (38)

          
            

          

        

        
           

          
             

          

        

      

    

    

    2.           Rentals
and Royalties

    

    Lease
rentals and royalties paid by Operator for the Joint Operations.

    

    3.           Labor

    

    
      	
               
      

            	
              A.

            	
              (1)

            	
              Salaries
      and wages of Operator's field and third-party employees directly employed
      on the Joint Property in the conduct of Joint
  Operations.

            

    

    

    
      	
               
      

            	
              (2)

            	
              Salaries
      of First level Supervisors in the
field.

            

    

    

    
      	
               
      

            	
              (3)

            	
              Salaries
      and wages of Technical Employees directly employed on the Joint Property
      if such charges are excluded from the overhead
  rates.

            

    

    

    
      	
               
      

            	
              (4)

            	
              Salaries
      and wages of Technical Employees either temporarily or permanently
      assigned to and directly employed in the operation or the Joint Property
      if such charges are excluded from the overhead
  rates.

            

    

    

    
      	
               
      

            	
              B.

            	
              Operator's
      cost of holiday, vacation, sickness and disability benefits and other
      customary allowances paid to employees whose salaries and wages are
      chargeable to the Joint Account under Paragraph 3A of this Section 11.
      Such costs under this Paragraph 3B may be charged on a "when and as paid
      basis" or by “percentage assessment” on the amount of salaries and wages
      chargeable to the Joint Account under Paragraph 3A of this Section It. If
      percentage assessment is used, the rate shall be based on the Operator's
      cost experience.

            

    

    

    
      	
               
      

            	
              C.

            	
              Expenditures
      or contributions made pursuant to assessments imposed by governmental
      authority which are applicable to Operator's costs chargeable to the Joint
      Account under Paragraphs 3A and 3B of this Section
  11.

            

    

    

    
      	
               
      

            	
              D.

            	
              Personal
      Expenses of those employees whose salaries and wages are chargeable to the
      Joint Account under Paragraphs 3A of this Section
  II.

            

    

    

    4.           Employee
Benefits

    

    Operators
current costs of established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and other
benefit plans of a like nature, applicable to Operator's labor cost chargeable
to the Joint Account under Paragraphs 3A and 3B of this Section II shall be
Operator's actual cost not to exceed the percent most recently recommended by
the Council of Petroleum Accountants Societies.

    

    5.           Material

    

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

    

    6.           Transportation

    

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

    

    
      	
               
      

            	
              A.

            	
              If
      Material is moved to the Joint Property from the Operators warehouse or
      other properties, no charge shall be made to the Joint Account for a
      distance greater than the distance from the nearest reliable supply store
      where like material is normally available or railway receiving point
      nearest the Joint Property unless agreed to by the
  Parties.

            

    

     

     

     

    
      
        
        

      

      
        (39)

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              B.

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

            

    

    

    
      	
               
      

            	
              C.

            	
              In
      the application of subparagraphs A and B above, the option to equalize or
      charge actual trucking cost is available when the actual charge is $400 or
      less excluding accessorial charges. The $400 will be adjusted to the
      amount most recently recommended by the Council of Petroleum Accountants
      Societies.

            

    

    

    7.           Services

    

    The cost
of contract services, equipment and utilities provided by outside sources,
except services excluded by Paragraph 10 of Section II and Paragraph i, ii, and
iii, of Section III. The cost of professional consultant services and contract
services of technical personnel directly engaged on the Joint Property if such
charges are excluded from the overhead rates. The cost of professional
consultant services or contract services of technical personnel not directly
engaged on the Joint Property shall not be charged to the Joint Account unless
previously agreed to by the Parties.

    

    8.           Equipment
and Facilities Furnished By Operator

    

    
      	
               
      

            	
              A.

            	
              Operator
      shall charge the Joint Account for use of Operator owned equipment and
      facilities at rates commensurate with costs of ownership and operation.
      Such rates shall include costs of maintenance, repairs, other operating
      expense, insurance, taxes, depreciation, and interest on gross investment
      less accumulated depreciation not to exceed six percent (6% ) per annum.
      Such rates shall not exceed average commercial rates currently prevailing
      in the immediate area of the Joint
Property.

