Document:

exv10w1

 

Exhibit 10.1

Credit Agreement

Dated as of

September [ ], 2006

among

EV Energy Partners, L.P.,

as Parent

EV Properties, L.P.,

as Borrower,

JPMorgan Chase Bank, N.A.,

as Administrative Agent,

BNP Paribas,

and

Wachovia Bank, N.A.,

as Co-Syndication Agents,

Compass Bank

and

Union Bank of California, N.A.,,

as Co-Documentation Agents,

and

The Lenders Party Hereto

Sole Lead Arranger and Sole Book Runner

J.P. Morgan Securities Inc.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE I

	DEFINITIONS AND ACCOUNTING MATTERS

	 
	 	 	 	 	 	 
	Section 1.01

	 	Terms Defined Above
	 	1

	Section 1.02

	 	Certain Defined Terms
	 	1

	Section 1.03

	 	Types of Loans and Borrowings
	 	21

	Section 1.04

	 	Terms Generally
	 	21

	Section 1.05

	 	Accounting Terms and Determinations; GAAP
	 	21

	 
	 	 	 	 	 	 
	ARTICLE II

	THE CREDITS

	 
	 	 	 	 	 	 
	Section 2.01

	 	Commitments
	 	22

	Section 2.02

	 	Loans and Borrowings
	 	22

	Section 2.03

	 	Requests for Borrowings
	 	23

	Section 2.04

	 	Interest Elections
	 	24

	Section 2.05

	 	Funding of Borrowings
	 	26

	Section 2.06

	 	Termination, Reduction and Increase of Aggregate Maximum 
Credit Amounts
	 	26

	Section 2.07

	 	Borrowing Base
	 	29

	Section 2.08

	 	Letters of Credit
	 	31

	 
	 	 	 	 	 	 
	ARTICLE III

	PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
	 	 	 	 
	 
	 	 	 	 	 	 
	Section 3.01

	 	Repayment of Loans
	 	36

	Section 3.02

	 	Interest
	 	36

	Section 3.03

	 	Alternate Rate of Interest
	 	37

	Section 3.04

	 	Prepayments
	 	38

	Section 3.05

	 	Fees
	 	39

	 
	 	 	 	 	 	 
	ARTICLE IV

	PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.

	 
	 	 	 	 	 	 
	Section 4.01

	 	Payments Generally; Pro Rata Treatment; Sharing of Set-offs
	 	 	40	 
	Section 4.02

	 	Presumption of Payment by the Borrower
	 	 	41	 
	Section 4.03

	 	Certain Deductions by the Administrative Agent
	 	 	42	 
	 
	 	 	 	 	 	 
	ARTICLE V

	INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

	 
	 	 	 	 	 	 
	Section 5.01

	 	Increased Costs
	 	42

	Section 5.02

	 	Break Funding Payments
	 	43

	Section 5.03

	 	Taxes
	 	43

	Section 5.04

	 	Designation of Different Lending Office
	 	44

	Section 5.05

	 	Illegality
	 	45

i

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE VI

	CONDITIONS PRECEDENT

	 
	 	 	 	 	 	 
	Section 6.01

	 	Effective Date
	 	45

	Section 6.02

	 	Each Credit Event
	 	48

	 
	 	 	 	 	 	 
	ARTICLE VII

	REPRESENTATIONS AND WARRANTIES

	 
	 	 	 	 	 	 
	Section 7.01

	 	Organization; Powers
	 	49

	Section 7.02

	 	Authority; Enforceability
	 	49

	Section 7.03

	 	Approvals; No Conflicts
	 	49

	Section 7.04

	 	Financial Position; No Material Adverse Change
	 	49

	Section 7.05

	 	Litigation
	 	50

	Section 7.06

	 	Environmental Matters
	 	50

	Section 7.07

	 	Compliance with the Laws and Agreements; No Defaults
	 	51

	Section 7.08

	 	Investment Company Act
	 	52

	Section 7.09

	 	Taxes
	 	52

	Section 7.10

	 	ERISA
	 	52

	Section 7.11

	 	Disclosure; No Material Misstatements
	 	53

	Section 7.12

	 	Insurance
	 	54

	Section 7.13

	 	Restriction on Liens
	 	54

	Section 7.14

	 	Subsidiaries
	 	54

	Section 7.15

	 	Location of Business and Offices
	 	54

	Section 7.16

	 	Properties; Titles, Etc.
	 	55

	Section 7.17

	 	Maintenance of Properties
	 	55

	Section 7.18

	 	Gas Imbalances, Prepayments
	 	56

	Section 7.19

	 	Marketing of Production
	 	56

	Section 7.20

	 	Swap Agreements
	 	56

	Section 7.21

	 	Use of Loans and Letters of Credit
	 	57

	Section 7.22

	 	Solvency
	 	57

	 
	 	 	 	 	 	 
	ARTICLE VIII

	AFFIRMATIVE COVENANTS

	 
	 	 	 	 	 	 
	Section 8.01

	 	Financial Statements; Ratings Change; Other Information
	 	58

	Section 8.02

	 	Notices of Material Events
	 	60

	Section 8.03

	 	Existence; Conduct of Business
	 	61

	Section 8.04

	 	Payment of Obligations
	 	61

	Section 8.05

	 	Performance of Obligations under Loan Documents
	 	61

	Section 8.06

	 	Operation and Maintenance of Properties
	 	61

	Section 8.07

	 	Insurance
	 	62

	Section 8.08

	 	Books and Records; Inspection Rights
	 	62

	Section 8.09

	 	Compliance with Laws
	 	63

	Section 8.10

	 	Environmental Matters
	 	63

	Section 8.11

	 	Further Assurances
	 	64

	Section 8.12

	 	Reserve Reports
	 	64

	Section 8.13

	 	Title Information
	 	65

	Section 8.14

	 	Additional Collateral; Additional Guarantors
	 	66

ii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	Section 8.15

	 	ERISA Compliance
	 	67

	Section 8.16

	 	Marketing Activities
	 	67

	Section 8.17

	 	Clean-Down
	 	68

	 
	 	 	 	 	 	 
	ARTICLE IX

	NEGATIVE COVENANTS

	 
	 	 	 	 	 	 
	Section 9.01

	 	Financial Covenants
	 	68

	Section 9.02

	 	Debt
	 	68

	Section 9.03

	 	Liens
	 	69

	Section 9.04

	 	Dividends, Distributions and Redemptions
	 	70

	Section 9.05

	 	Investments, Loans and Advances
	 	70

	Section 9.06

	 	Nature of Business; International Operations
	 	72

	Section 9.07

	 	Limitation on Leases
	 	72

	Section 9.08

	 	Proceeds of Notes
	 	72

	Section 9.09

	 	ERISA Compliance
	 	73

	Section 9.10

	 	Sale or Discount of Receivables
	 	74

	Section 9.11

	 	Mergers, Etc.
	 	74

	Section 9.12

	 	Sale of Properties
	 	74

	Section 9.13

	 	Environmental Matters
	 	75

	Section 9.14

	 	Transactions with Affiliates
	 	75

	Section 9.15

	 	Subsidiaries
	 	75

	Section 9.16

	 	Negative Pledge Agreements; Dividend Restrictions
	 	75

	Section 9.17

	 	Gas Imbalances, Take-or-Pay or Other Prepayments
	 	75

	Section 9.18

	 	Swap Agreements
	 	76

	Section 9.19

	 	Tax Status as Partnership
	 	76

	Section 9.20

	 	Covenants of Parent
	 	76

	 
	 	 	 	 	 	 
	ARTICLE X

	EVENTS OF DEFAULT; REMEDIES

	 
	 	 	 	 	 	 
	Section 10.01

	 	Events of Default
	 	77

	Section 10.02

	 	Remedies
	 	79

	Section 10.03

	 	Disposition of Proceeds
	 	80

	 
	 	 	 	 	 	 
	ARTICLE XI

	THE ADMINISTRATIVE AGENT

	 
	 	 	 	 	 	 
	Section 11.01

	 	Appointment; Powers
	 	80

	Section 11.02

	 	Duties and Obligations of Administrative Agent
	 	81

	Section 11.03

	 	Action by Agent
	 	81

	Section 11.04

	 	Reliance by Agent
	 	82

	Section 11.05

	 	Subagents
	 	82

	Section 11.06

	 	Resignation or Removal of Agents
	 	83

	Section 11.07

	 	Agents and Lenders
	 	83

	Section 11.08

	 	No Reliance
	 	83

	Section 11.09

	 	Administrative Agent May File Proofs of Claim
	 	84

	Section 11.10

	 	Authority of Administrative Agent to Release Collateral 
and Liens
	 	84

	Section 11.11

	 	The Arranger, the Co-Syndication Agents and the Co-Documentation Agents	 	 	85	 

iii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	ARTICLE XII

	MISCELLANEOUS

	 
	 	 	 	 	 	 
	Section 12.01

	 	Notices
	 	 85

	Section 12.02

	 	Waivers; Amendments
	 	 86

	Section 12.03

	 	Expenses, Indemnity; Damage Waiver
	 	 87

	Section 12.04

	 	Successors and Assigns
	 	 89

	Section 12.05

	 	Survival; Revival; Reinstatement
	 	 92

	Section 12.06

	 	Counterparts; Integration; Effectiveness
	 	 93

	Section 12.07

	 	Severability
	 	 93

	Section 12.08

	 	Right of Setoff
	 	 93

	Section 12.09

	 	Governing Law; Jurisdiction; Consent to Service of Process
	 	 94

	Section 12.10

	 	Headings
	 	 95

	Section 12.11

	 	Confidentiality
	 	 95

	Section 12.12

	 	Interest Rate Limitation
	 	 96

	Section 12.13

	 	Exculpation Provisions
	 	97

	Section 12.14

	 	Collateral Matters; Swap Agreements
	 	97

	Section 12.15

	 	No Third Party Beneficiaries
	 	97

	Section 12.16

	 	USA Patriot Act Notice
	 	97

	Section 12.17

	 	General Partner Liability
	 	 	98	 

iv

 

ANNEXES, EXHIBITS AND SCHEDULES

	 	 	 
	Annex I

	 	List of Maximum Credit Amounts
	 
	Exhibit A

	 	Form of Note
	Exhibit B

	 	Form of Compliance Certificate
	Exhibit C-1

	 	Security Instruments
	Exhibit C-2

	 	Form of Guarantee and Collateral Agreement
	Exhibit D

	 	Form of Assignment and Assumption
	Exhibit E-1

	 	Form of Maximum Credit Amount Increase Certificate
	Exhibit E-2

	 	Form of Additional Lender Certificate
	 
	 	 
	Schedule 1.02

	 	Approved Counterparties
	Schedule 7.05

	 	Litigation
	Schedule 7.11

	 	Material Agreements
	Schedule 7.14

	 	Subsidiaries and Partnerships
	Schedule 7.18

	 	Gas Imbalances
	Schedule 7.19

	 	Marketing Contracts
	Schedule 7.20

	 	Swap Agreements

v

 

     THIS CREDIT AGREEMENT dated as of September [       ], 2006, is among EV Energy Partners, L.P., a
limited partnership duly formed and existing under the laws of the State of Delaware (the
“Parent”), EV Properties, L.P., a limited partnership duly formed and existing under the
laws of the State of Delaware (the “Borrower”), each of the Lenders from time to time party
hereto; JPMORGAN CHASE BANK, N.A. (in its individual capacity, “JPMorgan”), as
administrative agent for the Lenders (in such capacity, together with its successors in such
capacity, the “Administrative Agent”); BNP PARIBAS and (in its individual capacity,
“BNP Paribas”) and WACHOVIA BANK, N.A. (in its individual capacity, “Wachovia”), as
co-syndication agents for the Lenders (in such capacity, together with each of their successors in
such capacity, the “Co-Syndication Agents”); and COMPASS BANK (in its individual capacity,
“Compass”) and UNION BANK OF CALIFORNIA, N.A. (in its individual capacity, “UBOC”),
as co-documentation agents for the Lenders (in such capacity, together with each of their
successors in such capacity, the “Documentation Agent”).

RECITALS

     A. The Parent and the Borrower have requested that the Lenders provide certain loans to and
extensions of credit on behalf of the Borrower.

     B. The Lenders have agreed to make such loans and extensions of credit subject to the terms
and conditions of this Agreement.

     C. In consideration of the mutual covenants and agreements herein contained and of the loans,
extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows:

ARTICLE I

Definitions and Accounting Matters

     Section 1.01 Terms Defined Above. As used in this Agreement, each term defined above has
the meaning indicated above.

     Section 1.02 Certain Defined Terms. As used in this Agreement, the following terms have
the meanings specified below:

     “ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to
the Alternate Base Rate.

     “Additional Lender” has the meaning assigned to such term in Section 2.06(c)(i).

     “Additional Lender Certificate” has the meaning assigned to such term in Section
2.06(c)(ii)(F).

     “Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.

     “Affected Loans” has the meaning assigned such term in Section 5.05.

 

 

     “Affiliate” means, with respect to a specified Person, another Person that directly,
or indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.

     “Agents” means, collectively, the Administrative Agent, the Co-Syndication Agents and
the Co-Documentation Agents; and “Agent” shall mean either the Administrative Agent, the
Co-Syndication Agents or the Co-Documentation Agents, as the context requires.

     “Aggregate Maximum Credit Amounts” at any time shall equal the sum of the Maximum
Credit Amounts, as the same may be increased, reduced or terminated pursuant to Section 2.06.

     “Agreement” means this Credit Agreement, as the same may from time to time be amended,
modified, supplemented or restated.

     “Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of
(a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

     “Applicable Margin” means, for any day, with respect to any ABR Loan or Eurodollar
Loan, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid below
based upon the Borrowing Base Utilization Percentage then in effect:

Borrowing Base Utilization Grid

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Borrowing Base
Utilization
Percentage
	 	 	£ 50	%	 	 	> 50% £ 75	%	 	 	> 75% £ 90	%	 	 	> 90	%
	ABR Loans
	 	 	0.000	%	 	 	0.000	%	 	 	0.000	%	 	 	0.250	%
	Eurodollar Loans
	 	 	1.000	%	 	 	1.250	%	 	 	1.500	%	 	 	1.750	%

     Each change in the Applicable Margin shall apply during the period commencing on the effective
date of such change and ending on the date immediately preceding the effective date of the next
such change, provided, however, that if at any time the Borrower fails to deliver a Reserve Report
pursuant to Section 8.12(a), then the “Applicable Margin” means the rate per annum set forth on the
grid when the Borrowing Base Utilization Percentage is at its highest level.

     “Applicable Percentage” means, with respect to any Lender, the percentage of the
Aggregate Maximum Credit Amounts represented by such Lender’s Maximum Credit Amount as such
percentage is set forth on Annex I.

2

 

     “Approved Counterparty” means (a) any Lender or any Affiliate of a Lender; (b) any
other Person whose long term senior unsecured debt rating is A/A2 by S&P or Moody’s (or their
equivalent) or higher; or (c) any other Person approved by the Required Lenders.

     “Arranger” means J.P. Morgan Securities Inc., in its sole capacity as arranger and
book runner hereunder.

     “Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required by Section
12.04(b)), and accepted by the Administrative Agent, in the form of Exhibit D or any other form
approved by the Administrative Agent.

     “Availability Period” means the period from and including the Effective Date to but
excluding the Termination Date.

     “Available Cash” means, with respect to any fiscal quarter ending prior to the
Termination Date:

          (a) the sum of (i) all cash and cash equivalents of the Parent and its Consolidated
Subsidiaries on hand at the end of such fiscal quarter, and (ii) if the General Partner so
determines, all or any portion of any additional cash and cash equivalents of the Partnership
Group on hand on the date of determination of Available Cash with respect to such fiscal quarter,
including cash from Working Capital Borrowings (as defined in the Parent LP Agreement), less

          (b) the amount of any cash reserves established by the General Partner to (i) provide for the
proper conduct of the business of the Partnership Group (including reserves for future capital
expenditures and for anticipated future credit needs of the Partnership Group) subsequent to such
fiscal quarter, (ii) comply with applicable law or any loan agreement, security agreement,
mortgage, debt instrument or other agreement or obligation to which any Group Member is a party or
by which it is bound or its assets are subject or (iii) provide funds for distributions under
Section 6.4 or Section 6.5 of the Parent LP Agreement in respect of any one or
more of the next four fiscal quarters; provided, however, that the General Partner may not
establish cash reserves pursuant to (iii) above if the effect of such reserves would be that the
Parent is unable to distribute the Minimum Quarterly Distribution (as defined in the Parent LP
Agreement) on all Common Units (as defined in the Parent LP Agreement), plus any Cumulative Common
Unit Arrearage (as defined in the Parent LP Agreement) on all Common Units, with respect to such
fiscal quarter; and, provided further, that disbursements made by a Group Member or cash reserves
established, increased or reduced after the end of such fiscal quarter but on or before the date
of determination of Available Cash with respect to such fiscal quarter shall be deemed to have
been made, established, increased or reduced, for purposes of determining Available Cash, within
such fiscal quarter if the General Partner so determines.

     “Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.

3

 

     “Borrowing” means Loans of the same Type, made, converted or continued on the same
date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

     “Borrowing Base” means at any time an amount equal to the amount determined in
accordance with Section 2.07, as the same may be adjusted from time to time pursuant to Section
8.13(c) or Section 9.12(d).

     “Borrowing Base Deficiency” occurs if at any time the total Revolving Credit Exposures
exceeds the Borrowing Base then in effect.

     “Borrowing Base Utilization Percentage” means, as of any day, the fraction expressed
as a percentage, the numerator of which is the sum of the Revolving Credit Exposures of the Lenders
on such day, and the denominator of which is the Borrowing Base in effect on such day.

     “Borrowing Request” means a request by the Borrower for a Borrowing in accordance with
Section 2.03.

     “Business Day” means any day that is not a Saturday, Sunday or other day on which
commercial banks in New York City or Houston, Texas are authorized or required by law to remain
closed; and if such day relates to a Borrowing or continuation of, a payment or prepayment of
principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar
Loan or a notice by the Borrower with respect to any such Borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day on which dealings in dollar
deposits are carried out in the London interbank market.

     “Capital Leases” means, in respect of any Person, all leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases on the balance sheet of the
Person liable (whether contingent or otherwise) for the payment of rent thereunder.

     “Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or similar proceeding of,
any Property of the Borrower or any of its Subsidiaries having a fair market value in excess of
$100,000 in the aggregate for any calendar year.

     “Change in Control” means (a) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), other than
Enervest Management Partners, Ltd., EnCap Investments, L.P. and any of their respective Affiliates,
of Equity Interests representing more than 50% of the aggregate ordinary voting power represented
by the issued and outstanding Equity Interests of the Parent, (b) occupation of a majority of the
seats (other than vacant seats) on the board of directors of EV Management by Persons who were
neither (i) nominated by the board of directors of EV Management nor (ii) appointed by directors so
nominated or (c) the Parent fails to own directly or indirectly all of the Equity Interests of the
Borrower.

     “Change in Law” means (a) the adoption of any law, rule or regulation after the date
of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or

4

 

application thereof by any Governmental Authority after the date of this Agreement or (c)
compliance by any Lender or any Issuing Bank (or, for purposes of Section 5.01(b), by any
lending office of such Lender or by such Lender’s or such Issuing Bank’s holding company, if any)
with any request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.

     “Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are Working Capital Revolving Loans or General Revolving
Loans.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any
successor statute.

     “Commitment” means, with respect to each Lender, the commitment of such Lender to make
Loans, including Working Capital Revolving Loans, and to acquire participations in Letters of
Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender’s
Revolving Credit Exposure hereunder, as such commitment may be (a) modified from time to time
pursuant to Section 2.06 and (b) modified from time to time pursuant to assignments by or to such
Lender pursuant to Section 12.04(b). The amount representing each Lender’s Commitment shall at any
time be the lesser of such Lender’s Maximum Credit Amount and such Lender’s Applicable Percentage
of the then effective Borrowing Base.