            

    

    

    
      	
               
      

            	
              B.

            	
              In
      lieu of charges in Paragraph 8A above, Operator may elect to use average
      commercial rates prevailing in the immediate area of the Joint Property
      less 20%. For automotive equipment, Operator may elect to use rates
      published by the Petroleum Motor Transport
  Association.

            

    

    

    9.           Damages
and Losses to Joint Property

    

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

    

    10.           Legal
Expense

    

    Expense
of handling, investigating and settling litigation or claims, discharging of
liens, payment of judgments and amounts paid for settlement of claims incurred
in or resulting from operations under the agreement or necessary to protect or
recover the Joint Property, except that no charge for services of Operator's
legal state or fees or expense of outside attorneys shall be made unless
previously agreed to by the Parties. All other legal expense is considered to be
covered by the overhead provisions of Section III unless otherwise agreed to by
the Parties, except as provided in Section 1, Paragraph 3.

    

    

    
      
        
          
             

          

           

        

        
          (40)

          
            

          

        

        
           

          
             

          

        

      

    

    

    11.           Taxes

    

    All taxes
of every kind and nature assessed or levied upon or in connection with the Joint
Property, the operation thereof, or the production therefrom, and which taxes
have been paid by the Operator for the benefit of the Parties. If the ad valorem
taxes are based in whole or in part upon separate valuations of each party's
working interest, then notwithstanding anything to the contrary herein, charges
to the Joint Account shall be made and paid by the Parties hereto in accordance
with the tax value generated by each parry's working interest.

    

    12.           Insurance

    

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

    

    13.           Abandonment
and Reclamation

    

    Costs
incurred for abandonment of the Joint Property, including costs required by
governmental or other regulatory authority.

    

    14.           Communications

    

    Cost of
acquiring, leasing, installing, operating, repairing and maintaining
communication systems, including radio and microwave facilities directly serving
the Joint Property. In the event communication facilities/systems serving the
Joint Property are Operator owned, charges to the Joint Account shall be made as
provided in Paragraph 8 of this Section 11.

    

    15.           Other
Expenditures

    

    Any other
expenditure not covered or dealt with in the foregoing provisions of this
Section 11, or in Section III and which is of direct benefit to the Joint
Property and is incurred by the Operator in the necessary and proper conduct of
the Joint Operations.

    

    

    III.   OVERHEAD

    

    1.           Overhead
- Drilling and Producing Operations

    

     

    
      	
               
      

            	
              i.

            	
              As
      compensation for administrative, supervision, office services and
      warehousing costs, Operator shall charge drilling and producing operations
      on either:

            

    

     

    

    (X) Fixed Rate Basis,
Paragraph 1A, or

    

     (_)
Percentage Basis, Paragraph 1B

    

    Unless
otherwise agreed to by the Parties, such charge shall be in lieu of costs and
expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Paragraph 3A,
Section 11. The cost and expense of services from outside sources in connection
with matters of taxation, traffic, accounting or matters before or involving
governmental agencies shall be considered as included in the overhead rates
provided for in the above selected Paragraph of this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint
Account.

    

    

    
      
        
          
             

          

           

        

        
          (41)

          
            

          

        

        
           

          
             

          

        

      

    

    

    
      	
               
      

            	
              ii.

            	
              The
      salaries, wages and Personal Expenses of Technical Employees and/or the
      cost of professional consultant services and contract services of
      technical personnel directly employed on the Joint
    Property:

            

    

    

    (_) shall
be covered by the overhead rates, or

    

    (X) shall not be
covered by the overhead rates.

    

    
      	
               
      

            	
              iii.

            	
              The
      salaries, wages and Personal Expenses of Technical Employees and/or costs
      of professional consultant services and contract services of technical
      personnel either temporarily or permanently assigned to and directly
      employed in the operation of the Joint
Property:

            

    

    

    (_) shall
be covered by the overhead rates, or

    

    (X) shall not be
covered by the overhead rates.

    

    A.           Overhead
- Fixed Rate Basis

    

    
      	
               
      

            	
              (1)

            	
              Operator
      shall charge the Joint Account at the following rates per well per
      month:

            

    

    

    Drilling
Well Rate:   $8,000.00

    

    Producing
Well
Rate:  $800.00                                                      
or less

    

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

    

    (a)           Drilling
Well Rate

    

    
      	
               
      

            	
              (1)

            	
              Charges
      for drilling wells shall begin on the date the well is spudded and
      terminate on the date the drilling rig, completion rig, or other units
      used in completion of the well is released, whichever is later, except
      that no charge shall be made during suspension of drilling or completion
      operations for fifteen (15) or more consecutive calendar
    days.

            

    

    

    
      	
               
      

            	
              (2)

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

            

    

    

    (b)           Producing
Well Rates

    

    
      	
               
      

            	
              (1)

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

            

    

    

    
      	
               
      

            	
              (2)

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

            

    

     

     

     

    
      
        
        

      

      
        (42)

        
          

        

      

      
        
        

      

    

     

    
 

    
      	
               
      

            	
              (3)

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

            

    

    

    
      	
               
      

            	
              (4)

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

            

    

    

    
      	
               
      

            	
              (5)

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

            

    

    

    
      	
               
      

            	
              (3)

            	
              The
      well rates shall be adjusted as of the first day of April each year
      following the effective date of the agreement to which this Accounting
      Procedure is attached by the percent increase or decrease published by
      COPAS.

            

    

    

    

    

    2.           Overhead
-Major Construction

    

    To
compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development and
operation of the Joint Property, Operator shall negotiate a rate prior to the
beginning of construction.

    

    

    3.           Catastrophe
Overhead

    

    To
compensate Operator for overhead costs incurred in the event of expenditures
resulting from a single occurrence due to oil spill, blowout, explosion, fire,
storm, hurricane, or other catastrophes as agreed to by the Parties, which are
necessary to restore the Joint Property to the equivalent condition that existed
prior to the event causing the expenditures, Operator shall negotiate a rate
prior to charging the Joint Account.

    

    4.           Amendment
of Rates

    

    The
overhead rates provided for in this Section III may be amended from time to time
only by mutual agreement between the Parties hereto if, in practice, the rates
are found to be insufficient or excessive.

    

    

    IV.           PRICING
OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS

    

    Operator
is responsible for Joint Account Material and shall make proper and timely
charges and credits for all Material movements affecting the Joint Property.
Operator shall provide all Material for use on the Joint Property; however, at
Operator's option, such Material may be supplied by the Non-Operator. Operator
shall make timely disposition of idle and/or surplus Material, such disposal
being made either through sale to Operator or Non-Operator, division in kind, or
sale to outsiders. Operator may purchase, but shall be under no obligation to
purchase, interest of Non-Operators in surplus condition A or B Material. The
disposal of surplus Controllable Material not purchased by the Operator shall be
agreed to by the Parties.

    

    

    
      
        
          
             

          

           

        

        
          (43)

          
            

          

        

        
           

          
             

          

        

      

    

    

    1.           Purchases

    

    Material
purchased shall be charged at the price paid by Operator after deduction of all
discounts received. In case of Material found to be defective or returned to
vendor for any other reasons, credit shall be passed to the Joint Account when
adjustment has been received by the Operator.

    

    2.           Transfers
and Dispositions

    

    Material
furnished to the Joint Property and Material transferred from the Joint Property
or disposed of by the Operator, unless otherwise agreed to by the Parties, shall
be priced on the following basis exclusive of cash discounts:

    

    A.           New
Material (Condition A)

    

    (1)            Tubular
Goods Other than Line Pipe

    

    
      	
               
      

            	
              (a)

            	
              Tubular
      goods, sized 2 3/8 inches OD and larger, except line pipe, shall be priced
      at Eastern mill published carload base prices effective as of date of
      movement plus transportation cost using the 80,000 pound carload weight
      basis to the railway receiving point nearest the Joint Property for which
      published rail rates for tubular goods exist. If the 80,000 pound rail
      rate is not offered, the 70,000 pound or 90,000 pound rail rate may be
      used.