     “Commitment Fee Rate” means, for any day, the rate per annum set forth below based
upon the Borrowing Base Utilization Percentage then in effect:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Borrowing Base Utilization Percentage
	 	 	£ 50	%	 	 	>50% £ 75	%	 	 	>75	%
	Commitment Fee Rate
	 	 	0.250	%	 	 	0.300	%	 	 	0.375	%

     “Consolidated Net Income” means with respect to the Parent and the Consolidated
Subsidiaries, for any period, the aggregate of the net income (or loss) of the Parent and the
Consolidated Subsidiaries after allowances for taxes for such period determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded from such net income (to the
extent otherwise included therein) the following: (a) the net income of any Person in which the
Parent or a Consolidated Subsidiary has an interest (which interest does not cause the net income
of such other Person to be consolidated with the net income of the Borrower and the Consolidated
Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in cash during such period by such other Person to the Parent or to a
Consolidated Subsidiary, as the case may be; (b) the net income (but not loss) during such period
of any Consolidated Subsidiary to the extent that the declaration or payment of dividends or
similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time
permitted by operation of the terms of its charter or any agreement, instrument or Governmental
Requirement applicable to such Consolidated Subsidiary or is

5

 

otherwise restricted or prohibited, in
each case determined in accordance with GAAP; (c) the net income (or loss) of any Person acquired
in a pooling-of-interests transaction for any period prior
to the date of such transaction; (d) any extraordinary gains or losses during such period; (e)
non-cash gains, losses or adjustments under FASB Statement No. 133 as a result of changes in the
fair market value of derivatives; and (f) any gains or losses attributable to writeups or
writedowns of assets, including ceiling test writedowns; and provided further that if the Parent or
the Borrower or any Consolidated Subsidiary shall acquire or dispose of any Property during such
period, then Consolidated Net Income shall be calculated after giving pro forma effect to such
acquisition or disposition, as if such acquisition or disposition had occurred on the first day of
such period.

     “Consolidated Subsidiaries” means each Subsidiary of the Parent (whether now existing
or hereafter created or acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of the Parent in accordance with GAAP.

     “Control” means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. For the purposes of this definition, and without
limiting the generality of the foregoing, any Person that owns directly or indirectly 10% or more
of the Equity Interests having ordinary voting power for the election of the directors or other
governing body of a Person (other than as a limited partner of such other Person) will be deemed to
“control” such other Person. “Controlling” and “Controlled” have meanings
correlative thereto.

     “Debt” means, for any Person, the sum of the following (without duplication): (a) all
obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances,
debentures, notes or other similar instruments; (b) all obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, surety or other bonds and similar
instruments; (c) all accounts payable, accrued expenses, liabilities or other obligations of such
Person, in each such case to pay the deferred purchase price of Property or services; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as
defined in the other clauses of this definition) of others secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured by) a Lien on any Property
of such Person, whether or not such Debt is assumed by such Person, provided, however, if not
assumed, the amount of any such Debt shall not exceed the fair market value of the Property subject
to such Lien; (g) all Debt (as defined in the other clauses of this definition) of others
guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the
Debt (howsoever such assurance shall be made) to the extent of the lesser of the amount of such
Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations
or undertakings of such Person to maintain or cause to be maintained the financial position or
covenants of others or to purchase the Debt or Property of others; (i) obligations to deliver
commodities, goods or services, including, without limitation, Hydrocarbons, in consideration of
one or more advance payments, other than gas balancing or pipeline transportation arrangements in
the ordinary course of business; (j) obligations to pay for goods or services whether or not such
goods or services are actually received or utilized by such Person, other than retainers paid for
professional services or similar arrangements entered into in the ordinary course of business; (k)
any Debt of a partnership for which such Person is liable

6

 

either by agreement, by operation of law
or by a Governmental Requirement but only to the extent of such liability; (l) Disqualified Capital
Stock; and (m) the undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or
indirectly received payment. The Debt of any Person shall include all obligations of such
Person of the character described above to the extent such Person remains legally liable in respect
thereof notwithstanding that any such obligation is not included as a liability of such Person
under GAAP.

     “Default” means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

     “Disqualified Capital Stock” means any Equity Interest that, by its terms (or by the
terms of any security into which it is convertible or for which it is exchangeable) or upon the
happening of any event, matures or is mandatorily redeemable for any consideration other than other
Equity Interests (which would not constitute Disqualified Capital Stock), pursuant to a sinking
fund obligation or otherwise, or is convertible or exchangeable for Debt or redeemable for any
consideration other than other Equity Interests (which would not constitute Disqualified Capital
Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is
one year after the earlier of (a) the Maturity Date and (b) the date on which there are no Loans,
LC Exposure or other obligations hereunder outstanding and all of the Commitments are terminated.

     “dollars” or “$” refers to lawful money of the United States of America.

     “Domestic Subsidiary” means any Subsidiary that is organized under the laws of the
United States of America or any state thereof or the District of Columbia.

     “EBITDAX” means, for any period, the sum of Consolidated Net Income for such period
plus the following expenses or charges to the extent deducted from Consolidated Net Income in such
period: interest, income taxes, depreciation, depletion, amortization, exploration expenses and all
noncash charges, minus all noncash income added to Consolidated Net Income.

     “Effective Date” means the date on which the conditions specified in Section 6.01 are
satisfied (or waived in accordance with Section 12.02).

     “Engineering Reports” has the meaning assigned such term in Section 2.07(c)(i).

     “Environmental Laws” means any and all Governmental Requirements pertaining in any way
to health, safety the environment or the preservation or reclamation of natural resources, in
effect in any and all jurisdictions in which the Borrower or any of its Subsidiaries is conducting
or at any time has conducted business, or where any Property of the Borrower or any of its
Subsidiaries is located, including without limitation, the Oil Pollution Act of 1990
(“OPA”), as amended, the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water
Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund

7

 

Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection Governmental Requirements. The term “oil” shall
have the meaning specified in OPA, the terms “hazardous substance” and “release”
(or “threatened release”) have the meanings specified in
CERCLA, the terms “solid waste” and “disposal” (or “disposed”) have
the meanings specified in RCRA and the term “oil and gas waste” shall have the meaning
specified in Section 91.1011 of the Texas Natural Resources Code (“Section 91.1011”);
provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so
as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent
to the effective date of such amendment and (b) to the extent the laws of the state or other
jurisdiction in which any Property of the Borrower or any of its Subsidiaries is located establish
a meaning for “oil,” “hazardous substance,” “release,” “solid
waste,” “disposal” or “oil and gas waste” which is broader than that specified
in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply.

     “Environmental Permit” means any permit, registration, license, approval, consent,
exemption, variance, or other authorization required under or issued pursuant to applicable
Environmental Laws.

     “Equity Interests” means shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity ownership
interests in a Person, and any warrants, options or other rights entitling the holder thereof to
purchase or acquire any such Equity Interest.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute.

     “ERISA Affiliate” means each trade or business (whether or not incorporated) which
together with the Borrower or any of its Subsidiaries would be deemed to be a “single employer”
within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section
414 of the Code.

     “ERISA Event” means (a) a “Reportable Event” described in section 4043 of ERISA and
the regulations issued thereunder, (b) the withdrawal of the Borrower or any of its Subsidiaries or
any ERISA Affiliate from a Plan during a plan year in which it was a “substantial employer” as
defined in section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or
the treatment of a Plan amendment as a termination under section 4041 of ERISA, (d) the institution
of proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of withdrawal liability
pursuant to Section 4202 of ERISA or (f) any other event or condition which might constitute
grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan.

     “Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by
reference to the LIBO Rate.

8

 

     “EV Management” means EV Management, L.L.C., and its successors and permitted assigns
that are admitted as the general partner of the General Partner, and in its capacity as the general
partner of the General Partner (except where the context otherwise requires).

     “Event of Default” has the meaning assigned such term in Section 10.01.

     “Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in accordance with GAAP;
(b) Liens in connection with workers’ compensation, unemployment insurance or other social
security, old age pension or public liability obligations which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’, vendors’,
carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s,
construction or other like Liens arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and Gas Properties each
of which is in respect of obligations that are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained in accordance with
GAAP; (d) contractual Liens which arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and
natural gas, unitization and pooling declarations and agreements, area of mutual interest
agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements, seismic or other
geophysical permits or agreements, and other agreements which are usual and customary in the oil
and gas business and are for claims which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained in accordance with
GAAP, provided that any such Lien referred to in this clause does not materially impair the use of
the Property covered by such Lien for the purposes for which such Property is held by the Borrower
or any of its Subsidiaries or materially impair the value of such Property subject thereto; (e)
Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens,
rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds
maintained with a creditor depository institution, provided that no such deposit account is a
dedicated cash collateral account or is subject to restrictions against access by the depositor in
excess of those set forth by regulations promulgated by the Board and no such deposit account is
intended by the Borrower or any of its Subsidiaries to provide collateral to the depository
institution; (f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any Property of the Borrower or any of its Subsidiaries for the purpose of roads,
pipelines, transmission lines, transportation lines, distribution lines for the removal of gas,
oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of
real estate, rights of way, facilities and equipment, that do not secure any monetary obligations
and which in the aggregate do not materially impair the use of such Property for the purposes of
which such Property is held by the Borrower or any of its Subsidiaries or materially impair the
value of such Property subject thereto; (g) Liens on cash or securities pledged to secure
performance of

9

 

tenders, surety and appeal bonds, government contracts, performance and return of
money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other
obligations of a like nature incurred in the ordinary course of business and (h) judgment and
attachment Liens not giving rise to an Event of Default, provided that any appropriate legal
proceedings which may have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceeding may be initiated shall not have
expired and no action to enforce such Lien has been commenced; provided, further that Liens described
in clauses (a) through (e) shall remain “Excepted Liens” only for so long as no action to enforce
such Lien has been commenced and no intention to subordinate the first priority Lien granted in
favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the
permitted existence of such Excepted Liens.

     “Excluded Taxes” means, with respect to the Administrative Agent, any Lender, any
Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of
the Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of America or such other
jurisdiction under the laws of which such recipient is organized or in which its principal office
is located or, in the case of any Lender, in which its applicable lending office is located, (b)
any branch profits taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction in which the Borrower or any Guarantor is located and (c) in the case of a
Foreign Lender any withholding tax that is imposed on amounts payable to such Foreign Lender at the
time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or
is attributable to such Foreign Lender’s failure to comply with Section 5.03(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation
of a new lending office (or assignment), to receive additional amounts with respect to such
withholding tax pursuant to Section 5.03(a) or Section 5.03(c).

     “Existing Credit Agreement” means that certain Credit Agreement dated September 12,
2000, by and among Compass Bank, Enervest Management Partners, Ltd., Enervest Production Partners,
Ltd., Enervest Operating, L.L.C., Enervest – Cargas, Ltd., and Lower Cargas Operating Company, LLC,
as the same has been from time to time modified or amended.

     “Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received
by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

     “Financial Officer” means, for any Person, the chief financial officer, principal
accounting officer, treasurer or controller of such Person. Unless otherwise specified, all
references to a Financial Officer shall mean a Financial Officer of EV Management.

     “Financial Statements” means the financial statement or statements of the Borrower and
its Consolidated Subsidiaries referred to in Section 7.04(a).

10

 

     “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is located. For purposes of this definition, the United
States of America, each State thereof and the District of Columbia shall be deemed to constitute a
single jurisdiction.

     “Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

     “GAAP” means generally accepted accounting principles in the United States of America
as in effect from time to time subject to the terms and conditions set forth in Section 1.05.

     “General Partner” means EV Energy GP, L.P., a Delaware limited partnership, and its
successors and permitted assigns that are admitted to the Parent as general partner of the Parent,
in its capacity as general partner of the Partnership (except as the context otherwise requires).

     “General Revolving Loan” means a Loan made pursuant to Section 2.01(a) which is not a
Working Capital Revolving Loan.

     “Governmental Authority” means the government of the United States of America, any
other nation or any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government over the Borrower or any of its Subsidiaries, any of their Properties, any
Agent, any Issuing Bank or any Lender.

     “Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other directive or requirement, whether now or hereinafter in effect,
including, without limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.

     “Group Member” means a member of the Partnership Group.

     “Guarantors” means (a) the Parent, (b) EV Properties GP, LLC, a Delaware limited
liability company, (c) Enervest WV, L.P., a Delaware limited partnership, (d) Enervest Production
Partners, Ltd., a Texas limited partnership, (e) CGas Properties, L.P., a Delaware limited
partnership, (f) Enervest-Cargas, Ltd., a Texas limited partnership and (g) each other
Material Domestic Subsidiary or other Domestic Subsidiary that guarantees the Indebtedness pursuant
to Section 8.14(b).

     “Guarantee Agreement” means an agreement executed by the Guarantors in form and
substance reasonably satisfactory to the Administrative Agent unconditionally guarantying on a
joint and several basis, payment of the Indebtedness, as the same may be amended, modified or
supplemented from time to time.

     “Hazardous Material” means any substance regulated or as to which liability might
arise under any applicable Environmental Law and including, without limitation: (a) any chemical,
compound, material, product, byproduct, substance or waste defined as or included in the

11

 

definition or meaning of “hazardous substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic
waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,” “pollutant,” or words of
similar meaning or import found in any applicable Environmental Law; (b) petroleum hydrocarbons,
petroleum products, petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any
components, fractions, or derivatives thereof; and (c) radioactive materials, asbestos containing
materials, polychlorinated biphenyls, or radon.

     “Highest Lawful Rate” means, with respect to each Lender, the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such
Lender which are presently in effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.

     “Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or
gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net
profit interests and production payment interests, including any reserved or residual interests of
whatever nature.

     “Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or
separated therefrom.

     “Indebtedness” means any and all amounts owing or to be owing by the Borrower, any of
its Subsidiaries or any Guarantor (whether direct or indirect (including those acquired by
assumption), absolute or contingent, due or to become due, now existing or hereafter arising): (a)
to the Administrative Agent, any Issuing Bank or any Lender under any Loan Document; (b) to any
Lender or any Affiliate of a Lender under any Swap Agreements among such Person and the Borrower or
any Subsidiary or assigned to such Person while such Person (or in the case of its Affiliate, the
Lender affiliated therewith) is a Lender hereunder and (c) all renewals, extensions and/or
rearrangements of any of the above.

     “Indemnified Taxes” means Taxes other than Excluded Taxes.

     “Initial Public Offering” shall mean the initial public offering of common units of
the Borrower.

     “Initial Reserve Reports” means the report of Cawley Gillespie & Associates, Inc.
dated as of June 24, 2006, with respect to the value of the Oil and Gas Properties of the Borrower
and its Subsidiaries as of December 31, 2005.

     “Interest Election Request” means a request by the Borrower to convert or continue a
Borrowing in accordance with Section 2.04.

     “Interest Expense” means, for any period, the sum (determined without duplication) of
the aggregate gross interest expense of the Borrower and the Consolidated Subsidiaries for such

12

 

period, including (a) to the extent included in interest expense under GAAP: (i) amortization of
debt discount, (ii) capitalized interest and (iii) the portion of any payments or accruals under
Capital Leases allocable to interest expense, plus the portion of any payments or accruals under
Synthetic Leases allocable to interest expense whether or not the same constitutes interest expense
under GAAP and (b) cash dividend payments by the Borrower in respect of any Disqualified Capital
Stock.

     “Interest Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically corresponding day in the
calendar month that is one, two, three or six months thereafter, as the Borrower may elect;
provided, that (a) if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest Period shall end on
the next preceding Business Day and (b) any Interest Period pertaining to a Eurodollar Borrowing
that commences on the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest Period) shall end on the
last Business Day of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter
shall be the effective date of the most recent conversion or continuation of such Borrowing.

     “Interim Redetermination” has the meaning assigned such term in Section 2.07(b).

     “Investment” means, for any Person: (a) the acquisition (whether for cash, Property,
services or securities or otherwise) of Equity Interests of any other Person or any agreement to
make any such acquisition (including, without limitation, any “short sale” or any sale of any
securities at a time when such securities are not owned by the Person entering into such short
sale); (b) the making of any deposit with, or advance, loan or capital contribution to, assumption
of Debt of, purchase or other acquisition of any other Debt or equity participation or interest in,
or other extension of credit to, any other Person (including the purchase of Property from another
Person subject to an understanding or agreement, contingent or otherwise, to resell such Property
to such Person, but excluding any such advance, loan or extension of credit having a term not
exceeding ninety (90) days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business); or (c) the entering into of any guarantee of, or other
contingent obligation (including the deposit of any Equity Interests to be sold) with respect to,
Debt or other liability of any other Person and (without duplication) any amount committed to be
advanced, lent or extended to such Person.

     “Issuing Bank” means JPMorgan, in its capacity as an issuer of Letters of Credit
hereunder, and its successors in such capacity as provided in Section 2.08(i). The Issuing Bank
may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of
such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.

     “LC Commitment” at any time means Twenty Million Dollars ($20,000,000).

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     “LC Disbursement” means a payment made by any Issuing Bank pursuant to a Letter of
Credit issued by such Issuing Bank.

     “LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all
outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements
that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of
any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.

     “Lenders” means the Persons listed on Annex I, and any Person that shall have become a
party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be
a party hereto pursuant to an Assignment and Assumption, and any Person that shall have become a
party hereto as an Additional Lender pursuant to Section 2.06(c).

     “Letter of Credit” means any letter of credit issued pursuant to this Agreement.

     “Letter of Credit Agreements” means all letter of credit applications and other
agreements (including any amendments, modifications or supplements thereto) submitted by the
Borrower, or entered into by the Borrower, with any Issuing Bank relating to any Letter of Credit
issued by such Issuing Bank.

     “LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period,
the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute
page of such Service, or any successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar
Borrowing for such Interest Period shall be the rate (rounded upwards, if necessary, to the next
1/100th of 1%) at which dollar deposits of $1,000,000 and for a maturity comparable to such
Interest Period are offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period.

     “Lien” means any interest in Property securing an obligation owed to, or a claim by, a
Person other than the owner of the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed or contingent, and including but
not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or bailment for
security purposes or (b) production payments and the like payable out of Oil and Gas Properties.
The term “Lien” shall include easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations. For the purposes of this Agreement, the Borrower and its
Subsidiaries shall be deemed to be the owner of any Property which they have acquired or hold
subject to a conditional sale agreement, or leases under a financing lease or other arrangement
pursuant to

14

 

which title to the Property has been retained by or vested in some other Person in a
transaction intended to create a financing.

     “Limited Partnership Agreement” means the Agreement of Limited Partnership of the
Borrower.

     “Loan Documents” means this Agreement, the Notes, the Letter of Credit Agreements, the
Letters of Credit and the Security Instruments.

     “Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.

     “Managers” means the members of the Board of Managers or Board of Directors (however
designated from time to time) of EV Management as constituted from time to time.

     “Material Adverse Effect” means a material adverse change in, or material adverse
effect on (a) the business, operations, Property, liabilities (actual or contingent) or condition
(financial or otherwise) of the Borrower and its Guarantors taken as a whole, (b) the ability of
the Borrower and its Subsidiaries, taken as a whole, to perform their obligations under the Loan
Documents, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies
of or benefits available to the Administrative Agent, any other Agent, any Issuing Bank or any
Lender under any Loan Document.

     “Material Domestic Subsidiary” means, as of any date, any Domestic Subsidiary that (a)
is a Wholly-Owned Subsidiary and (b) together with its Subsidiaries, owns Property having a fair
market value of $1,000,000 or more.

     “Material Indebtedness” means Debt (other than the Loans and Letters of Credit), or
obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its
Subsidiaries in an aggregate principal amount exceeding $1,000,000. For purposes of determining
Material Indebtedness, the “principal amount” of the obligations of the Borrower or any of its
Subsidiaries in respect of any Swap Agreement at any time shall be the maximum aggregate amount
(giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to
pay if such Swap Agreement were terminated at such time.

     “Maturity Date” means September 30, 2011.