            

    

    

    
      	
               
      

            	
              (b)

            	
              For
      grades which are special to one mill only, prices shall be computed at the
      mill base of that mill plus transportation cost from that mill to the
      railway receiving point nearest the Joint Property as provided above in
      Paragraph 2.A.(l)(a). For transportation cost from points other than
      Eastern mills, the 30,000 pound Oil Field Haulers Association interstate
      truck rate shall be used.

            

    

    

    
      	
               
      

            	
              (c)

            	
              Special
      end finish tubular goods shall be priced at the lowest published
      out-of-stock price, f.o.b. Houston, Texas, plus transportation cost, using
      Oil Field Haulers Association interstate 30,000 pound truck rate, to the
      railway receiving point nearest the Joint
  Property.

            

    

    

    
      	
               
      

            	
              (d)

            	
              Macaroni
      tubing (size less than 2 3/8 inch OD) shall be priced at the lowest
      published out-of--stock prices f.o.b. the supplier plus transportation
      costs, using the Oil Field Haulers Association interstate truck rate per
      weight of tubing transferred, to the railway receiving point nearest the
      Joint Property.

            

    

    

    (2)           Line
Pipe

    

    
      	
               
      

            	
              (a)

            	
              Line
      pipe movements (except size 24 inch OD and larger with walls 3⁄4 inch and
      over) 30,000 pounds or more shall be priced under provisions of tubular
      goods pricing in Paragraph A.(l)(a) as provided above. Freight charges
      shall be calculated from Lorain,
Ohio.

            

    

    

    
      	
               
      

            	
              (b)

            	
              Line
      Pipe movements (except size 24 inch OD and larger with walls 3⁄4 inch and
      over) less than 30,000 pounds shall be priced at Eastern mill published
      carload base prices effective as of date of shipment, plus the percent
      most recently recommended by COPAS, plus transportation costs based on
      freight rates as set forth under provisions of tubular goods pricing in
      Paragraph A.(l)(a) as provided above. Freight charges shall be calculated
      from Lorain, Ohio.

            

    

     

     

     

    
      
        
        

      

      
        (44)

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (c)

            	
              Line
      pipe 24 inch OD and over and 3⁄4 inch wall and larger shall be priced f.o.b.
      the point of manufacture at current new published prices plus
      transportation cost to the railway receiving point nearest the Joint
      Property.

            

    

    

    
      	
               
      

            	
              (d)

            	
              Line
      pipe, including fabricated line pipe, drive pipe and conduit not listed on
      published price lists shall be priced at quoted prices plus freight to the
      railway receiving point nearest the Joint Property or at prices agreed to
      by the Parties.

            

    

    

    
      	
               
      

            	
              (3)

            	
              Other
      Material shall be priced at the current new price, in effect at date of
      movement, as listed by a reliable supply store nearest the Joint Property,
      or point of manufacture, plus transportation costs, if applicable, to the
      railway receiving point nearest the Joint
  Property.

            

    

    

    
      	
               
      

            	
              (4)

            	
              Unused
      new Material, except tubular goods, moved from the Joint Property shall be
      priced at the current new price, in effect on date of movement, as listed
      by a reliable supply store nearest the Joint Property, or point of
      manufacture, plus transportation costs, if applicable, to the railway
      receiving point nearest the Joint Property. Unused new tubulars will be
      priced as provided above in Paragraph 2.A.(I) and
  (2).

            

    

    

    B.           Good
Used Material (Condition B)

    

    Material
in sound and serviceable condition and suitable for reuse without
reconditioning:

    

    (1)           Material
moved to the Joint Property

    

    At
seventy-five percent (75%) of current new price, as determined by Paragraph
A.

    

    (2)           Material
used on and moved from the Joint Property

    

    
      	
               
      

            	
              (a)

            	
              At
      seventy-five percent (75%) of current new price, as determined by
      Paragraph A, if Material was originally charged to the Joint Account as
      new Material or

            

    

    

    
      	
               
      

            	
              (b)

            	
              At
      sixty-five percent (65%) of current new price, as determined by Paragraph
      A, if Material was originally charged to the Joint Account as used
      Material

            

    

    

    (3)           Material
not used on and moved from the Joint Property

    

    
      	
               
      

            	
              At
      seventy-five percent (75%) of current new price as determined by Paragraph
      A.

            

    

    

    
      	
               
      

            	
              The
      cost of reconditioning, if any, shall be absorbed by the transferring
      property.

            

    

    

    C.           Other
Used Material

    

    (1)           Condition
C

    

    Material
which is not in sound and serviceable condition and not suitable for its
original function until after reconditioning shall be priced at fifty percent
(50%) of current new price as determined by Paragraph A. The cost of
reconditioning shall be charged to the receiving property, provided Condition C
value plus cost of reconditioning does not exceed Condition B
value.

    

    (2)           Condition
D

    

    Material,
excluding junk, no longer suitable for its original purpose, but usable for some
other purpose shall be priced on a basis commensurate with its use. Operator may
dispose of Condition D Material under procedures normally used by Operator
without prior approval of Non-Operators.

     

     

    
      
        
        

      

      
        (45)

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (a)

            	
              Casing,
      tubing, or drill pipe used as line pipe shall be priced as Grade A and B
      seamless line pipe of comparable size and weight. Used casing, tubing or
      drill pipe utilized as line pipe shall be priced at used line pipe
      prices.

            

    

    

    
      	
               
      

            	
              (b)

            	
              Casing,
      tubing or drill pipe used as higher pressure service lines than standard
      line pipe, e.g. power oil lines, shall be priced under normal pricing
      procedures for casing, tubing, or drill pipe. Upset tubular goods shall be
      priced on a non upset basis.

            

    

    

    (3)            Condition
E

    

    Junk
shall be priced at prevailing prices. Operator may dispose of Condition E
Material under procedures normally utilized by Operator without prior approval
of Non-Operators.

    

    D.           Obsolete
Material

    

    Material
which is serviceable and usable for its original function but condition and/or
value of such Material is not equivalent to that which would justify a price as
provided above may be specially priced as agreed to by the Parties. Such price
should result in the Joint Account being charged with the value of the service
rendered by such Material.

    

    E.           Pricing
Conditions

    

    
      	
               
      

            	
              (1)

            	
              Loading
      or unloading costs may be charged to the Joint Account at the rate of
      twenty-five cents (25¢) per hundred weight on all tubular goods movements,
      in lieu of actual loading or unloading costs sustained at the stocking
      point. The above rate shall be adjusted as of the first day of April each
      year following January 1, 2006 by the same percentage increase or decrease
      used to adjust overhead rates in Section III, Paragraph l.A.(3). Each
      year, the rate
      calculated shall be rounded to the nearest cent and shall be the rate in
      effect until the first day of April next year. Such rate shall be
      published each year by the Council of Petroleum Accountants
      Societies.

            

    

    

    
      	
               
      

            	
              (2)

            	
              Material
      involving erection costs shall be charged at applicable percentage of the
      current knocked-down price of new
Material.

            

    

    

    3.           Premium
Prices

    

    Whenever
Material is not readily obtainable at published or listed prices because of
national emergencies, strikes or other unusual causes over which the Operator
has no control, the Operator may charge the Joint Account for the required
Material at the Operator's actual cost incurred in providing such Material, in
making it suitable for use, and in moving it to the Joint Property; provided
notice in writing is furnished to Non-Operators of the proposed charge prior to
billing Non-Operators for such Material. Each Non-Operator shall have the right,
by so electing and notifying Operator within ten days after receiving notice
from Operator, to furnish in kind all or part of his share of such Material
suitable for use and acceptable to Operator.

    

    
      	
              4.  

            	
              Warranty
      of Material Furnished By Operator

            

    

    

    Operator
does not warrant the Material furnished. In case of defective Material, credit
shall not be passed to the Joint Account until adjustment has been received by
Operator from the manufacturers or their agents.