     “Maximum Credit Amount” means, as to each Lender, the amount set forth opposite such
Lender’s name on Annex I under the caption “Maximum Credit Amounts”, as the same may be (a) reduced
or terminated from time to time in connection with a reduction or termination of the Aggregate
Maximum Credit Amounts pursuant to Section 2.06(b), (b) increased from time to time pursuant to
Section 2.06(c) or (c) modified from time to time pursuant to any assignment permitted by Section
12.04(b).

     “Maximum Credit Amount Increase Certificate” has the meaning assigned to such term in
Section 2.06(c)(ii)(E).

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     “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that is a
nationally recognized rating agency.

     “Mortgaged Property” means any Property owned by the Borrower or any Guarantor which
is subject to the Liens existing and to exist under the terms of the Security Instruments.

     “Multiemployer Plan” means a Plan which is a multiemployer plan as defined in section
3(37) or 4001 (a)(3) of ERISA.

     “New Borrowing Base Notice” has the meaning assigned such term in Section 2.07(d).

     “Notes” means the promissory notes of the Borrower described in Section 2.02(d) and
being substantially in the form of Exhibit A, together with all amendments, modifications,
replacements, extensions and rearrangements thereof.

     “Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now or
hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future
unitization, pooling agreements and declarations of pooled units and the units created thereby
(including without limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all
operating agreements, contracts and other agreements, including production sharing contracts and
agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all
Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues
and other incomes from or attributable to the Hydrocarbon Interests; (f) all tenements,
hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles, interests and
estates described or referred to above, including any and all Property, real or personal, now owned
or hereinafter acquired and situated upon, used, held for use or useful in connection with the
operating, working or development of any of such Hydrocarbon Interests or Property (excluding
drilling rigs, automotive equipment, rental equipment or other personal Property which may be on
such premises for the purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel
separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering
systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines,
boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers,
casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all
additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

     “Other Taxes” means any and all present or future stamp or documentary taxes or any
other excise or Property taxes, charges or similar levies arising from any payment made hereunder
or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and
any other Loan Document.

     “Parent” means EV Energy Partners, L.P., a Delaware limited partnership.

16

 

     “Parent LP Agreement” means the First Amended and Restated Agreement of Limited
Partnership of the Parent dated as of [                    ], 2006, as the same may be amended, modified,
supplemented or restated from time to time.

     “Partnership Group” means the Parent and its Consolidated Subsidiaries.

     “Participant” has the meaning set forth in Section 12.04(c)(i).

     “PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

     “Person” means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, Governmental Authority or other entity.

     “Plan” means any employee pension benefit plan, as defined in section 3(2) of ERISA,
which (a) is currently or hereafter sponsored, maintained or contributed to by the Borrower, any of
its Subsidiaries or an ERISA Affiliate or (b) was at any time during the six calendar years
preceding the date hereof, sponsored, maintained or contributed to by the Borrower, any of its
Subsidiaries or an ERISA Affiliate.

     “Prime Rate” means the rate of interest per annum publicly announced from time to time
by JPMorgan as its prime rate in effect at its principal office in New York City; each change in
the Prime Rate shall be effective from and including the date such change is publicly announced as
being effective. Such rate is set by JPMorgan as a general reference rate of interest, taking into
account such factors as JPMorgan may deem appropriate; it being understood that many of JPMorgan’s
commercial or other loans are priced in relation to such rate, that it is not necessarily the
lowest or best rate actually charged to any customer and that JPMorgan may make various commercial
or other loans at rates of interest having no relationship to such rate.

     “Property” means any interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and
contract rights.

     “Proposed Borrowing Base” has the meaning assigned to such term in Section 2.07(c)(i).

     “Proposed Borrowing Base Notice” has the meaning assigned to such term in Section
2.07(c)(ii).

     “Proved Developed Producing Properties” means Oil and Gas Properties which are
categorized as “Proved Reserves” that are both “Developed” and “Producing”, as such terms are
defined in the Definitions for Oil and Gas Reserves as promulgated by the Society of Petroleum
Engineers (or any generally recognized successor) as in effect at the time in question.

     “Redemption” means with respect to any Debt, the repurchase, redemption, prepayment,
repayment or defeasance or any other acquisition or retirement for value (or the segregation of
funds with respect to any of the foregoing) of any such Debt. “Redeem” has the correlative
meaning thereto.

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     “Redetermination Date” means, with respect to any Scheduled Redetermination or any
Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes
effective pursuant to Section 2.07(d).

     “Register” has the meaning assigned such term in Section 12.04(b)(iv).

     “Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and advisors (including
attorneys, accountants and experts) of such Person and such Person’s Affiliates.

     “Release” means any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching,
dumping, or disposing.

     “Remedial Work” has the meaning assigned such term in Section 8.10(a).

     “Required Lenders” means, at any time while no Loans or LC Exposure is outstanding,
Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the Aggregate Maximum Credit
Amounts; and at any time while any Loans or LC Exposure is outstanding, Lenders holding at least
sixty-six and two-thirds percent (66-2/3%) of the outstanding aggregate principal amount of the
Loans or participation interests in Letters of Credit (without regard to any sale by a Lender of a
participation in any Loan under Section 12.04(c)).

     “Reserve Report” means a report, in form and substance reasonably satisfactory to the
Administrative Agent, setting forth, as of each January 1st or July 1st (or such other date in the
event of an Interim Redetermination) the oil and gas reserves attributable to the Oil and Gas
Properties of the Borrower and its Subsidiaries, together with a projection of the rate of
production and future net income, taxes, operating expenses and capital expenditures with respect
thereto as of such date, based upon the economic assumptions consistent with the Administrative
Agent’s lending requirements at the time.

     “Responsible Officer” means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Vice President of such Person. Unless otherwise specified,
all references to a Responsible Officer herein shall mean a Responsible Officer of EV Management.

     “Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the Borrower, or any payment
(whether in cash, securities or other Property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or termination of any
such Equity Interests in the Borrower or any option, warrant or other right to acquire any such
Equity Interests in the Borrower.

     “Revolving Credit Exposure” means, with respect to any Lender at any time, the sum of
the outstanding principal amount of such Lender’s Loans and its LC Exposure at such time.

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     “S-1” means the Form S-1 of the Parent filed with the United States Securities and
Exchange Commission as of May 15, 2006, as amended through the Effective Date.

     “Scheduled Redetermination” has the meaning assigned such term in Section 2.07(b).

     “Scheduled Redetermination Date” means the date on which a Borrowing Base that has
been redetermined pursuant to a Scheduled Redetermination becomes effective as provided in Section
2.07(d).

     “Security Instruments” means the Guarantee Agreement, and all mortgages, deeds of
trust and other agreements, instruments or certificates described or referred to in Exhibit C-1,
and any and all other agreements, instruments, consents or certificates now or hereafter executed
and delivered by the Parent, the Borrower or any other Person (other than Swap Agreements with the
Lenders or any Affiliate of a Lender or participation or similar agreements between any Lender and
any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in
connection with, or as security for the payment or performance of the Indebtedness, the Notes, this
Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be
amended, modified, supplemented or restated from time to time.

     “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies,
Inc., and any successor thereto that is a nationally recognized rating agency.

     “Subordinated Debt” means any subordinated Debt of the Borrower or any Guarantor
issued pursuant to Section 9.02(e).

     “Subsidiary” means: (a) any Person of which at least a majority of the outstanding
Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board
of directors, manager or other governing body of such Person (irrespective of whether or not at the
time Equity Interests of any other class or classes of such Person shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or indirectly owned or
controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of
its Subsidiaries and (b) any partnership of which the Borrower or any of its Subsidiaries is a
general partner. Unless otherwise indicated herein, each reference to the term
“Subsidiary” shall mean a Subsidiary of the Borrower.

     “Swap Agreement” means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter”
or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities,
equity or debt instruments or securities, or economic, financial or pricing indices or measures of
economic, financial or pricing risk or value or any similar transaction or any combination of these
transactions; provided that no phantom stock or similar plan providing for payments only on account
of services provided by current or former directors, officers, employees or consultants of Enervest
Management Partners, Ltd., EV Management, the Borrower or any of their respective Subsidiaries
shall be a Swap Agreement.

     “Synthetic Leases” means, in respect of any Person, all leases which shall have been,
or should have been, in accordance with GAAP, treated as operating leases on the financial

19

 

statements of the Person liable (whether contingently or otherwise) for the payment of rent
thereunder and which were properly treated as indebtedness for borrowed money for purposes of U.S.
federal income taxes, if the lessee in respect thereof is obligated to either purchase for an
amount in excess of, or pay upon early termination an amount in excess of, 80% of the residual
value of the Property subject to such operating lease upon expiration or early termination of such
lease.

     “Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.

     “Termination Date” means the earlier of the Maturity Date and the date of termination
of the Commitments.

     “Total Debt” means, at any date, all Debt described in clauses (a), (d), (e), (g),
(h), (l) and (m) of the definition of Debt herein, of the Parent and its Consolidated Subsidiaries,
excluding all non-cash obligations under FAS 133.

     “Transactions” means, with respect to (a) the Borrower, the execution, delivery and
performance by the Borrower of this Agreement, and each other Loan Document to which it is a party,
the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit
hereunder, and the grant of Liens by the Borrower on Mortgaged Properties and other Properties
pursuant to the Security Instruments and (b) any Guarantor, the execution, delivery and performance
by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the
Indebtedness and the other obligations under the Guarantee Agreement by such Guarantor and such
Guarantor’s grant of the security interests and provision of collateral under the Security
Instruments, and the grant of Liens by such Guarantor on Mortgaged Properties and other Properties
pursuant to the Security Instruments.

     “Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the
Alternate Base Rate or the LIBO Rate.

     “Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding Equity
Interests (other than any directors’ qualifying shares mandated by applicable law), on a
fully-diluted basis, are owned by the Borrower or one or more of the Wholly-Owned Subsidiaries or
are owned by the Borrower and one or more of the Wholly-Owned Subsidiaries.

     “Working Capital Revolving Sub-Commitment” means, with respect to each Lender, the
commitment of such Lender to make Working Capital Revolving Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender’s Working Capital Revolving Loans
hereunder, as such commitment may be reduced or increased from time to time pursuant to Section
2.06. The initial aggregate amount of the Lenders’ Working Capital Revolving Sub-Commitments shall
at any time be equal to the lesser of (i) 90% of the Borrowing Base and (ii) the total Commitments.
The Working Capital Revolving Sub-Commitments are a subset of the Commitments. Each Lender’s
Working Capital Revolving Sub-Commitment shall be pro rata to its Applicable Percentage of the
total Commitments.

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     “Working Capital Revolving Loan” has the meaning assigned to such term in Section
2.01(b).

     Section 1.03 Types of Loans and Borrowings. For purposes of this Agreement, Loans may be
classified and referred to by Class (e.g., a “General Revolving Loan”) or by Type (e.g., a
“Eurodollar Loan”). Borrowings also may be classified and referred to by Class (e.g., a
“General Revolving Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”).

     Section 1.04 Terms Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding
masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be
deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to
have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a)
any definition of or reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from time to time
amended, supplemented or otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth in the Loan Documents herein), (b) any reference herein to
any law shall be construed as referring to such law as amended, modified, codified or reenacted, in
whole or in part, and in effect from time to time, (c) any reference herein to any Person shall be
construed to include such Person’s successors and assigns (subject to the restrictions contained in
the Loan Documents herein), (d) the words “herein”, “hereof” and “hereunder”, and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (e) with respect to the determination of any time period, the word “from” means
“from and including” and the word “to” means “to and including” and (f) any reference herein to
Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Annexes, Exhibits and Schedules to, this Agreement. No provision of this
Agreement or any other Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.

     Section 1.05 Accounting Terms and Determinations; GAAP. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with respect to
accounting matters hereunder shall be made, and all financial statements and certificates and
reports as to financial matters required to be furnished to the Administrative Agent or the Lenders
hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the
Financial Statements except for changes in which the Borrower’s independent certified public
accountants concur and which are disclosed to Administrative Agent on the next date on which
financial statements are required to be delivered to the Lenders pursuant to Section 8.01(a);
provided that, unless the Borrower and the Required Lenders shall otherwise agree in writing, no
such change shall modify or affect the manner in which compliance with the covenants contained
herein is computed such that all such computations shall be conducted utilizing financial
information presented consistently with prior periods.

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ARTICLE II

The Credits

     Section 2.01 Commitments.

          (a) Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to
the Borrower during the Availability Period in an aggregate principal amount that will not result
in (i) such Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or (ii) the total
Revolving Credit Exposures exceeding the total Commitments.

          (b) Subject to the terms and conditions set forth herein, each Lender agrees to make
revolving credit loans (the “Working Capital Revolving Loans”) to the Borrower from time
to time during the Availability Period, in an aggregate principal amount that will not result in
(i) such Lender’s Working Capital Revolving Loans exceeding such Lender’s Working Capital
Revolving Sub-Commitment, (ii) the sum of all Working Capital Revolving Loans exceeding the total
Working Capital Revolving Sub-Commitments, or (iii) the sum of the total Revolving Credit Exposure
exceeding the total Commitments.

          (c) The Working Capital Revolving Sub-Commitment of each Lender constitutes a subset of such
Lender’s Commitment such that (i) the availability of the Commitments of such Lender shall be
reduced by the outstanding principal amount of such Lender’s Working Capital Revolving Loans as of
the time of determination and (ii) the Working Capital Revolving Sub-Commitment of each Lender
shall be reduced by the amount, if any, by which (A) the outstanding principal amount of such
Lender’s Revolving Credit Exposure as of the time of determination exceeds (B) the amount
equal to such Lender’s Commitment minus such Lender’s Working Capital Revolving Sub-Commitment.

          (d) Within the foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Loans during the Availability Period.

     Section 2.02 Loans and Borrowings.

          (a) Borrowings; Several Obligations. Each Loan shall be made as part of a Borrowing
comprised entirely of General Revolving Loans or Working Capital Revolving Loans as the Borrower
may request in accordance herewith and made by the Lenders ratably in accordance with their
respective Commitments. The failure of any Lender to make any Loan required to be made by it
shall not relieve any other Lender of its obligations hereunder; provided that the Commitments are
several and no Lender shall be responsible for any other Lender’s failure to make Loans as
required.

          (b) Types of Loans. Subject to Section 3.03, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith.
Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch
or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the terms of this
Agreement.

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          (c) Minimum Amounts; Limitation on Number of Borrowings. At the commencement of each
Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that
is an integral multiple of $500,000 and not less than $1,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of
$250,000 and not less than $1,000,000; provided that an ABR Borrowing may be in an aggregate
amount that does not exceed (i) with respect to Working Capital Revolving Borrowings, the entire
unused and available balance of the Working Capital Revolving Sub-Commitments, (ii) with respect to General Revolving Borrowings,
(A) the total Commitments less total Revolving Credit Exposure, or (B) amounts required to finance
the reimbursement of an LC Disbursement as contemplated by Section 2.08(e). Borrowings of more
than one Type or Class may be outstanding at the same time; provided that there shall not at any
time be more than a total of ten (10) Eurodollar Borrowings outstanding. Notwithstanding any
other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.

          (d) Notes. The Loans made by each Lender shall be evidenced by a single promissory
note of the Borrower in substantially the form of Exhibit A, dated, in the case of (i) any Lender
party hereto as of the date of this Agreement, as of the date of this Agreement, (ii) any Lender
that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective date of
the Assignment and Assumption or (iii) any Lender that becomes a party hereto in connection with
an increase in the Aggregate Maximum Credit Amounts pursuant to Section 2.06(c), as of the
effective date of such increase, payable to the order of such Lender in a principal amount equal
to its Maximum Credit Amount as in effect on such date, and otherwise duly completed. In the
event that any Lender’s Maximum Credit Amount increases or decreases for any reason (whether
pursuant to Section 2.06, Section 12.04(b) or otherwise), the Borrower shall deliver or cause to
be delivered on the effective date of such increase or decrease, a new Note payable to the order
of such Lender in a principal amount equal to its Maximum Credit Amount after giving effect to
such increase or decrease, and otherwise duly completed. The date, amount, Type, Class, interest
rate and, if applicable, Interest Period of each Loan made by each Lender, and all payments made
on account of the principal thereof, shall be recorded by such Lender on its books for its Note,
and, prior to any transfer, may be endorsed by such Lender on a schedule attached to such Note or
any continuation thereof or on any separate record maintained by such Lender. Failure to make any
such notation or to attach a schedule shall not affect any Lender’s or the Borrower’s rights or
obligations in respect of such Loans or affect the validity of such transfer by any Lender of its
Note.

     Section 2.03 Requests for Borrowings. To request a Borrowing, the Borrower shall notify the
Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., Houston time, three Business Days before the date of the proposed Borrowing
or (b) in the case of an ABR Borrowing, not later than 12:00 noon, Houston time, on the date of the
proposed Borrowing; provided that no such notice shall be required for any deemed request of an ABR
Borrowing to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e). Each
such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved
by the Administrative Agent and signed by the

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Borrower. Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.02:

               (i) the aggregate amount of the requested Borrowing;

               (ii) the date of such Borrowing, which shall be a Business Day;

               (iii) whether such Borrowing is to be comprised of Working Capital Revolving Loans or General
Revolving Loans;

               (iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;

               (v) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable
thereto, which shall be a period contemplated by the definition of the term “Interest Period”;

               (vi) the amount of the then effective Borrowing Base, the current total Revolving Credit
Exposures (without regard to the requested Borrowing) and the pro forma total Revolving Credit
Exposures (giving effect to the requested Borrowing); and

               (vii) the location and number of the Borrower’s account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.05.

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an
ABR Borrowing. If no election as to the Class of Borrowing is specified, then the requested
Borrowing shall be a General Revolving Borrowing. If no Interest Period is specified with respect
to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an
Interest Period of one month’s duration. Each Borrowing Request shall constitute a representation
that the amount of the requested Borrowing shall not cause the total Revolving Credit Exposures to
exceed the total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and the then
effective Borrowing Base).

Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the
Administrative Agent shall advise each Lender of the details thereof and of the amount of such
Lender’s Loan to be made as part of the requested Borrowing.

     Section 2.04 Interest Elections.

          (a) Conversion and Continuance. Each Borrowing initially shall be of the Type and
Class specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing,
shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing
and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided
in this Section 2.04. The Borrower may elect different options with respect to different portions
of the affected Borrowing, in which case each such portion shall be

24

 

allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion
shall be considered a separate Borrowing.

          (b) Interest Election Requests. To make an election pursuant to this Section 2.04,
the Borrower shall notify the Administrative Agent of such election by telephone by the time that
a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a
Borrowing of the Type resulting from such election to be made on the effective
date of such election. Each such telephonic Interest Election Request shall be irrevocable
and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Interest Election Request in a form approved by the Administrative Agent and signed by the
Borrower.

          (c) Information in Interest Election Requests. Each telephonic and written Interest
Election Request shall specify the following information in compliance with Section 2.02:

               (i) the Borrowing to which such Interest Election Request applies and, if different options
are being elected with respect to different portions thereof, the portions thereof to be allocated
to each resulting Borrowing (in which case the information to be specified pursuant to Section
2.04(c)(iii) and (iv) shall be specified for each resulting Borrowing);

               (ii) the effective date of the election made pursuant to such Interest Election Request, which
shall be a Business Day;

               (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

               (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be
applicable thereto after giving effect to such election, which shall be a period contemplated by
the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one
month’s duration.

          (d) Notice to Lenders by the Administrative Agent. Promptly following receipt of an
Interest Election Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender’s portion of each resulting Borrowing.

          (e) Effect of Failure to Deliver Timely Interest Election Request and Events of Default
and Borrowing Base Deficiencies on Interest Election. If the Borrower fails to deliver a
timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing.
Notwithstanding any contrary provision hereof, if an Event of Default or a Borrowing Base
Deficiency has occurred and is continuing: (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing (and any Interest Election Request that

25

 

requests the
conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall
be ineffective) and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.

     Section 2.05 Funding of Borrowings.

          (a) Funding by Lenders. Each Lender shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., Houston
time, to the account of the Administrative Agent most recently designated by it for such purpose
by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower
by promptly crediting the amounts so received, in like funds, to an account of the Borrower and
designated by the Borrower in the applicable Borrowing Request; provided that ABR Loans made to
finance the reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be remitted
by the Administrative Agent to the Issuing Bank that made such LC Disbursement. Nothing herein
shall be deemed to obligate any Lender to obtain the funds for its Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or will obtain the
funds for its Loan in any particular place or manner.

          (b) Presumption of Funding by the Lenders. Unless the Administrative Agent shall
have received notice from a Lender prior to the proposed date of any Borrowing that such Lender
will not make available to the Administrative Agent such Lender’s share of such Borrowing, the
Administrative Agent may assume that such Lender has made such share available on such date in
accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the
applicable Borrowing available to the Administrative Agent, then the applicable Lender and the
Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i)
in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on interbank compensation or
(ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays
such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan
included in such Borrowing.

     Section 2.06 Termination, Reduction and Increase of Aggregate Maximum Credit Amounts.

          (a) Scheduled Termination of Commitments. Unless previously terminated, the
Commitments shall terminate on the Maturity Date. If at any time the Aggregate Maximum Credit
Amounts or the Borrowing Base is terminated or reduced to zero, then the Commitments shall
terminate on the effective date of such termination or reduction.

26

 

          (b) Optional Termination and Reduction of Aggregate Credit Amounts.

               (i) The Borrower may at any time terminate, or from time to time reduce, the Aggregate Maximum
Credit Amounts; provided that (A) each reduction of the Aggregate Maximum Credit Amounts shall be
in an amount that is an integral multiple of $500,000 and not less than $1,000,000, (B) any such
reduction shall not apply to the Working Capital Revolving Sub-Commitments until such time that the
amount of the aggregate Commitments equals the amount of the aggregate Working Capital Revolving Sub-Commitments and,
thereafter, shall reduce both the aggregate Commitments and the aggregate Working Capital Revolving
Sub-Commitments, and (C) the Borrower shall not terminate or reduce the Aggregate Maximum Credit
Amounts if, after giving effect to any concurrent prepayment of the Loans in accordance with
Section 3.04(c), the total Revolving Credit Exposures would exceed the total Commitments.

               (ii) The Borrower shall notify the Administrative Agent of any election to terminate or reduce
the Aggregate Maximum Credit Amounts under Section 2.06(b)(i) at least three Business Days prior to
the effective date of such termination or reduction, specifying such election and the effective
date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section
2.06(b)(ii) shall be irrevocable. Any termination or reduction of the Aggregate Maximum Credit
Amounts shall be permanent and may not be reinstated. Each reduction of the Aggregate Maximum
Credit Amounts shall be made ratably among the Lenders in accordance with each Lender’s Applicable
Percentage.

          (c) Optional Increase in Aggregate Maximum Credit Amounts.

               (i) Subject to the conditions set forth in Section 2.06(c)(ii), the Borrower may increase the
Aggregate Maximum Credit Amounts then in effect by increasing the Maximum Credit Amount of a Lender
or by causing a Person that at such time is not a Lender to become a Lender (an “Additional
Lender”).

               (ii) Any increase in the Aggregate Maximum Credit Amounts shall be subject to the following
additional conditions:

                    (A) such increase shall not be less than $5,000,000 unless the Administrative Agent otherwise
consents, and no such increase shall be permitted if after giving effect thereto the Aggregate
Maximum Credit Amounts would exceed $225,000,000.

                    (B) no Default shall have occurred and be continuing at the effective date of such increase;

                    (C) on the effective date of such increase, no Eurodollar Borrowings shall be outstanding or
if any Eurodollar Borrowings are outstanding, then the effective date of such increase shall be the
last day of the Interest Period in respect of such Eurodollar Borrowings unless the Borrower pays
compensation to the extent required by Section 5.02;

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                    (D) no Lender’s Maximum Credit Amount may be increased without the consent of such Lender;

                    (E) if the Borrower elects to increase the Aggregate Maximum Credit Amounts by increasing the
Maximum Credit Amount of a Lender, the Borrower and such Lender shall execute and deliver to the
Administrative Agent a certificate substantially in the form of Exhibit E-1 (a “Maximum Credit
Amount Increase Certificate”), and the Borrower shall deliver a new Note payable to the order of such Lender in a principal amount equal to its
Maximum Credit Amount after giving effect to such increase, and otherwise duly completed; and

                    (F) If the Borrower elects to increase the Aggregate Maximum Credit Amounts by causing an
Additional Lender to become a party to this Agreement, then (1) the Borrower must obtain the prior
written consent of the Administrative Agent, (2) the Borrower and such Additional Lender shall
execute and deliver to the Administrative Agent a certificate substantially in the form of Exhibit
E-2 (an “Additional Lender Certificate”), together with an Administrative Questionnaire and
a processing and recordation fee of $3,500, and (3) the Borrower shall deliver a Note payable to
the order of such Additional Lender in a principal amount equal to its Maximum Credit Amount, and
otherwise duly completed.

               (iii) Subject to acceptance and recording thereof pursuant to Section 2.06(c)(iv), from and
after the effective date specified in the Maximum Credit Amount Increase Certificate or the
Additional Lender Certificate (or if any Eurodollar Borrowings are outstanding, then the last day
of the Interest Period in respect of such Eurodollar Borrowings, unless the Borrower has paid
compensation required by Section 5.02): (A) the amount of the Aggregate Maximum Credit Amounts
shall be increased as set forth therein, and (B) in the case of an Additional Lender Certificate,
any Additional Lender party thereto shall be a party to this Agreement and the other Loan Documents
and have the rights and obligations of a Lender under this Agreement and the other Loan Documents.
In addition, the Lender or the Additional Lender, as applicable, shall purchase a pro rata portion
of the outstanding Loans (and participation interests in Letters of Credit) of each of the other
Lenders (and such Lenders hereby agree to sell and to take all such further action to effectuate
such sale) such that each Lender (including any Additional Lender, if applicable) shall hold its
Applicable Percentage of the outstanding Loans (and participation interests) after giving effect to
the increase in the Aggregate Maximum Credit Amounts.

               (iv) Upon its receipt of a duly completed Maximum Credit Amount Increase Certificate or an
Additional Lender Certificate, executed by the Borrower and the Lender or the Borrower and the
Additional Lender party thereto, as applicable, the processing and recording fee referred to in
Section 2.06(c)(ii), the Administrative Questionnaire referred to in Section 2.06(c)(ii), if
applicable, and the written consent of the Administrative Agent to such increase required by
Section 2.06(c)(i), the Administrative Agent shall accept such Maximum Credit Amount Increase
Certificate or Additional Lender Certificate and record the information contained therein in the
Register required to be maintained by the Administrative Agent pursuant to Section 12.04(b)(iv).
No increase in the Aggregate Maximum Credit Amounts shall be effective for purposes of this
Agreement unless it has been recorded in the Register as provided in this Section 2.06(c)(iv).

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     Section 2.07 Borrowing Base.

          (a) Initial Borrowing Base. For the period from and including the Effective Date to
but excluding the first Redetermination Date, the amount of the Borrowing Base shall
be $50,000,000. Notwithstanding the foregoing, the Borrowing Base may be subject to further
adjustments from time to time pursuant to Section 8.13(c) or Section 9.12(d).

          (b) Scheduled and Interim Redeterminations. Subject to Section 2.07(d), the
Borrowing Base shall be redetermined (a “Scheduled Redetermination”) on April 1st and
October 1st of each year, commencing April 1st, 2007. In addition, either the Borrower or the
Administrative Agent, at the direction of the Required Lenders, may once during each calendar
year, each elect to cause the Borrowing Base to be redetermined between the Effective Date and the
first Scheduled Redetermination and thereafter, between Scheduled Redeterminations (an
“Interim Redetermination”) in accordance with this Section 2.07. The Borrower shall have
the right, once during each calendar year, to initiate an Interim Redetermination in addition to
the one otherwise provided in this Section 2.07(b) upon the proposed acquisition of Proved
Developed Producing Properties whose purchase price is greater than 10% of the Borrowing Base,
provided such Interim Redetermination is in accordance with this Section 2.07.

          (c) Scheduled and Interim Redetermination Procedure.

               (i) Each Scheduled Redetermination and each Interim Redetermination shall be
effectuated as follows: Upon receipt by the Administrative Agent of (A) the Reserve Report
and the certificate required to be delivered by the Borrower to the Administrative Agent,
in the case of a Scheduled Redetermination, pursuant to Section 8.12(a) and (c), and, in
the case of an Interim Redetermination, pursuant to Section 8.12(b) and (c), and (B) such
other reports, data and supplemental information, including, without limitation, the
information provided pursuant to Section 8.12(c), as may, from time to time, be reasonably
requested by the Required Lenders (the Reserve Report, such certificate and such other
reports, data and supplemental information being the “Engineering Reports”), the
Administrative Agent shall evaluate the information contained in the Engineering Reports
and shall, in good faith, propose a new Borrowing Base (the “Proposed Borrowing
Base”) based upon such information and such other information (including, without
limitation, the status of title information with respect to the Oil and Gas Properties as
described in the Engineering Reports and the existence of any other Debt) as the
Administrative Agent deems appropriate in its sole discretion and consistent with its
normal oil and gas lending criteria as it exists at the particular time. In no event shall
the Proposed Borrowing Base exceed the Aggregate Maximum Credit Amounts.

               (ii) The Administrative Agent shall notify the Borrower and the Lenders of the
Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):

                    (A) in the case of a Scheduled Redetermination (1) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the Borrower
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on or
before the March 15th and September 15th of such

29

 

year following the date of delivery
of such Engineering Report or (2) if the Administrative Agent shall not have
received the Engineering Reports required to be delivered by the Borrower pursuant
to Section 8.12(a) and (c) in a timely and complete manner, then promptly after the
Administrative Agent has received complete Engineering Reports from the Borrower and has had a reasonable
opportunity to determine the Proposed Borrowing Base in accordance with Section
2.07(c)(i) and in any event, within fifteen (15) days after the Administrative Agent
has received the required Engineering Report; and

                    (B) in the case of an Interim Redetermination, promptly, and in any event,
within fifteen (15) days after the Administrative Agent has received the required
Engineering Reports.

               (iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in
effect must be approved or deemed to have been approved by all of the Lenders as provided
in this Section 2.07(c)(iii); and any Proposed Borrowing Base that would decrease or
maintain the Borrowing Base then in effect must be approved or be deemed to have been
approved by the Required Lenders as provided in this Section 2.07(c)(iii). Upon receipt of
the Proposed Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with
the Proposed Borrowing Base or disagree with the Proposed Borrowing Base by proposing an
alternate Borrowing Base. If at the end of such fifteen (15) days, any Lender has not
communicated its approval or disapproval in writing to the Administrative Agent, such
silence shall be deemed to be an approval of the Proposed Borrowing Base. If, at the end
of such 15-day period, all of the Lenders, in the case of a Proposed Borrowing Base that
would increase the Borrowing Base then in effect, or the Required Lenders, in the case of a
Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect,
have approved or deemed to have approved, as aforesaid, then the Proposed Borrowing Base
shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).
If, however, at the end of such 15-day period, all of the Lenders or the Required Lenders,
as applicable, have not approved or deemed to have approved, as aforesaid, then the
Administrative Agent shall poll the Lenders to ascertain the highest Borrowing Base then
acceptable to a number of Lenders sufficient to constitute the Required Lenders and, so
long as such amount does not increase the Borrowing Base then in effect, such amount shall
become the new Borrowing Base, effective on the date specified in Section 2.07(d).

          (d) Effectiveness of a Redetermined Borrowing Base. After a redetermined Borrowing
Base is approved or is deemed to have been approved by all of the Lenders or the Required Lenders,
as applicable, pursuant to Section 2.07(c)(iii), the Administrative Agent shall notify the
Borrower and the Lenders of the amount of the redetermined Borrowing Base (the “New Borrowing
Base Notice”), and such amount shall become the new Borrowing Base, effective and applicable
to the Borrower, the Administrative Agent, each Issuing Bank and the Lenders:

               (i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent shall have
received the Engineering Reports required to be delivered by the Borrower pursuant to Section
8.12(a) and (c) in a timely and complete manner, then on the

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April 1st or October 1st, as
applicable, following delivery of the New Borrowing Base Notice, or (B) if the Administrative Agent
shall not have received the Engineering Reports required to be delivered by the Borrower pursuant
to Section 8.12(a) and (c) in a timely and complete manner, then on the Business Day next
succeeding delivery of the New Borrowing Base Notice; and

               (ii) in the case of an Interim Redetermination, on the Business Day next succeeding delivery
of such notice.

     Such amount shall then become the Borrowing Base until the next Scheduled Redetermination
Date, the next Interim Redetermination date or the next adjustment to the Borrowing Base under
Section 8.13(c) or Section 9.12(d), whichever occurs first.

          (e) Reduction of Borrowing Base Upon Issuance of Subordinated Debt. Notwithstanding
anything to the contrary contained herein, if the Borrower issues any Subordinated Debt during the
period between Scheduled Redetermination dates or not in conjunction with an Interim
Redetermination, then on the date on which such Subordinated Debt is issued, the Borrowing Base
then in effect shall be reduced by an amount equal to the product of 0.30 multiplied by the stated
principal amount of such Subordinated Debt. The Borrowing Base as so reduced shall become the new
Borrowing Base immediately upon the date of such issuance, effective and applicable to the
Borrower, the Agents, the Issuing Bank and the Lenders on such date until the next redetermination
or modification thereof hereunder. For purposes of this Section 2.07(e), if any such Debt is
issued at a discount or otherwise sold for less than “par”, the reduction shall be calculated
based upon the stated principal amount without reference to such discount.

     Section 2.08 Letters of Credit.

          (a) General. Subject to the terms and conditions set forth herein, the Borrower may
request any Issuing Bank to issue Letters of Credit for its own account or for the account of the
Borrower or any of its Subsidiaries, in a form reasonably acceptable to the Administrative Agent
and such Issuing Bank, at any time and from time to time during the Availability Period; provided
that the Borrower may not request the issuance, amendment, renewal or extension of Letters of
Credit hereunder if a Borrowing Base Deficiency exists at such time or would exist as a result
thereof. In the event of any inconsistency between the terms and conditions of this Agreement and
the terms and conditions of any form of letter of credit application or other agreement submitted
by the Borrower to, or entered into by the Borrower with, an Issuing Bank relating to any Letter
of Credit, the terms and conditions of this Agreement shall control.

          (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To
request the issuance of a Letter of Credit (or the amendment, renewal or extension of an
outstanding Letter of Credit), the Borrower shall deliver as permitted by Section 12.01(a) (or
transmit by electronic communication, if arrangements for doing so have been approved by the
Issuing Bank) to any Issuing Bank and the Administrative Agent (not less than three (3) Business
Days in advance of the requested date of issuance, amendment, renewal or extension) a notice:

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               (i) requesting the issuance of a Letter of Credit or identifying the Letter of Credit issued
by such Issuing Bank to be amended, renewed or extended;

               (ii) specifying the date of issuance, amendment, renewal or extension (which shall be a
Business Day);

               (iii) specifying the date on which such Letter of Credit is to expire (which shall comply with
Section 2.08(c));

               (iv) specifying the amount of such Letter of Credit;

               (v) specifying the name and address of the beneficiary thereof and such other information as
shall be necessary to prepare, amend, renew or extend such Letter of Credit; and

               (vi) specifying the amount of the then effective Borrowing Base and whether a Borrowing Base
Deficiency exists at such time, the current total Revolving Credit Exposures (without regard to the
requested Letter of Credit or the requested amendment, renewal or extension of an outstanding
Letter of Credit) and the pro forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of an outstanding
Letter of Credit).

Each notice shall constitute a representation that after giving effect to the requested issuance,
amendment, renewal or extension, as applicable, (i) the LC Exposure shall not exceed the LC
Commitment and (ii) the total Revolving Credit Exposures shall not exceed the lesser of the
Aggregate Maximum Credit Amounts and the then effective Borrowing Base.

If requested by any Issuing Bank, the Borrower also shall submit a letter of credit application on
such Issuing Bank’s standard form in connection with any request for a Letter of Credit.

          (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of
business on the earlier of (i) the date one year after the date of the issuance of such Letter of
Credit (or, in the case of any renewal or extension thereof, one year after such renewal or
extension) and (ii) the date that is five Business Days prior to the Maturity Date.

          (d) Participations. By the issuance of a Letter of Credit (or an amendment to a
Letter of Credit increasing the amount thereof) and without any further action on the part of the
Issuing Bank that issues such Letter of Credit or the Lenders, each Issuing Bank that issues a
Letter of Credit hereunder hereby grants to each Lender, and each Lender hereby acquires from such
Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable
Percentage of the aggregate amount available to be drawn under such Letter of Credit. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of any Issuing Bank
that issues a Letter of Credit hereunder, such Lender’s Applicable Percentage of each LC
Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as
provided in Section 2.08(e), or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire

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participations pursuant to this Section 2.08(d) in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance of a Default, the
existence of a Borrowing Base Deficiency or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.

          (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of
a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than 1:00 p.m., Houston
time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of
such LC Disbursement prior to 11:00 a.m., Houston time, on such date, or, if such notice has not
been received by the Borrower prior to such time on such date, then not later than 1:00 p.m.,
Houston time, on (1) the Business Day that the Borrower receives such notice, if such notice is
received prior to 11:00 a.m., Houston time, on the day of receipt, or (2) the Business Day
immediately following the day that the Borrower receives such notice, if such notice is not
received prior to such time on the day of receipt; provided that if such LC Disbursement is not
less than $1,000,000, the Borrower shall, subject to the conditions to Borrowing set forth herein,
be deemed to have requested, and the Borrower does hereby request under such circumstances, that
such payment be financed with an ABR Borrowing in an equivalent amount and, to the extent so
financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the
resulting ABR Borrowing. If the Borrower fails to make such payment when due, the Administrative
Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the
Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following
receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable
Percentage of the payment then due from the Borrower, in the same manner as provided in Section
2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to
the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the
Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this Section 2.08(e), the
Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that
Lenders have made payments pursuant to this Section 2.08(e) to reimburse the Issuing Bank, then to
such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve
the Borrower of its obligation to reimburse such LC Disbursement. Any LC Disbursement not
reimbursed by the Borrower or funded as a Loan prior to 1:00 p.m., Houston time, shall bear
interest for such day at the ABR plus the Applicable Margin.

          (f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as
provided in Section 2.08(e) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit,
any Letter of Credit Agreement or this Agreement, or any term or provision

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therein, (ii) any draft
or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid
in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment
by any Issuing Bank under a Letter of Credit issued by such Issuing Bank against presentation of a
draft or other document that does not comply with the terms of such Letter of Credit or any Letter
of Credit Agreement, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the
provisions of this Section 2.08(f), constitute a legal or equitable discharge of, or provide a
right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent,
the Lenders nor any Issuing Bank, nor any of their Related Parties shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit
or any payment or failure to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or relating to any
Letter of Credit (including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond the control of any
Issuing Bank; provided that the foregoing shall not be construed to excuse any Issuing Bank from
liability to the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by such Issuing Bank’s failure to
exercise care when determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of
gross negligence or willful misconduct on the part of any Issuing Bank (as finally determined by a
court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised all
requisite care in each such determination. In furtherance of the foregoing and without limiting
the generality thereof, the parties agree that, with respect to documents presented which appear
on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing
Bank that issued such Letter of Credit may, in its sole discretion, either accept and make payment
upon such documents without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such documents if such
documents are not in strict compliance with the terms of such Letter of Credit.

          (g) Disbursement Procedures. Each Issuing Bank shall, promptly following its receipt
thereof, examine all documents purporting to represent a demand for payment under a Letter of
Credit issued by such Issuing Bank. Such Issuing Bank shall promptly notify the Administrative
Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether
such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure
to give or delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.