    

    
 

    
      
        
          
             

          

           

        

        
          (46)

          
            

          

        

        
           

          
             

          

        

      

    

    

    V.   INVENTORIES

    

    The
Operator shall maintain detailed records of Controllable Material.

    

    1.         Periodic
Inventories, Notice and Representation

    

    At
reasonable intervals, inventories shall be taken by Operator of the Joint
Account Controllable Material. Written notice of intention to take inventory
shall be given by
Operator at least thirty (30) days before any inventory is to begin so
that Non-Operators may be represented when any inventory is taken. Failure of
Non-Operators to be represented at an inventory shall bind Non-Operators to
accept the inventory taken by Operator.

    

    2.        Reconciliation
and Adjustment of Inventories

    

    Adjustments
to the Joint Account resulting from the reconciliation of a physical inventory
shall be made within six months following the taking of the inventory. Inventory
adjustments shall be made by Operator to the Joint Account for overages and
shortages, but, Operator shall be held accountable only for shortages due to
lack of reasonable diligence.

    

    3.        Special
Inventories

    

    Special
inventories may be taken whenever there is any sale, change of interest, or
change of Operator in the Joint Property. It shall be the duty of the party
selling to notify all other Parties as quickly as possible after the transfer of
interest takes place. In such cases, both the seller and the purchaser shall be
governed by such inventory. In cases involving a change of Operator, all Parties
shall be governed by such inventory.

    

    4.        Expense
of Conducting Inventories

    

    
      	
               
      

            	
              A.

            	
              The
      expense of conducting periodic inventories shall not be charged to the
      Joint Account unless agreed to by the
Parties.

            

    

    

    
      	
               
      

            	
              B.

            	
              The
      expense of conducting special inventories shall be charged to the Parties
      requesting such inventories, except inventories required due to change of
      Operator shall be charged to the Joint
Account.

            

    

    

    
      
        
          
             

          

           

        

        
          (47)

          
            

          

        

        
           

          
             

          

        

      

    

    

    EXHIBIT
“D”

    

    None

     

     

     

     

     

    

    
      
        
          
             

          

           

        

        
          (48)

          
            

          

        

        
           

          
             

          

        

      

    

    

    EXHIBIT
“E”

    

    None

     

     

     

     

     

     

     

     

     

     

     

     

    

    
      
        
          
             

          

           

        

        
          (49)

          
            

          

        

        
           

          
             

          

        

      

    

    

    EXHIBIT
“F”

    

    EQUAL
EMPLOYMENT OPPORTUNITY

     

    During
the performance of this agreement, the Operator shall be bound by and comply
with all terms and provisions of Section 202 of Executive Order 11246 of
September 24, 1965, all of which are incorporated herein by references to the
same extent as if fully set out herein, and shall be bound by and comply with
the rules, regulations and relevant orders adopted pursuant to such Executive
Order.

    

    Operator
assures Non-Operator that it does not and will not maintain or provide for its
employees any segregated facilities at any of its establishments, and that he
does not and will not penult its employees to perform their services at
any'location, under its control, where segregated facilities are maintained. For
this purpose, it is understood that the phrase "segregated facilities" includes
facilities which are in fact segregated on the basis of race, color, religion,
or national origin, because of habit, local custom or otherwise. It is further
understood and agreed that maintaining or providing segregated facilities for
its employees or permitting its employees to perform their services at any
location under its control where segregated facilities are maintained is a
violation of the equal opportunity clause required by Executive Order 11246 of
September 24, 1965. Operator further understands and agrees that a breach of the
assurance herein contained subjects it to the provisions of the Order at 41 CFR
Chapter 60 of the Secretary of Labor, dated May 21, 1968, and the provisions of
the equal opportunity clause enumerated in contracts between the United States
of America and Non-Operator.

    

    
      
        
          
             

          

           

        

        
          (50)

          
            

          

        

        
           

          
             

          

        

      

    

    

    EXHIBIT
“G”

    

    None

    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (51)

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