          (h) Interim Interest. If any Issuing Bank shall make any LC Disbursement, then,
until the Borrower shall have reimbursed such Issuing Bank for such LC Disbursement (either with
its own funds or a Borrowing under Section 2.08(e)), the unpaid amount thereof shall bear
interest, for each day from and including the date such LC Disbursement is made to but excluding
the date that the Borrower reimburses such LC Disbursement, at the rate per

34

 

annum then applicable
to ABR Loans. Interest accrued pursuant to this Section 2.08(h) shall be for the account of such
Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant
to Section 2.08(e) to reimburse such Issuing Bank shall be for the account of such Lender to the
extent of such payment.

          (i) Replacement of an Issuing Bank. Any Issuing Bank may be replaced or resign at
any time by written agreement among the Borrower, the Administrative Agent, such resigning or
replaced Issuing Bank and, in the case of a replacement, the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such resignation or replacement of an Issuing
Bank. At the time any such resignation or replacement shall become effective, the Borrower shall
pay all unpaid fees accrued for the account of the resigning or replaced Issuing Bank pursuant to
Section 3.05(b). In the case of the replacement of an Issuing Bank, from and after the effective
date of such replacement, (i) the successor Issuing Bank shall have all the rights and obligations
of the replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to “Issuing Bank” shall be deemed to refer to such successor
or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the resignation or replacement of an Issuing Bank hereunder, the
resigning or replaced Issuing Bank shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit
issued by it prior to such resignation or replacement, but shall not be required to issue
additional Letters of Credit.

          (j) Cash Collateralization. If (i) any Event of Default shall occur and be
continuing and the Borrower receives notice from the Administrative Agent or the Required Lenders
demanding the deposit of cash collateral pursuant to this Section 2.08(j), or (ii) the Borrower is
required to pay to the Administrative Agent the excess attributable to an LC Exposure in
connection with any prepayment pursuant to Section 3.04(c), then the Borrower shall deposit, in an
account with the Administrative Agent, in the name of the Administrative Agent and for the benefit
of the Lenders, an amount in cash equal to, in the case of an Event of Default, the LC Exposure,
and in the case of a payment required by Section 3.04(c), the amount of such excess as provided in
Section 3.04(c), as of such date plus any accrued and unpaid interest thereon; provided that the
obligation to deposit such cash collateral shall become effective immediately, and such deposit
shall become immediately due and payable, without demand or other notice of any kind, upon the
occurrence of any Event of Default with respect to the Borrower or any of its Subsidiaries
described in Section 10.01(h) or Section 10.01(i). The Borrower hereby grants to the
Administrative Agent, for the benefit of each Issuing Bank and the Lenders, an exclusive first
priority and continuing perfected security interest in and Lien on such account and all cash,
checks, drafts, certificates and instruments, if any, from time to time deposited or held in such
account, all deposits or wire transfers made thereto, any and all investments purchased with funds
deposited in such account, all interest, dividends, cash, instruments, financial assets and other
Property from time to time received, receivable or otherwise payable in respect of, or in exchange
for, any or all of the foregoing, and all proceeds, products, accessions, rents, profits, income
and benefits therefrom, and any substitutions and replacements therefor. The Borrower’s
obligation to deposit amounts pursuant to this Section 2.08(j) shall be absolute and
unconditional, without regard to whether any beneficiary of any such Letter of Credit has
attempted to draw down all or a portion of such

35

 

amount under the terms of a Letter of Credit, and,
to the fullest extent permitted by applicable law, shall not be subject to any defense or be
affected by a right of set-off, counterclaim or recoupment which the Borrower or any of its
Subsidiaries may now or hereafter have against any such beneficiary, any Issuing Bank, the
Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such deposit
shall be held as collateral securing the payment and performance of the Borrower’s and any
Guarantor’s obligations under this Agreement and the other Loan Documents. The Administrative Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such account; provided
that investments of funds in such account in investments permitted by Section 9.05(c) or (e) may
be made at the option of the Borrower at its direction, risk and expense. Interest or profits, if
any, on such investments shall accumulate in such account. Moneys in such account shall be
applied by the Administrative Agent to reimburse, on a pro rata basis, each Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be
held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at
such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other
obligations of the Borrower and the Guarantors, if any, under this Agreement or the other Loan
Documents. If the Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, and the Borrower is not otherwise required to pay
to the Administrative Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(c), then such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within three Business Days after all Events of Default have been
cured or waived.

ARTICLE III

Payments of Principal and Interest; Prepayments; Fees

     Section 3.01 Repayment of Loans. The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan
on the Termination Date.

     Section 3.02 Interest.

          (a) ABR Loans. Each ABR Loan comprising an ABR Borrowing shall bear interest at the
Alternate Base Rate plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.

          (b) Eurodollar Loans. Each Eurodollar Loan comprising a Eurodollar Borrowing shall
bear interest at the LIBO Rate for the Interest Period in effect for such Eurodollar Loan plus the
Applicable Margin, but in no event to exceed the Highest Lawful Rate.

          (c) Post-Default and Borrowing Base Deficiency Rate. Notwithstanding the foregoing,
(i) if an Event of Default has occurred and is continuing, or if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower or any Guarantor hereunder or under
any other Loan Document is not paid when due, whether at stated maturity, upon acceleration or
otherwise, and including any payments in respect of a Borrowing Base Deficiency under Section
3.04(c), then all Loans outstanding, in the case of an Event of

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Default, and such overdue amount,
in the case of a failure to pay amounts when due, shall bear interest, after as well as before
judgment, at a rate per annum equal to two percent (2%) plus the rate applicable to ABR Loans as
provided in Section 3.02(a), but in no event to exceed the Highest Lawful Rate, and (ii) during
any Borrowing Base Deficiency, all Loans outstanding at such time shall bear interest, after as well as before judgment, at the rate then applicable
to such Loans, plus the Applicable Margin, if any, plus an additional two percent (2%), but in no
event to exceed the Highest Lawful Rate.

          (d) Interest Payment Dates. Accrued interest on each Loan shall be payable in
arrears on: (i) with respect to any ABR Loan, the last day of each March, June, September and
December; (ii) with respect to any Eurodollar Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and (iii) in any case, on the Termination Date;
provided that (x) interest accrued pursuant to Section 3.02(c)(i) shall be payable on demand, (y)
in the event of any repayment or prepayment of any Loan (other than an optional prepayment of an
ABR Loan prior to the Termination Date), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment, and (z) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such conversion.

          (e) Interest Rate Computations. All interest hereunder shall be computed on the
basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in
which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), except that interest computed by reference to the Alternate Base Rate shall be computed on
the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable
for the actual number of days elapsed (including the first day but excluding the last day). The
applicable Alternate Base Rate or LIBO Rate shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error, and be binding upon the parties
hereto.

     Section 3.03 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a
Eurodollar Borrowing:

          (a) the Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate or
the LIBO Rate for such Interest Period; or

          (b) the Administrative Agent is advised by the Required Lenders that the LIBO Rate or LIBO
Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to
such Lenders of making or maintaining their Loans included in such Borrowing for such Interest
Period;

then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by
telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent
notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer
exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any

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Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR
Borrowing.

     Section 3.04 Prepayments.

          (a) Optional Prepayments. The Borrower shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance
with Section 3.04(b).

          (b) Notice and Terms of Optional Prepayment. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, Houston time, three
Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR
Borrowing, not later than 12:00 noon, Houston time, one Business Day before the date of
prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt
of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of
the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would
be permitted in the case of an advance of a Borrowing of the same Type as provided in Section
2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by
Section 3.02.

          (c) Mandatory Prepayments.

               (i) If, after giving effect to any termination or reduction of the Aggregate Maximum Credit
Amounts pursuant to Section 2.06(b), the total Revolving Credit Exposures exceeds the total
Commitments, then the Borrower shall (A) prepay the Borrowings on the date of such termination or
reduction in an aggregate principal amount equal to such excess, and (B) if any excess remains
after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative
Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as
provided in Section 2.08(j).

               (ii) Upon any redetermination of or adjustment to the amount of the Borrowing Base in
accordance with Section 2.07 or Section 8.13(c), if the total Revolving Credit Exposures exceeds
the redetermined or adjusted Borrowing Base, then the Borrower shall (A) prepay the Borrowings in
an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying
all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of
the Lenders an amount equal to such excess to be held as cash collateral as provided in Section
2.08(j). The Borrower shall be obligated to (a) make at least half of such prepayment and/or
deposit of cash collateral within forty-five days (45) following the later of its receipt of the
New Borrowing Base Notice in accordance with Section 2.07(d) or the date the adjustment occurs and
(b) to make the remaining portion of such prepayment and/or deposit of cash collateral within
ninety (90) days following the later of its receipt of the New Borrowing Base Notice in accordance
with Section 2.07(d) or the date the adjustment occurs; provided that all payments required to be
made pursuant to this Section 3.04(c)(ii) must be made on or prior to the Termination Date.

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               (iii) Upon any adjustments to the Borrowing Base pursuant to Section 9.12(d), if the total
Revolving Credit Exposures exceeds the Borrowing Base as adjusted, then
the Borrower shall (A) prepay the Borrowings in an aggregate principal amount equal to such
excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC
Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess
to be held as cash collateral as provided in Section 2.08(j). The Borrower shall be obligated to
make such prepayment and/or deposit of cash collateral on the date it or any Subsidiary receives
cash proceeds as a result of such disposition; provided that all payments required to be made
pursuant to this Section 3.04(c)(iii) must be made on or prior to the Termination Date.

               (iv) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied, first,
ratably to any ABR Borrowings then outstanding, and, second, to any Eurodollar Borrowings then
outstanding, and if more than one Eurodollar Borrowing is then outstanding, to each such Eurodollar
Borrowing in order of priority beginning with the Eurodollar Borrowing with the least number of
days remaining in the Interest Period applicable thereto and ending with the Eurodollar Borrowing
with the most number of days remaining in the Interest Period applicable thereto.

               (v) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied ratably to
the Loans included in the prepaid Borrowings. Prepayments pursuant to this Section 3.04(c) shall
be accompanied by accrued interest to the extent required by Section 3.02.

          (d) No Premium or Penalty. Prepayments permitted or required under this Section 3.04
shall be without premium or penalty, except as required under Section 5.02.

     Section 3.05 Fees.

          (a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a commitment fee, which shall accrue at the applicable Commitment Fee Rate
on the average daily amount of the unused amount of the Commitment of such Lender during the
period from and including the date of this Agreement to but excluding the Termination Date.
Accrued commitment fees shall be payable in arrears on the last day of March, June, September and
December of each year and on the Termination Date, commencing on the first such date to occur
after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days,
unless such computation would exceed the Highest Lawful Rate, in which case interest shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for
the actual number of days elapsed (including the first day but excluding the last day).

          (b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its participations in
Letters of Credit, which shall accrue at the same Applicable Margin used to determine the interest
rate applicable to Eurodollar Loans on the average daily amount of such Lender’s LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period
from and including the date of this Agreement to but

39

 

excluding the later of the date on which such Lender’s Commitment terminates and the date on
which such Lender ceases to have any LC Exposure, (ii) to the Issuing Bank a fronting fee, which
shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period
from and including the date of this Agreement to but excluding the later of the date of
termination of the Commitments and the date on which there ceases to be any LC Exposure, provided
that in no event shall such fee be less than $500 during any quarter and (iii) to each Issuing
Bank, for its own account, its standard fees with respect to the amendment, renewal or extension
of any Letter of Credit issued by such Issuing Bank or processing of drawings thereunder.
Participation fees accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the date of this Agreement and fronting fees with
respect to any Letter of Credit shall be payable at the time of issuance of such Letter of Credit;
provided that all such fees shall be payable on the Termination Date and any such fees accruing
after the Termination Date shall be payable on demand. Any other fees payable to an Issuing Bank
pursuant to this Section 3.05(b) shall be payable within 10 days after demand. All participation
fees and fronting fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case such fees shall be computed on the
basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).

          (c) Administrative Agent Fees. The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.

          (d) Borrowing Base Increase Fees. The Borrower agrees to pay to the Administrative
Agent, for the account of each Lender then party to this Agreement, ratably in accordance with its
Applicable Percentage, a Borrowing Base increase fee equal to 0.25% on the amount of any increase
of the Borrowing Base over the highest Borrowing Base previously in effect, payable on the day a
New Borrowing Base Notice is given.

ARTICLE IV

Payments; Pro Rata Treatment; Sharing of Set-offs.

     Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

          (a) Payments by the Borrower. The Borrower shall make each payment required to be
made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements,
or of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 1:00
p.m., Houston time, on the date when due, in immediately available funds, without defense,
deduction, recoupment, set-off or counterclaim. Fees, once paid, shall be fully earned and shall
not be refundable under any circumstances. Any amounts received after such time on any date may,
in the discretion of the Administrative Agent, be deemed to have been received on the next
succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices
specified in Section 12.01, except payments to be made directly to an Issuing Bank as expressly
provided

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herein and except that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and
Section 12.03 shall be made directly to the Persons entitled thereto. The Administrative Agent
shall distribute any such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due
on a day that is not a Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable
for the period of such extension. All payments hereunder shall be made in dollars.

          (b) Application of Insufficient Payments. If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.

          (c) Sharing of Payments by Lenders. If any Lender shall, by exercising any right of
set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on
any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment
of a greater proportion of the aggregate amount of its Loans and participations in LC
Disbursements and accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans and participations in LC Disbursements of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on their respective
Loans and participations in LC Disbursements; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent of such recovery,
without interest, and (ii) the provisions of this Section 4.01(c) shall not be construed to apply
to any payment made by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in LC Disbursements to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the
provisions of this Section 4.01(c) shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the Borrower rights of
set-off and counterclaim with respect to such participation as fully as if such Lender were a
direct creditor of the Borrower in the amount of such participation.

     Section 4.02 Presumption of Payment by the Borrower. Unless the Administrative Agent shall have received notice from the Borrower prior to the date
on which any payment is due to the Administrative Agent for the account of the Lenders or any
Issuing Bank that the Borrower will not make such payment, the Administrative Agent may assume that
the Borrower

41

 

has made such payment on such date in accordance herewith and may, in reliance upon
such assumption, distribute to the Lenders or such Issuing Bank, as the case may be, the amount
due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or
such Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent
forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to it to but excluding
the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking industry rules on
interbank compensation.

     Section 4.03 Certain Deductions by the Administrative Agent. If any Lender shall fail to make any
payment required to be made by it pursuant to Section 2.05(b), Section 2.08(d), Section 2.08(e) or
Section 4.02 then the Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative Agent for the
account of such Lender to satisfy such Lender’s obligations under such Sections until all such
unsatisfied obligations are fully paid.

ARTICLE V

Increased Costs; Break Funding Payments; Taxes; Illegality

     Section 5.01 Increased Costs.

          (a) Eurodollar Changes in Law. If any Change in Law shall:

               (i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit extended by,
any Lender (except any such reserve requirement reflected in the LIBO Rate); or

               (ii) impose on any Lender or the London interbank market any other condition affecting this
Agreement or Eurodollar Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
reduce the amount of any sum received or receivable by such Lender (whether of principal, interest
or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.

          (b) Capital Requirements. If any Lender or any Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of reducing the rate of
return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such
Issuing Bank’s holding company, if any, as a consequence of this Agreement or the
Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank
or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in
Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of
such Lender’s or such Issuing Bank’s holding company with respect to

42

 

capital adequacy), then from
time to time the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s
or such Issuing Bank’s holding company for any such reduction suffered.

          (c) Certificates. A certificate of a Lender or any Issuing Bank setting forth in
reasonable detail the basis of its request and the amount or amounts necessary to compensate such
Lender or such Issuing Bank or its holding company, as the case may be, as specified in Section
5.01(a) or (b) shall be delivered to the Borrower and shall be conclusive absent manifest error.
The Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as
due on any such certificate within 10 days after receipt thereof.

          (d) Effect of Failure or Delay in Requesting Compensation. Failure or delay on the
part of any Lender or any Issuing Bank to demand compensation pursuant to this Section 5.01 shall
not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation,
provided that no Lender may make any such demand more than 180 days after the Termination Date,
nor for any amount which has accrued more than 365 days prior to such Lender or Issuing Bank
delivering the certificate required in Section 5.01(c).

     Section 5.02 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar
Loan other than on the last day of an Interest Period applicable thereto (including as a result of
an Event of Default), (b) the conversion of any Eurodollar Loan into an ABR Loan other than on the
last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue
or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto, then,
in any such event, the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of
(i) the amount of interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the LIBO Rate that would have been applicable to such Loan, for the period
from the date of such event to the last day of the then current Interest Period therefor (or, in
the case of a failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would bid were it to bid,
at the commencement of such period, for dollar deposits of a comparable amount and period from
other banks in the eurodollar market.

A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section 5.02 shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.

     Section 5.03 Taxes.

          (a) Payments Free of Taxes. Any and all payments by or on account of any obligation
of the Borrower or any Guarantor under any Loan Document shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower or any
Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes

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from such payments,
then (i) the sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under this Section
5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii) the Borrower or
such Guarantor shall make such deductions and (iii) the Borrower or such Guarantor shall pay the
full amount deducted to the relevant Governmental Authority in accordance with applicable law.

          (b) Payment of Other Taxes by the Borrower. The Borrower shall pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.

          (c) Indemnification by the Borrower. The Borrower shall indemnify the Administrative
Agent, each Lender and each Issuing Bank, within 10 days after written demand therefor, for the
full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender
or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of
any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section 5.03) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate of the Administrative Agent, a Lender or an Issuing Bank as
to the basis of such Indemnified Taxes and Other Taxes and the amount of such payment or liability
under this Section 5.03 shall be delivered to the Borrower and shall be conclusive absent manifest
error.

          (d) Evidence of Payments. As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower or a Guarantor to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative Agent.

          (e) Foreign Lenders. Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the Borrower is located,
or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement
or any other Loan Document shall deliver to the Borrower (with a copy to the Administrative
Agent), at the time or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the Borrower as will permit
such payments to be made without withholding or at a reduced rate.

     Section 5.04 Designation of Different Lending Office. If any Lender requests compensation under Section
5.01, or if the Borrower is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 5.03, then such Lender shall use
reasonable efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment (a) would eliminate
or reduce amounts payable pursuant to Section 5.01 or Section

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5.03, as the case may be, in the
future and (b) would not subject such Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender in connection with any such designation or assignment.

     Section 5.05 Illegality. Notwithstanding any other provision of this Agreement, in the event that it
becomes unlawful for any Lender or its applicable lending office to honor its obligation to make or
maintain Eurodollar Loans either generally or having a particular Interest Period hereunder, then
(a) such Lender shall promptly notify the Borrower and the Administrative Agent thereof and such
Lender’s obligation to make such Eurodollar Loans shall be suspended (the “Affected Loans”)
until such time as such Lender may again make and maintain such Eurodollar Loans and (b) all
Affected Loans which would otherwise be made by such Lender shall be made instead as ABR Loans
(and, if such Lender so requests by notice to the Borrower and the Administrative Agent, all
Affected Loans of such Lender then outstanding shall be automatically converted into ABR Loans on
the date specified by such Lender in such notice) and, to the extent that Affected Loans are so
made as (or converted into) ABR Loans, all payments of principal which would otherwise be applied
to such Lender’s Affected Loans shall be applied instead to its ABR Loans.

ARTICLE VI

Conditions Precedent

     Section 6.01 Effective Date. The obligations of the Lenders to make Loans and of any Issuing Bank to
issue Letters of Credit hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 12.02):

          (a) The Arranger, the Administrative Agent and the Lenders shall have received all fees and
other amounts due and payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid
by the Borrower hereunder.

          (b) The Administrative Agent shall have received a certificate of EV Management setting forth
(i) resolutions of the board of directors or other managing body with respect to the authorization
of the Parent, the Borrower and each Guarantor to execute and deliver the Loan Documents to which
each is a party and to enter into the transactions contemplated in those documents, (ii) the
individuals (y) who are authorized to sign the Loan Documents to which the Parent, the Borrower or
such Guarantor is a party and (z) who will, until replaced by another individual duly authorized for that purpose, act as each such
entity’s representative for the purposes of signing documents and giving notices and other
communications in connection with this Agreement and the other Loan Documents to which it is a
party, (iii) specimen signatures of such authorized individuals, and (iv) the articles or
certificate of incorporation or formation, as applicable, and bylaws, operating agreement or
partnership agreement, as applicable, of the Parent, the Borrower and each Guarantor, in each
case, certified as being true and complete. The Administrative Agent and the Lenders may
conclusively rely on such certificate until the Administrative Agent receives notice in writing
from the Borrower to the contrary.

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          (c) The Administrative Agent shall have received certificates of the appropriate State
agencies with respect to the existence, qualification and good standing of the Parent, the
Borrower and each Guarantor, if any.

          (d) The Administrative Agent shall have received a compliance certificate which shall be
substantially in the form of Exhibit B, duly and properly executed by a Responsible Officer and
dated as of the Effective Date.

          (e) The Administrative Agent shall have received from each party hereto counterparts (in such
number as may be requested by the Administrative Agent) of this Agreement signed on behalf of such
party.

          (f) The Administrative Agent shall have received duly executed Notes payable to the order of
each Lender in a principal amount equal to its Maximum Credit Amount dated as of the date hereof.

          (g) The Administrative Agent shall have received from each party thereto duly executed
counterparts (in such number as may be requested by the Administrative Agent) of the Security
Instruments, including the Guarantee Agreement and the other Security Instruments described on
Exhibit C-1. In connection with the execution and delivery of the Security Instruments, the
Administrative Agent shall:

               (i) be reasonably satisfied that the Security Instruments create first
priority, perfected Liens (subject only to Excepted Liens identified in clauses (a)
to (d) and (f) of the definition thereof, but subject to the provisos at the end of
such definition) on at least 80% of the total value of the Oil and Gas Properties
evaluated in the Initial Reserve Report; and

               (ii) have received certificates, together with undated, blank stock powers for
each such certificate, representing all of the issued and outstanding Equity
Interests of each of the Guarantors.

          (h) The Administrative Agent shall have received an opinion of Haynes & Boone, LLP, special
counsel to the Borrower, (i) C. Randall Loewen, special Louisiana counsel, (ii) Vorys, Sater,
Seymour and Pease, LLP, special Ohio counsel, (iii) Waters, Warner & Harris, PLLC, special West
Virginia counsel and (iv) any other special counsel requested by the Administrative Agent, each in
form and substance satisfactory to the Administrative Agent, as to such matters incident to the Transactions as the Administrative Agent may reasonably
request.

          (i) The Administrative Agent shall have received a certificate of insurance coverage of the
Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.12.

          (j) The Administrative Agent shall have received such title information as the Administrative
Agent may reasonably require, all of which shall be reasonably satisfactory to the Administrative
Agent in form and substance, on at least 70% of the total value of the Oil and Gas Properties
evaluated by the Initial Reserve Report.

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the Administrative Agent in form and substance, on at least 70% of the total value of the Oil
and Gas Properties evaluated by the Initial Reserve Report.

          (k) The Administrative Agent shall have received a certificate of a Responsible Officer
certifying that the Borrower has received all consents and approvals required by Section 7.03.

          (l) The Administrative Agent shall have received the financial statements referred to in
Section 7.04(a) and the Initial Reserve Report.

          (m) The Administrative Agent shall be reasonably satisfied with the environmental condition
of the Oil and Gas Properties of the Borrower and its Subsidiaries.

          (n) The Administrative Agent shall have received appropriate UCC search certificates
reflecting no prior Liens encumbering the Properties of the Parent, the Borrower and any of their
Subsidiaries for each of the following jurisdictions: Delaware, Louisiana, West Virginia and Ohio
and any other jurisdiction requested by the Administrative Agent, other than those being
assigned or released on or prior to the Effective Date or Liens permitted by Section 9.03.

          (o) The Administrative Agent shall have received:

     (i) evidence of either (1) payment in full of all amounts due under the
Existing Credit Agreement, the termination of all commitments to lend thereunder and
the release of all Liens securing such obligations and any other obligations secured
thereby, or (2) the modification and amendment of the Existing Credit Agreement such
that none of the Parent, the Borrower or any of their Subsidiaries will have any
liability, obligation or indebtedness thereunder and all Liens on any of their
respective properties, assets or capital stock, if any, securing any obligations or
indebtedness arising under the Existing Credit Agreement have been released,

     (ii) a list of all Swap Agreements to which the Borrower or any Subsidiary is a
party as of the date of this Agreement, which list shall be listed on Schedule 7.20
hereto, and

     (iii) evidence of the assignment, novation or other transfer, if needed, to one
or more Lenders or Approved Counterparties of each such Swap Agreements referred to
in clause (ii) above, together with a copy of each such Swap Agreement, certified by
the Borrower as being a true and complete copy.

          (p) The Administrative Agent shall have received evidence that the Parent has closed its
Initial Public Offering.

          (q) The Administrative Agent shall have received such other documents as the Administrative
Agent or special counsel to the Administrative Agent may reasonably request.

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     The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and
such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the
Lenders to make Loans and of each Issuing Bank to issue Letters of Credit hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived pursuant to
Section 12.02) at or prior to 1:00 p.m., Houston time, on September 29, 2006 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

     Section 6.02 Each Credit Event. The obligation of each Lender to make a Loan on the
occasion of any Borrowing (including the initial funding), and of each Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following
conditions:

          (a) At the time of and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have
occurred and be continuing.

          (b) At the time of and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no Material Adverse
Effect shall have occurred.

          (c) The representations and warranties of the Borrower and the Guarantors set forth in this
Agreement and in the other Loan Documents shall be true and correct on and as of the date of such
Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, except to the extent any such representations and warranties are expressly limited to
an earlier date, in which case, on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, such representations and
warranties shall continue to be true and correct as of such specified earlier date.

          (d) The making of such Loan or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, would not conflict with, or cause any Lender or any Issuing Bank to
violate or exceed, any applicable Governmental Requirement, and no Change in Law shall have
occurred, and no litigation shall be pending or threatened, which does or, with respect to any
threatened litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any
Loan, the issuance, amendment, renewal, extension or repayment of any Letter of Credit or any
participations therein or the consummation of the transactions contemplated by this Agreement or
any other Loan Document.

          (e) The receipt by the Administrative Agent of a Borrowing Request in accordance with Section
2.03 or a request for a Letter of Credit in accordance with Section 2.08(b), as applicable.

Each request for a Borrowing and each issuance, amendment, renewal or extension of any Letter of
Credit shall be deemed to constitute a representation and warranty by the Borrower on the date
thereof as to the matters specified in Section 6.02(a) through (e).

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ARTICLE VII

Representations and Warranties

     Each of the Parent and the Borrower represents and warrants to the Lenders that:

     Section 7.01 Organization; Powers. Each of the Parent, Borrower and its Subsidiaries is
duly organized, validly existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority, and has all material governmental licenses,
authorizations, consents and approvals necessary, to own its assets and to carry on its business as
now conducted, and is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power, authority, licenses,
authorizations, consents, approvals and qualifications could not reasonably be expected to have a
Material Adverse Effect.

     Section 7.02 Authority; Enforceability. The Transactions are within the Parent’s,
Borrower’s and each Guarantor’s partnership powers and have been duly authorized by all necessary
partnership and, if required, member action (including, without limitation, any action required to
be taken by any class of directors of the Borrower or any other Person, whether interested or
disinterested, in order to ensure the due authorization of the Transactions). Each Loan Document
to which the Parent, the Borrower and any Guarantor is a party has been duly executed and delivered
by the Parent, the Borrower and such Guarantor and constitutes a legal, valid and binding
obligation of the Parent, the Borrower and such Guarantor, as applicable, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors’ rights generally and subject to general principles of equity, regardless
of whether considered in a proceeding in equity or at law.

     Section 7.03 Approvals; No Conflicts. The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any Governmental
Authority or any other third Person (including the members or any class of directors of the Parent,
the Borrower or any other Person, whether interested or disinterested), nor is any such consent,
approval, registration, filing or other action necessary for the validity or enforceability of any
Loan Document or the consummation of the transactions contemplated thereby, except such as have
been obtained or made and are in full force and effect, and except for the filing and recording of
Security Instruments to perfect the Liens created hereby, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational documents of the
Parent, the Borrower or any of its Subsidiaries or any order of any Governmental Authority,
(c) will not violate or result in a default under any indenture, agreement or other
instrument binding upon the Parent, the Borrower or any of their Subsidiaries or their Properties,
or give rise to a right thereunder to require any payment to be made by the Parent, the Borrower or
such Subsidiary and (d) will not result in the creation or imposition of any Lien on
any Property of the Parent, the Borrower or any of its Subsidiaries (other than the Liens created
by the Loan Documents).

     Section 7.04 Financial Position; No Material Adverse Change.

          (a) The Parent has heretofore furnished to the Lenders its (1) consolidated balance sheet and
statements of income, stockholders equity and cash flows as of and for the

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fiscal year ended December 31, 2005, unaudited and pro forma after giving effect to the
contemplated restructuring transactions contemplated by the S-1, (2) and the Parent’s balance
sheet as of May 12, 2006, audited by Deloitte & Touche, LLP and (3) consolidated balance sheet and
statements of income, stockholders equity and cash flows of the Parent as of and for the fiscal
quarter ended June 30, 2006, unaudited and pro forma after giving effect to the contemplated
restructuring transactions contemplated by the S-1. Such financial statements present fairly, in
all material respects, the financial position and results of operations and cash flows of the
Borrower and its Consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the
unaudited quarterly financial statements.

          (b) Since June 30, 2006, there has been no event, development or circumstance that has had or
could reasonably be expected to have a Material Adverse Effect.

          (c) Neither the Parent, the Borrower nor any of their Subsidiaries has on the date hereof any
material Debt (including Disqualified Capital Stock), or any contingent liabilities, off-balance
sheet liabilities or partnerships, liabilities for taxes, unusual forward or long-term commitments
or unrealized or anticipated losses from any materially unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements.

     Section 7.05 Litigation. Except as set forth on Schedule 7.05, there are no actions,
suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of the Parent or the Borrower, threatened against or affecting the
Parent, the Borrower or any of their Subsidiaries (a) as to which there is a reasonable
possibility of an adverse determination that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse Effect or
(b) that involve any Loan Document or the Transactions. Since the date of this
Agreement, there has been no change in the status of the matters disclosed in Schedule 7.05 that,
individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a
Material Adverse Effect.

     Section 7.06 Environmental Matters. Except for such matters as set forth on Schedule 7.06
or that, individually or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect on the Parent or the Borrower:

          (a) the Borrower and its Subsidiaries and each of their respective Properties and operations
thereon are, and within all applicable statute of limitation periods have been, in compliance with
all applicable Environmental Laws;

          (b) the Borrower and its Subsidiaries have obtained all Environmental Permits required for
their respective operations and each of their Properties, with all such Environmental Permits
being currently in full force and effect, and none of the Borrower or its Subsidiaries has
received any written notice or otherwise has knowledge that any such existing Environmental Permit
will be revoked or that any application for any new Environmental Permit or renewal of any
existing Environmental Permit will be protested or denied;

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          (c) there are no claims, demands, suits, orders, inquiries, or proceedings concerning any
violation of, or any liability (including as a potentially responsible party) under, any
applicable Environmental Laws that is pending or threatened against the Borrower or its
Subsidiaries or any of their respective Properties or as a result of any operations at the
Properties;

          (d) none of the Properties contain or have contained any: (i) underground storage tanks;
(ii) asbestos-containing materials; or (iii) landfills or dumps; (iv) hazardous waste management
units as defined pursuant to RCRA or any comparable state law; or (v) sites on or nominated for
the National Priority List promulgated pursuant to CERCLA or any state remedial priority list
promulgated or published pursuant to any comparable state law;

          (e) there has been no Release or threatened Release, of Hazardous Materials at, on, under or
from any of the Borrower’s or their Subsidiaries’ Properties, there are no investigations,
remediations, abatements, removals, or monitorings of Hazardous Materials required under
applicable Environmental Laws at such Properties and none of such Properties are adversely
affected by any Release or threatened Release of a Hazardous Material originating or emanating
from any other real property;

          (f) neither the Borrower nor its Subsidiaries has received any written notice asserting an
alleged liability or obligation under any applicable Environmental Laws with respect to the
investigation, remediation, abatement, removal, or monitoring of any Hazardous Materials at,
under, or Released or threatened to be Released from any real properties offsite the Parent’s, the
Borrower’s or their Subsidiaries’ Properties and there are no conditions or circumstances that
would reasonably be expected to result in the receipt of such written notice.

          (g) there has been no exposure of any Person or property to any Hazardous Materials as a
result of or in connection with the operations and businesses of any of the Borrower’s or its
Subsidiaries’ Properties that would reasonably be expected to form the basis for a claim for
damages or compensation and, to the Borrower’s knowledge, there are no conditions or circumstances
that would reasonably be expected to result in the receipt of notice regarding such exposure; and

          (h) To the extent requested by the Administrative Agent, the Borrower and its Subsidiaries
have provided to the Administrative Agent complete and correct copies of all environmental site
assessment reports, investigations, studies, analyses, and correspondence on environmental matters
(including matters relating to any alleged non-compliance with or liability under Environmental
Laws) that are in any of the Borrower’s or its Subsidiaries’ possession or control and relating to
their respective Properties or operations thereon.

     Section 7.07 Compliance with the Laws and Agreements; No Defaults.

          (a) Each of the Parent, the Borrower and their Subsidiaries is in compliance with all
Governmental Requirements applicable to it or its Property and all agreements and other
instruments binding upon it or its Property, and possesses all licenses, permits, franchises,
exemptions, approvals and other authorizations granted by Governmental Authorities necessary for
the ownership of its Property and the present conduct of its business, except where the

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failure to do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.

          (b) None of the Parent, the Borrower or any of their Subsidiaries is in default nor has any
event or circumstance occurred which, but for the expiration of any applicable grace period or the
giving of notice, or both, would constitute a default or would require the Parent, the Borrower or
any of their Subsidiaries to Redeem or make any offer to Redeem all or any portion of any Debt
outstanding under any indenture, note, credit agreement or instrument pursuant to which any
Material Indebtedness is outstanding or by which the Borrower or any of its Subsidiaries or any of
their Properties is bound.

          (c) No Default has occurred and is continuing.

     Section 7.08 Investment Company Act. None of the Parent, the Borrower or any of their
Subsidiaries is an “investment company” or a company “controlled” by an “investment company,”
within the meaning of, or subject to regulation under, the Investment Company Act of 1940, as
amended.

     Section 7.09 Taxes. Each of the Parent, the Borrower and their Subsidiaries has timely
filed or caused to be filed all Tax returns and reports required to have been filed and has paid or
caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are
being contested in good faith by appropriate proceedings and for which the Parent, the Borrower or
such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with
GAAP or (b) to the extent that the failure to do so could not reasonably be expected to
result in a Material Adverse Effect. The charges, accruals and reserves on the books of the
Parent, the Borrower and their Subsidiaries in respect of Taxes and other governmental charges are,
in the reasonable opinion of the Parent and the Borrower, adequate. No Tax Lien has been filed
and, to the knowledge of the Parent or the Borrower, no claim is being asserted with respect to any
such Tax or other such governmental charge.

     Section 7.10 ERISA.

          (a) The Borrower, its Subsidiaries and each ERISA Affiliate have complied in all material
respects with ERISA and, where applicable, the Code regarding each Plan, if any.

          (b) Each Plan, if any, is, and has been, maintained in substantial compliance with ERISA and,
where applicable, the Code.

          (c) No act, omission or transaction has occurred that could result in imposition on the
Borrower, any of its Subsidiaries or any ERISA Affiliate (whether directly or indirectly) of
(i) either a civil penalty assessed pursuant to subsections (c), (i) or (l) of section
502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii)
breach of fiduciary duty liability damages under section 409 of ERISA.

          (d) No Plan (other than a defined contribution plan) or any trust created under any such Plan
has been terminated since September 2, 1974. No liability to the PBGC (other than for the payment
of current premiums which are not past due) by the Borrower, any of its

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Subsidiaries or any ERISA Affiliate has been or is expected by the Borrower, any of its
Subsidiaries or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with
respect to any Plan has occurred.

          (e) Full payment when due has been made of all amounts which the Borrower, any of its
Subsidiaries or any ERISA Affiliate is required under the terms of each Plan, if any, or
applicable law to have paid as contributions to such Plan as of the date hereof, and no
accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code),
whether or not waived, exists with respect to any Plan.

          (f) The actuarial present value of the benefit liabilities under each Plan, if any, which is
subject to Title IV of ERISA does not, as of the end of the Borrower’s most recently ended fiscal
year, exceed the current value of the assets (computed on a plan termination basis in accordance
with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term “actuarial
present value of the benefit liabilities” shall have the meaning specified in section 4041 of
ERISA.

          (g) Neither the Borrower, its Subsidiaries nor any ERISA Affiliate sponsors, maintains, or
contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former employees of such
entities, that may not be terminated by the Borrower, any of its Subsidiaries or any ERISA
Affiliate in its sole discretion at any time without any material liability.

          (h) Neither the Borrower, its Subsidiaries nor any ERISA Affiliate sponsors, maintains or
contributes to, or has at any time in the six-year period preceding the date hereof sponsored,
maintained or contributed to, any Multiemployer Plan.

          (i) Neither the Borrower, its Subsidiaries nor any ERISA Affiliate is required to provide
security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase
in current liability for the Plan.

     Section 7.11 Disclosure; No Material Misstatements. As set forth on Schedule 7.11, the
Borrower has disclosed to the Lenders all agreements, instruments and corporate or other
restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it,
that, individually or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect. None of the reports, financial statements, certificates or other information
furnished by or on behalf of the Borrower or any of its Subsidiaries to the Administrative Agent,
any other Agent or any Lender or any of their Affiliates in connection with the negotiation of this
Agreement or any other Loan Document or delivered hereunder or under any other Loan Document (as
modified or supplemented by other information so furnished) contains any material misstatement of
fact or omits to state any material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided that, with respect to
projected financial information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time. There is no fact peculiar
to the Borrower or any of its Subsidiaries that could reasonably be expected to have a Material
Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and which
has not been set forth in this Agreement or the Loan

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Documents or the other documents, certificates and statements furnished to the Administrative
Agent, any other Agent or the Lenders by or on behalf of the Borrower or any of its Subsidiaries
prior to, or on, the date hereof in connection with the transactions contemplated hereby.

     Section 7.12 Insurance. The Borrower has, and has caused all of its Subsidiaries to have, (a) all insurance policies sufficient for the compliance by each of them with all
material Governmental Requirements and all material agreements and (b) insurance
coverage in at least amounts and against such risk (including, without limitation, public
liability) that are usually insured against by companies similarly situated and engaged in the same
or a similar business for the assets and operations of the Borrower and its Subsidiaries. The
Administrative Agent and the Lenders have been named as additional insureds in respect of such
liability insurance policies and the Administrative Agent has been named as loss payee with respect
to Property loss insurance.

     Section 7.13 Restriction on Liens. None of the Parent, the Borrower or any of their
Subsidiaries is a party to any material agreement or arrangement, or subject to any order,
judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens
to the Administrative Agent and the Lenders on or in respect of their Properties to secure the
Indebtedness and the Loan Documents, except for any such restrictions on Properties subject to a
Lien permitted under Section 9.03 set forth in the agreements or instruments evidencing or
governing such Lien, but in each case, only on the property subject to such Lien.

     Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as disclosed in
writing, from time to time, to the Administrative Agent (which shall promptly furnish a copy to the
Lenders), which shall be a supplement to Schedule 7.14, the Borrower has no Subsidiaries. The
Borrower has no Foreign Subsidiaries.

     Section 7.15 Location of Business and Offices. The Borrower’s jurisdiction of organization
is Delaware; the name of the Borrower as listed in the public records of its jurisdiction of
organization is EV Properties, L.P., and the organizational identification number of the Borrower
in its jurisdiction of organization is 4135542 (or, in each case, as set forth in a notice
delivered to the Administrative Agent pursuant to Section 8.01(m) in accordance with Section
12.01). The Borrower’s principal place of business and chief executive offices are located at the
address specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section
8.01(m) and Section 12.01(c)). The Parent’s jurisdiction of organization is Delaware; the name of
the Parent as listed in the public records of its jurisdiction of organization is EV Energy
Partners, L.P., and the organizational identification number of the Parent in its jurisdiction of
organization is 4134906 (or, in each case, as set forth in a notice delivered to the Administrative
Agent pursuant to Section 8.01(m) in accordance with Section 12.01). The Parent’s principal place
of business and chief executive offices are located at the address specified in Section 12.01 (or
as set forth in a notice delivered pursuant to Section 8.01(m) and Section 12.01(c)). Each
Subsidiary’s jurisdiction of organization, name as listed in the public records of its jurisdiction
of organization, organizational identification number in its jurisdiction of organization, and the
location of its principal place of business and chief executive office is stated on Schedule 7.14
(or as set forth in a notice delivered pursuant to Section 8.01(m)).

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     Section 7.16 Properties; Titles, Etc.

          (a) Each of the Borrower and its Subsidiaries has good and defensible title to its Oil and
Gas Properties evaluated in the most recently delivered Reserve Report and good title to all its
personal Properties, in each case, free and clear of all Liens except Liens permitted by Section
9.03. After giving full effect to the Excepted Liens, the Borrower or any of its Subsidiaries
specified as the owner owns the net interests in production attributable to the Hydrocarbon
Interests as reflected in the most recently delivered Reserve Report, and the ownership of such
Properties shall not in any material respect obligate the Borrower or any of its Subsidiaries to
bear the costs and expenses relating to the maintenance, development and operations of each such
Property in an amount in excess of the working interest of each Property set forth in the most
recently delivered Reserve Report that is not offset by a corresponding proportionate increase in
the Borrower’s or any of its Subsidiaries’ net revenue interest in such Property.

          (b) All material leases and agreements necessary for the present conduct of the business of
the Borrower and its Subsidiaries are valid and subsisting, in full force and effect, and there
exists no default or event or circumstance which with the giving of notice or the passage of time
or both would give rise to a default under any such lease or leases, which could reasonably be
expected to have a Material Adverse Effect.

          (c) The rights and Properties presently owned, leased or licensed by the Borrower and its
Subsidiaries including, without limitation, all easements and rights of way, include all rights
and Properties necessary to permit the Borrower and its Subsidiaries to conduct their business in
all material respects as of the date hereof.

          (d) All of the Properties of the Borrower and each of its Subsidiaries that are reasonably
necessary for the operation of their businesses are in good working condition and are maintained
in accordance with customary industry standards.

          (e) The Borrower and each of its Subsidiaries owns, or is licensed to use, all trademarks,
tradenames, copyrights, patents and other intellectual Property material to its business, and the
use thereof by the Borrower and such Subsidiary does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. The Borrower and its Subsidiaries
either own or have valid licenses or other rights to use all databases, geological data,
geophysical data, engineering data, seismic data, maps, interpretations and other technical
information used in their businesses as presently conducted, subject to the limitations contained
in the agreements governing the use of the same, which limitations are customary for companies
engaged in the business of the exploration and production of Hydrocarbons, with such exceptions as
could not reasonably be expected to have a Material Adverse Effect.

     Section 7.17 Maintenance of Properties. Except for such acts or failures to act as could
not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and
Properties unitized therewith) have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all Governmental Requirements and in conformity

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with the provisions of all leases, subleases or other contracts comprising a part of the
Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas
Properties. Specifically in connection with the foregoing, except as could not reasonably be
expected to have a Material Adverse Effect, (a) no Oil and Gas Property is subject to
having allowable production reduced below the full and regular allowable (including the maximum
permissible tolerance) because of any overproduction (whether or not the same was permissible at
the time) and (b) none of the wells comprising a part of the Oil and Gas Properties (or
Properties unitized therewith) is deviated from the vertical more than the maximum permitted by
Governmental Requirements, and such wells are, in fact, bottomed under and are producing from, and
the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on
Properties unitized therewith, such unitized Properties). All pipelines, wells, gas processing
plants, platforms and other material improvements, fixtures and equipment owned in whole or in part
by the Borrower or any of its Subsidiaries that are necessary to conduct normal operations are
being maintained in a state adequate to conduct normal operations, and with respect to such of the
foregoing which are operated by the Borrower or any of its Subsidiaries, in a manner consistent
with the Borrower’s or its Subsidiaries’ past practices (other than those the failure of which to
maintain in accordance with this Section 7.17 could not reasonably be expect to have a Material
Adverse Effect).

     Section 7.18 Gas Imbalances, Prepayments. As of the date hereof, except as set forth on
Schedule 7.18 or on the most recent certificate delivered pursuant to Section 8.12(c), on a net
basis there are no gas imbalances, take or pay or other prepayments which would require the
Borrower or any of its Subsidiaries to deliver, in the aggregate, two percent (2%) or more of the
monthly production from Hydrocarbons produced from the Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor.

     Section 7.19 Marketing of Production. Except for contracts listed and in effect on the
date hereof on Schedule 7.19, and thereafter either disclosed in writing to the Administrative
Agent or included in the most recently delivered Reserve Report (with respect to all of which
contracts the Borrower represents that it or its Subsidiaries are receiving a price for all
production sold thereunder which is computed substantially in accordance with the terms of the
relevant contract and are not having deliveries curtailed substantially below the subject
Property’s delivery capacity), no material agreements exist (other than Swap Agreements permitted
under Section 9.18) which are not cancelable on 60 days notice or less without penalty or detriment
for the sale of production from the Borrower’s or its Subsidiaries’ Hydrocarbons (including,
without limitation, calls on or other rights to purchase, production, whether or not the same are
currently being exercised) that (a) pertain to the sale of production at a fixed price
and (b) have a maturity or expiry date of more than six (6) months from the date
hereof.

     Section 7.20 Swap Agreements. Schedule 7.20, as of the date hereof, and after the date
hereof, each report required to be delivered by the Borrower pursuant to Section 8.01(e), sets
forth, a true and complete list of all Swap Agreements of the Borrower and each of its
Subsidiaries, the material terms thereof (including the type, term, effective date, termination
date and notional amounts or volumes), the net marked-to-market value thereof, all credit support
agreements relating thereto (including any margin required or supplied) and the counterparty to
each such agreement.

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     Section 7.21 Use of Loans and Letters of Credit.

          (a) The proceeds of the Working Capital Revolving Loans shall be used (i) for the
exploration, development and/or acquisition of Oil and Gas Properties, (ii) for working capital
(including such purposes for which Working Capital Borrowings, as defined in the Parent LP
Agreement, are permitted under the terms of the Parent LP Agreement), and (iii) for general
corporate purposes of the Parent, the Borrower and its Subsidiaries, including Restricted
Payments, provided that if the Borrowing Base Utilization Percentage is equal to or exceeds 90%
before or after giving effect to the requested Loan or Letter of Credit, then no proceeds of any
Working Capital Revolving Loan may be used to fund Restricted Payments under Section 9.04.

          (b) The proceeds of the General Revolving Loans and the Letters of Credit shall be used (i)
for the exploration, development and/or acquisition of Oil and Gas Properties, (ii) for working
capital and (iii) for general corporate purposes of the Parent, the Borrower and its Subsidiaries,
but will not be used to make any Restricted Payment permitted by Section 9.04.

          (c) The Borrower and its Subsidiaries are not engaged principally, or as one of its or their
important activities, in the business of extending credit for the purpose, whether immediate,
incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U
or X of the Board). No part of the proceeds of any Loan or Letter of Credit will be used for any
purpose which violates the provisions of Regulations T, U or X of the Board.

     Section 7.22 Solvency. After giving effect to the transactions contemplated hereby,
(a) the aggregate assets (after giving effect to amounts that could reasonably be
received by reason of indemnity, offset, insurance or any similar arrangement), at a fair
valuation, of the Borrower and the Guarantors, taken as a whole, will exceed the aggregate Debt of
the Borrower and the Guarantors on a consolidated basis, as the Debt becomes absolute and matures,
(b) of the Borrower and the Guarantors will not have incurred or intended to
incur, and will not believe that it will incur, Debt beyond its ability to pay such Debt (after
taking into account the timing and amounts of cash to be received by each of the Borrower and the
Guarantors and the amounts to be payable on or in respect of its liabilities, and giving effect to
amounts that could reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement) as such Debt becomes absolute and matures and (c) each of the Borrower and
the Guarantors will not have (and will have no reason to believe that it will have thereafter)
unreasonably small capital for the conduct of its business.

ARTICLE VIII

Affirmative Covenants

     Until the Commitments have expired or been terminated and the principal of and interest on
each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents
shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, each of the Parent and the Borrower covenants and agrees
with the Lenders that:

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     Section 8.01 Financial Statements; Ratings Change; Other Information. The Parent and/or
the Borrower will furnish to the Administrative Agent and each Lender:

          (a) Annual Financial Statements. As soon as available, but in any event not later
than 90 days after the end of each fiscal year, Parent’s audited consolidated balance sheet and
related statements of operations, partners’ equity and cash flows as of the end of and for such
year, setting forth in each case in comparative form the figures for the previous fiscal year, all
reported on by independent public accountants of recognized national standing and reasonably
acceptable to the Administrative Agent (without a “going concern” or like qualification or
exception and without any qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all material respects the financial
position and results of operations of the Parent and its Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied.

          (b) Quarterly Financial Statements. As soon as available, but in any event not later
than 45 days after the end of each of the first three fiscal quarters of each fiscal year of the
Parent, its consolidated balance sheet and related statements of operations, partners’ equity and
cash flows as of the end of and for such quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the corresponding period or periods
of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by a Financial Officer as presenting fairly in all material respects the financial
position and results of operations of the Parent and its Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes.

          (c) Certificate of Financial Officer — Compliance. Concurrently with any delivery
of financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial
Officer in substantially the form of Exhibit B hereto (i) certifying as to whether a
Default has occurred and, if a Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 9.01 and (iii) stating
whether any change in GAAP or in the application thereof has occurred since the Effective Date
and, if any such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate.

          (d) Certificate of Accounting Firm — Defaults. Concurrently with any delivery of
financial statements under Section 8.01(a), a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during the course of their
examination of such financial statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines).

          (e) Certificate of Financial Officer – Swap Agreements. Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b), a certificate of a
Financial Officer, in form and substance satisfactory to the Administrative Agent, setting forth
as of the last Business Day of such fiscal quarter or fiscal year, a true and complete list of all
Swap Agreements of the Borrower and each of its Subsidiaries, the material terms thereof
(including the type, term, effective date, termination date and notional amounts or volumes),

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the net mark-to-market value therefor, any new credit support agreements relating thereto not
listed on Schedule 7.20, any margin required or supplied under any credit support document, and
the counterparty to each such agreement.

          (f) Certificate of Insurer – Insurance Coverage. Concurrently with any delivery of
financial statements under Section 8.01(a), a certificate of insurance coverage from each insurer
with respect to the insurance required by Section 8.07, in form and substance satisfactory to the
Administrative Agent, and, if requested by the Administrative Agent, all copies of the applicable
policies.

          (g) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other
report or letter submitted to the Parent, the Borrower or any of their Subsidiaries by independent
accountants in connection with any annual, interim or special audit made by them of the books of
the Parent, the Borrower or any such Subsidiary, and a copy of any response by the Parent, the
Borrower or any such Subsidiary to such letter or report.

          (h) SEC and Other Filings; Reports to shareholders. Promptly after the same become
publicly available, copies of all periodic and other reports, proxy statements and other materials
filed by the Parent, the Borrower or any Subsidiary with the SEC, or with any national securities
exchange, or distributed by the Parent or the Borrower to their shareholders generally, as the
case may be.

          (i) Notices Under Material Instruments. Promptly after the furnishing thereof,
copies of any financial statement, report or notice furnished to or by any Person pursuant to the
terms of any preferred stock designation, indenture, loan or credit or other similar agreement,
other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to
any other provision of this Section 8.01.

          (j) Lists of Purchasers. Concurrently with the delivery of any Reserve Report to the
Administrative Agent pursuant to Section 8.12, a list of all Persons purchasing Hydrocarbons from
the Borrower or any of its Subsidiaries.

          (k) Notice of Sales of Oil and Gas Properties. In the event the Borrower or any
Subsidiary sells, transfers, assigns or otherwise disposes of Oil and Gas Properties or Equity
Interests in any Subsidiary in accordance with Section 9.12(d) with an aggregate fair market value
which exceeds $1,000,000, for all such dispositions of Oil and Gas Properties or Equity Interests
occurring between Redetermination Dates, prior written notice thereafter until the next such
Redetermination Date of any disposition of Oil and Gas Properties or Equity Interests, the price
thereof and the anticipated date of closing and any other details thereof requested by the
Administrative Agent or any Lender.

          (l) Notice of Casualty Events. Prompt written notice, and in any event within three
Business Days, of the occurrence of any Casualty Event or the commencement of any action or
proceeding that could reasonably be expected to result in a Casualty Event.

          (m) Information Regarding Borrower and Guarantors. Prompt written notice (and in any
event within thirty (30) days prior thereto) of any change (i) in the Borrower or any

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Guarantor’s corporate name or in any trade name used to identify such Person in the conduct
of its business or in the ownership of its Properties, (ii) in the location of the
Borrower or any Guarantor’s chief executive office or principal place of business,
(iii) in the Borrower or any Guarantor’s identity or corporate structure or in the
jurisdiction in which such Person is incorporated or formed, (iv) in the Borrower or
any Guarantor’s jurisdiction of organization or such Person’s organizational identification number
in such jurisdiction of organization, and (v) in the Borrower or any Guarantor’s
federal taxpayer identification number.

          (n) Production Report and Lease Operating Statements. Within 45 days after the end
of each fiscal quarter, a report setting forth, for each calendar month during the then-current
fiscal year to date, the volume of production and sales attributable to production (and the prices
at which such sales were made and the revenues derived from such sales) for each such calendar
month from the Oil and Gas Properties, and setting forth the related ad valorem, severance and
production taxes and lease operating expenses attributable thereto and incurred for each such
calendar month.

          (o) Notices of Certain Changes. Promptly, but in any event within thirty (30) days
after the execution thereof, copies of any amendment, modification or supplement to the
certificate or articles of incorporation, by-laws, any preferred stock designation or any other
organic document of the Parent, the Borrower or any of their Subsidiaries.

          (p) Issuance of Subordinated Debt. In the event the Borrower intends to issue
Subordinated Debt as contemplated by Section 9.02(e), 10 days prior written notice of such
intended offering therefor, the amount thereof and the anticipated date of closing and will
furnish a copy of the preliminary offering memorandum (if any) and the final offering memorandum
(if any).

          (q) Annual Budget. Promptly, but in any event within 90 days after the end of each
fiscal year, a budget for the then current fiscal year, including a pro forma balance sheet and
income and cash flow projections.

          (r) Other Requested Information. Promptly following any request therefor, such other
information regarding the operations, business affairs and financial condition of the Parent, the
Borrower or any of their Subsidiaries (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under ERISA), or compliance with
the terms of this Agreement or any other Loan Document, as the Administrative Agent may reasonably
request.

     Section 8.02 Notices of Material Events. The Parent and/or the Borrower will furnish to
the Administrative Agent and each Lender, promptly after the Parent or the Borrower obtains
knowledge thereof, written notice of the following:

          (a) the occurrence of any Default;

          (b) the filing or commencement of, or the threat in writing of, any action, suit,
investigation, arbitration or proceeding by or before any arbitrator or Governmental Authority
against or affecting the Parent, the Borrower or any Subsidiary thereof, or any material adverse

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development in any action, suit, proceeding, investigation or arbitration (whether or not
previously disclosed to the Lenders), that, in either case, if adversely determined, could
reasonably be expected to result in liability in excess of $500,000;

          (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events
that have occurred, could reasonably be expected to result in liability of the Parent, the
Borrower and their Subsidiaries in an aggregate amount exceeding $500,000; and

          (d) any other development that results in, or could reasonably be expected to result in, a
Material Adverse Effect.

Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible
Officer setting forth the details of the event or development requiring such notice and any action
taken or proposed to be taken with respect thereto.

     Section 8.03 Existence; Conduct of Business. The Parent and the Borrower will, and will
cause each of their Subsidiaries to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence and the rights, licenses, permits, privileges
and franchises material to the conduct of its business and maintain, if necessary, its
qualification to do business in each other jurisdiction in which any of its Oil and Gas Properties
is located or the ownership of its Properties requires such qualification, except where the failure
to so qualify could not reasonably be expected to have a Material Adverse Effect; provided that the
foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 9.11.

     Section 8.04 Payment of Obligations. The Parent and the Borrower will, and will cause each
of their Subsidiaries to, pay its obligations, including Tax liabilities of the Parent and the
Borrower and all of their Subsidiaries before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (b) the Parent, the Borrower or such Subsidiary has set aside
on its books adequate reserves with respect thereto in accordance with GAAP and (c) the
failure to make payment pending such contest could not reasonably be expected to result in a
Material Adverse Effect or result in the seizure or levy of any Property of the Parent, the
Borrower or any of their Subsidiaries.

     Section 8.05 Performance of Obligations under Loan Documents. The Borrower will pay the
Notes according to the reading, tenor and effect thereof, and the Borrower will, and the Parent and
the Borrower will cause each of their Subsidiaries to do and perform every act and discharge all of
the obligations to be performed and discharged by them under the Loan Documents, including, without
limitation, this Agreement, at the time or times and in the manner specified.

     Section 8.06 Operation and Maintenance of Properties. The Borrower, at its own expense,
will, and will cause each of its Subsidiaries to:

          (a) operate its Oil and Gas Properties and other material Properties or cause such Oil and
Gas Properties and other material Properties to be operated in a careful and

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efficient manner in accordance with the practices of the industry and in compliance with all
applicable contracts and agreements and in compliance with all Governmental Requirements,
including, without limitation, applicable pro ration requirements and Environmental Laws, and all
applicable laws, rules and regulations of every other Governmental Authority from time to time
constituted to regulate the development and operation of its Oil and Gas Properties and the
production and sale of Hydrocarbons and other minerals therefrom, except, in each case, where the
failure to comply could not reasonably be expected to have a Material Adverse Effect.

          (b) keep and maintain all Property material to the conduct of its business in good working
order and condition, ordinary wear and tear excepted, and preserve, maintain and keep in good
repair, working order and efficiency (ordinary wear and tear excepted) all of its material Oil and
Gas Properties and other material Properties, including, without limitation, all equipment,
machinery and facilities in accordance with customary industry standards.

          (c) promptly pay and discharge, or make reasonable and customary efforts to cause to be paid
and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases
or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other
things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture
thereof or default thereunder except for leases or other agreements which are no longer used or
useful in its business.

          (d) promptly perform or make reasonable and customary efforts to cause to be performed, in
accordance with customary industry standards, the obligations required by each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its
material Oil and Gas Properties and other material Properties.

          (e) to the extent the Borrower or one of its Subsidiaries is not the operator of any
Property, the Borrower shall use commercially reasonable efforts to cause the operator to comply
with this Section 8.06.

     Section 8.07 Insurance. The Borrower will, and will cause each of its Subsidiaries to,
maintain, with financially sound and reputable insurance companies, insurance in such amounts and
against such risks as are customarily maintained by companies engaged in the same or similar
businesses operating in the same or similar locations. The loss payable clauses or provisions in
said insurance policy or policies insuring any of the collateral for the Loans shall be endorsed in
favor of and made payable to the Administrative Agent as its interests may appear and such policies
shall name the Administrative Agent and the Lenders as “additional insureds” and provide that the
insurer will give at least 30 days prior notice of any cancellation to the Administrative Agent.

     Section 8.08 Books and Records; Inspection Rights. The Parent and the Borrower will, and
will cause each of their Subsidiaries to, keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation to its business and
activities. The Parent and the Borrower will, and will cause each of their Subsidiaries to, permit
any representatives designated by the Administrative Agent, upon reasonable prior notice, to visit
and inspect its Properties, to examine and make extracts from its books and records, and

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to discuss its affairs, finances and condition with its officers and independent accountants, all
at such reasonable times and as often as reasonably requested.

     Section 8.09 Compliance with Laws. The Parent and the Borrower will, and will cause each
of their Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental
Authority applicable to them or their Property, except where the failure to do so, individually or
in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

     Section 8.10 Environmental Matters.

          (a) The Parent and the Borrower shall, and shall cause each of their Subsidiaries to:
(i) comply, and shall cause their Properties and operations and each of their
Subsidiaries and each Subsidiary’s Properties and operations to comply, with all applicable
Environmental Laws, the breach of which could be reasonably expected to have a Material Adverse
Effect; (ii) not dispose of or otherwise release, and shall cause each Subsidiary not
to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid
waste on, under, about or from any of the Borrower’s or its Subsidiaries’ Properties or any other
Property to the extent caused by the Borrower’s or any of its Subsidiaries’ operations except in
compliance with applicable Environmental Laws, the disposal or release of which could reasonably
be expected to have a Material Adverse Effect; (iii) timely obtain or file, and shall
cause each of their Subsidiaries to timely obtain or file, all notices, permits, licenses,
exemptions, approvals, registrations or other authorizations, if any, required under applicable
Environmental Laws to be obtained or filed in connection with the operation or use of the
Borrower’s or its Subsidiaries’ Properties, which failure to obtain or file could reasonably be
expected to have a Material Adverse Effect; (iv) promptly commence and diligently
prosecute to completion, and shall cause each of their Subsidiaries to promptly commence and
diligently prosecute to completion, any assessment, evaluation, investigation, monitoring,
containment, cleanup, removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial Work”) in the event any Remedial Work is required or
reasonably necessary under applicable Environmental Laws because of or in connection with the
actual or suspected past, present or future disposal or other release of any oil, oil and gas
waste, hazardous substance or solid waste on, under, about or from any of the Borrower’s or its
Subsidiaries’ Properties, which failure to commence and diligently prosecute to completion could
reasonably be expected to have a Material Adverse Effect; and (v) establish and
implement, and shall cause each of their Subsidiaries to establish and implement, such procedures
as may be reasonably necessary to continuously determine and assure that the Borrower’s and its
Subsidiaries’ obligations under this Section 8.10(a) are timely and fully satisfied, which failure
to establish and implement could reasonably be expected to have a Material Adverse Effect.

          (b) The Borrower will promptly, but in no event later than five Business Days after the
occurrence thereof, notify the Administrative Agent and the Lenders in writing of any threatened
action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit
by any landowner or other third party against the Borrower or its Subsidiaries or their Properties
of which the Borrower has knowledge in connection with any Environmental Laws (excluding routine
testing and corrective action) if the Borrower

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reasonably anticipates that such action will result in liability (whether individually or in
the aggregate) in excess of $500,000, not fully covered by insurance, subject to normal
deductibles.

          (c) The Borrower will, and will cause each of its Subsidiaries to, provide environmental
audits and tests in accordance with American Society of Testing Materials standards upon the
reasonable request by the Administrative Agent and the Required Lenders (or as otherwise required
to be obtained by the Administrative Agent or the Required Lenders by any Governmental Authority),
in connection with any future acquisitions of Oil and Gas Properties or other material Properties.

     Section 8.11 Further Assurances.

          (a) The Parent and the Borrower, at their sole expense will, and will cause each of their
Subsidiaries to, promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative Agent to comply
with, cure any defects or accomplish the conditions precedent, covenants and agreements of the
Parent, the Borrower or any of their Subsidiaries, as the case may be, in the Loan Documents,
including the Notes, or to further evidence and more fully describe the collateral intended as
security for the Indebtedness, or to correct any omissions in this Agreement or the Security
Instruments, or to state more fully the obligations secured therein, or to perfect, protect or
preserve any Liens created pursuant to this Agreement or any of the Security Instruments or the
priority thereof, or to make any recordings, file any notices or obtain any consents, all as may
be reasonably necessary or appropriate, in the sole discretion of the Administrative Agent, in
connection therewith.

          (b) The Parent and the Borrower hereby authorize the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or any part of the
Mortgaged Property without the signature of the Borrower or any other Guarantor where permitted by
law. A carbon, photographic or other reproduction of the Security Instruments or any financing
statement covering the Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.

     Section 8.12 Reserve Reports.

          (a) On or before March 1st and September 1st of each year, commencing March 1st, 2007, the
Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report as of the
immediately preceding January 1 or July 1, as applicable. The Reserve Report as of January 1 of
each year shall be prepared by one or more petroleum engineers reasonably acceptable to the
Administrative Agent and the July 1 Reserve Report of each year shall be prepared by or under the
supervision of the chief engineer of EV Management who shall certify, on behalf of the Borrower,
such Reserve Report to be based upon reasonable assumptions and estimates in light of the facts
and circumstances known to the Borrower at the time such Reserve Report was prepared and to have
been prepared in accordance with the procedures used in the immediately preceding January 1
Reserve Report.

          (b) In the event of an Interim Redetermination, the Borrower shall furnish to the
Administrative Agent and the Lenders a Reserve Report prepared by or under the

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supervision of the chief engineer of EV Management who shall certify, on behalf of the
Borrower, such Reserve Report to be based upon reasonable assumptions and estimates in light of
the facts and circumstances known to the Borrower at the time such Reserve Report was prepared and
to have been prepared in accordance with the procedures used in the immediately preceding January
1 Reserve Report. For any Interim Redetermination requested by the Administrative Agent or the
Borrower pursuant to Section 2.07(b), the Borrower shall provide such Reserve Report with an “as
of” date as required by the Administrative Agent as soon as possible, but in any event no later
than thirty (30) days following the receipt of such request.

          (c) With the delivery of each Reserve Report, the Borrower shall provide to the
Administrative Agent and the Lenders a certificate from a Responsible Officer certifying that in
all material respects: (i) the information contained in the Reserve Report and any
other information delivered in connection therewith is based upon reasonable assumptions and
estimates in light of the facts and circumstances known to the Borrower at the time such Reserve
Report was prepared, (ii) the Borrower or its Subsidiaries owns good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and such Properties are free
of all Liens except for Liens permitted by Section 9.03, (iii) except as set forth on
an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other
prepayments in excess of the volume specified in Section 7.18 with respect to their Oil and Gas
Properties evaluated in such Reserve Report that would require the Borrower or any of its
Subsidiaries to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties
at some future time without then or thereafter receiving full payment therefor, (iv)
none of their Oil and Gas Properties evaluated in the previous Reserve Report have been sold since
the date of the last Borrowing Base determination except as set forth on an exhibit to the
certificate, which certificate shall list all of such Oil and Gas Properties sold and in such
detail as reasonably required by the Administrative Agent, (v) attached to the
certificate is a list of all marketing agreements entered into subsequent to the later of the date
hereof or the most recently delivered Reserve Report that the Borrower could reasonably be
expected to have been obligated to list on Schedule 7.19 had such agreement been in effect on the
date hereof and (vi) attached thereto is a schedule of the Oil and Gas Properties
evaluated by such Reserve Report that are Mortgaged Properties and demonstrating the percentage of
the present value that such Mortgaged Properties represent.

     Section 8.13 Title Information.

          (a) On or before the delivery to the Administrative Agent and the Lenders of each Reserve
Report required by Section 8.12(a), the Borrower will deliver title information in form and
substance acceptable to the Administrative Agent covering enough of the Oil and Gas Properties
evaluated by such Reserve Report that were not included in the immediately preceding Reserve
Report, so that the Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information on at least 70%
of the total value of the Oil and Gas Properties evaluated by such Reserve Report.

          (b) If the Borrower has provided title information for additional Properties under Section
8.13(a), the Borrower shall, within 60 days of notice from the Administrative Agent that title
defects or exceptions exist with respect to such additional Properties, either (i)

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     cure any such title defects or exceptions (including defects or exceptions as to priority)
which are not permitted by Section 9.03 raised by such information, (ii) substitute
acceptable Mortgaged Properties with no title defects or exceptions except for Excepted Liens
(other than Excepted Liens described in clauses (e), (g) and (h) of such definition) having an
equivalent value or (iii) deliver title information in form and substance acceptable
to the Administrative Agent so that the Administrative Agent shall have received, together with
title information previously delivered to the Administrative Agent, satisfactory title information
on at least 70% of the value of the Oil and Gas Properties evaluated by such Reserve Report.

          (c) If the Borrower is unable to cure any title defect requested by the Administrative Agent
or the Lenders to be cured within the 60-day period or the Borrower does not comply with the
requirements to provide acceptable title information covering 70% of the value of the Oil and Gas
Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but
instead the Administrative Agent and/or the Required Lenders shall have the right to exercise the
following remedy in their sole discretion from time to time, and any failure to so exercise this
remedy at any time shall not be a waiver as to future exercise of the remedy by the Administrative
Agent or the Lenders. To the extent that the Administrative Agent or the Required Lenders are not
satisfied with title to any Mortgaged Property after the 60-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards the 70% requirement, and the
Administrative Agent may send a notice to the Borrower and the Lenders that the then outstanding
Borrowing Base shall be reduced by an amount as determined by the Required Lenders to cause the
Borrower to be in compliance with the requirement to provide acceptable title information on 70%
of the value of the Oil and Gas Properties. This new Borrowing Base shall become effective
immediately after receipt of such notice.

     Section 8.14 Additional Collateral; Additional Guarantors.

          (a) In connection with each redetermination of the Borrowing Base, the Borrower shall review
the Reserve Report and the list of current Mortgaged Properties (as described in Section
8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least 80% of the total
value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after
giving effect to exploration and production activities, acquisitions, dispositions and production.
In the event that the Mortgaged Properties do not represent at least 80% of such total value,
then the Borrower shall, and shall cause its Subsidiaries to, grant to the Administrative Agent or
its designee as security for the Indebtedness a first-priority Lien interest (provided the
Excepted Liens of the type described in clauses (a) to (d) and (f) of the definition thereof may
exist, but subject to the provisos at the end of such definition) on additional Oil and Gas
Properties not already subject to a Lien of the Security Instruments such that after giving effect
thereto, the Mortgaged Properties will represent at least 80% of such total value. All such Liens
will be created and perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements or other Security Instruments, all in form and substance
reasonably satisfactory to the Administrative Agent or its designee and in sufficient executed
(and acknowledged where necessary or appropriate) counterparts for recording purposes. In order
to comply with the foregoing, if any Subsidiary places a Lien on its Oil and Gas Properties and
such Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with Section
8.14(b).

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          (b) In the event that (i) the Borrower determines that any Subsidiary is a
Material Domestic Subsidiary or (ii) any Wholly-Owned Subsidiary incurs or guarantees
any Debt, then the Borrower shall promptly cause such Subsidiary to guarantee the Indebtedness
pursuant to the Guarantee Agreement. In connection with any such guaranty, the Borrower shall, or
shall cause such Subsidiary to, (a) execute and deliver a supplement to the Guarantee
Agreement executed by such Subsidiary, (B) pledge all of the Equity Interests of such
Subsidiary (including, without limitation, delivery of original stock certificates evidencing the
Equity Interests of such Subsidiary, together with an appropriate undated stock powers for each
certificate duly executed in blank by the registered owner thereof) and (C) execute
and deliver such other additional closing documents, certificates and legal opinions as shall
reasonably be requested by the Administrative Agent or its designee.

     Section 8.15 ERISA Compliance. The Borrower will promptly furnish, and will cause its
Subsidiaries and any ERISA Affiliate to promptly furnish, to the Administrative Agent
(a) promptly after the filing thereof with the United States Secretary of Labor, the
Internal Revenue Service or the PBGC, copies of each annual and other report with respect to each
Plan, if any, or any trust created thereunder, (b) immediately upon becoming aware of
the occurrence of any ERISA Event or of any “prohibited transaction,” as described in section 406
of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal Financial Officer of the
Borrower, its Subsidiaries or the ERISA Affiliate, as the case may be, specifying the nature
thereof, what action the Borrower, its Subsidiaries or the ERISA Affiliate is taking or proposes to
take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue
Service, the Department of Labor or the PBGC with respect thereto, and (c) immediately
upon receipt thereof, copies of any notice of the PBGC’s intention to terminate or to have a
trustee appointed to administer any Plan. With respect to each Plan, if any (other than a
Multiemployer Plan), the Borrower will, and the Borrower will cause each of its Subsidiaries and
ERISA Affiliates to, (i) satisfy in full and in a timely manner, without incurring any
late payment or underpayment charge or penalty and without giving rise to any lien, all of the
contribution and funding requirements of section 412 of the Code (determined without regard to
subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard
to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC
in a timely manner, without incurring any late payment or underpayment charge or penalty, all
premiums required pursuant to sections 4006 and 4007 of ERISA.

     Section 8.16 Marketing Activities. The Borrower will not, and will not permit any of its
Subsidiaries to, engage in marketing activities for any Hydrocarbons or enter into any contracts
related thereto other than (a) contracts for the sale of Hydrocarbons scheduled or
reasonably estimated to be produced from their proved Oil and Gas Properties during the period of
such contract, (b) contracts for the sale of Hydrocarbons scheduled or reasonably
estimated to be produced from proved Oil and Gas Properties of third parties during the period of
such contract associated with the Oil and Gas Properties of the Borrower and its Subsidiaries that
the Borrower or one of its Subsidiaries has the right to market pursuant to joint operating
agreements, unitization agreements or other similar contracts that are usual and customary in the
oil and gas business and (c) other contracts for the purchase and/or sale of
Hydrocarbons of third parties (i) which have generally offsetting provisions (i.e.
corresponding pricing mechanics,

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delivery dates and points and volumes) such that no “position” is taken, (ii) for which
appropriate credit support has been taken to alleviate the material credit risks of the
counterparty thereto, or (iii) which otherwise constitute Swap Agreements permitted under Section
9.18.

     Section 8.17 Clean-Down. The Borrower will cause the aggregate outstanding principal
balance of the Working Capital Revolving Loans which constitute “Working Capital Borrowings” under
and as defined in the Parent LP Agreement, to be zero for a period of at least 15 consecutive days
(i) during each calendar year commencing in 2007, and (ii) during each twelve (12) month period
commencing on the Effective Date.

ARTICLE IX

Negative Covenants

     Until the Commitments have expired or been terminated and the principal of and interest on
each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents
have been paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, each of the Parent and the Borrower covenants and agrees
with the Lenders that:

     Section 9.01 Financial Covenants.

          (a) Ratio of Total Debt to EBITDAX. The Parent will not, as of any date of
determination, permit its ratio of Total Debt as of such date to EBITDAX for the most recent
period of four fiscal quarters for which financial statements are available to be greater than 4.0
to 1.0.

          (b) Current Ratio. The Parent will not permit, as of the last day of any fiscal
quarter, its ratio of (i) consolidated current assets (including the unused amount of
the total Commitments, but excluding non-cash assets under FAS 133) to (ii)
consolidated current liabilities (excluding non-cash obligations under FAS 133 and current
maturities under this Agreement) to be less than 1.0 to 1.0.

     Section 9.02 Debt. None of the Parent, the Borrower or any of their Subsidiaries will
incur, create, assume or suffer to exist any Debt, except:

          (a) the Notes or other Indebtedness arising under the Loan Documents or any guaranty of or
suretyship arrangement for the Notes or other Indebtedness arising under the Loan Documents.

          (b) accounts payable and other accrued expenses, liabilities or other obligations to pay (for
the deferred purchase price of Property or services) from time to time incurred in the ordinary
course of business which are not greater than ninety (90) days past the date of invoice or
delinquent or which are being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP.

          (c) intercompany Debt among the Parent, the Borrower and any of the Borrower’s Subsidiaries
or between Subsidiaries to the extent permitted by Section 9.05(g);

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provided that such Debt is not held, assigned, transferred, negotiated or pledged to any
Person other than the Parent or one of its Wholly-Owned Subsidiaries, and, provided further, that
any such Debt owed by the Borrower to either the Parent or a Guarantor shall be subordinated to
the Indebtedness owed by the Borrower or a Guarantor on terms set forth in the Guarantee
Agreement.

          (d) endorsements of negotiable instruments for collection in the ordinary course of business.

          (e) Subordinated Debt, the principal amount of which does not exceed $250,000,000 and any
guarantees thereof; provided that (i) the Borrower shall have complied with Section 8.01(p), (ii)
at the time of incurring such Subordinated Debt (1) no Default has occurred and is then continuing
and (2) no Default would result from the incurrence of such Subordinated Debt after giving effect
to the incurrence of such Subordinated Debt (and any concurrent repayment of Debt with the proceeds
of such incurrence), (iii) the incurrence of such Subordinated Debt (and any concurrent repayment
of Debt with the proceeds of such incurrence) would not result in the total Revolving Credit
Exposure exceeding the Borrowing Base then in effect, (iv) such Subordinated Debt does not have any
scheduled amortization prior to the date which is one year after the Maturity Date, (v) such
Subordinated Debt does not mature sooner than the date which is one year after the Maturity Date,
(vi) such Subordinated Debt and any guarantees thereof are subordinated on terms satisfactory to
the Administrative Agent and the Required Lenders and (vii) prior to the incurrence of such Debt,
the Borrowing Base is adjusted pursuant to Section 2.07(e).

          (f) other Debt, including Capital Leases and purchase money Debt not to exceed $1,000,000 in
the aggregate, not to exceed the lesser of $5,000,000 or 5% of the then effective Borrowing Base in
the aggregate at any one time outstanding.

     Section 9.03 Liens. None of the Parent, the Borrower or any of their Subsidiaries will
create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter
acquired), except:

          (a) Liens securing the payment of any Indebtedness.

          (b) Excepted Liens.

          (c) Liens securing purchase money Debt and Debt under Capital Leases permitted under Section
9.02(f).

          (d) Liens on posted collateral or margin to secure obligations under Swap Agreements permitted
by Section 9.18.

          (e) Liens on Property not constituting collateral for the Indebtedness and not otherwise
permitted by the foregoing clauses of this Section 9.03; provided that the aggregate principal or
face amount of all Debt secured under this 0 shall not exceed $100,000 at any time.

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     Section 9.04 Dividends, Distributions and Redemptions.

          (a) Restricted Payments. The Parent and the Borrower will not, and will not permit
any of their Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly,
any Restricted Payment, return any capital to its stockholders or make any distribution of their
Property to their respective Equity Interest holders, except (i) the Parent or the Borrower may
declare and pay dividends or distributions with respect to its Equity Interests payable solely in
additional shares of its Equity Interests (other than Disqualified Capital Stock), (ii) the
Borrower and its Subsidiaries may declare and pay dividends or distributions ratably with respect
to their Equity Interests and (iii) after consummation of the Initial Public Offering so long as
no Borrowing Base Deficiency, Default or Event of Default has occurred and is continuing or would
result therefrom, and subject to the proviso in Section 7.21(a)(iii), the Parent may declare and
pay quarterly cash dividends to its partners of Available Cash in accordance with the Parent LP
Agreement.

          (b) Repayment of Subordinated Debt; Amendment of terms of Subordinated Debt. The
Borrower will not, and will not permit any Subsidiary to, prior to the date that is one year after
the Maturity Date: (i) call, make or offer to make any optional or voluntary Redemption of or
otherwise optionally or voluntarily Redeem (whether in whole or in part) the Subordinated Debt,
except that the Borrower may prepay the Subordinated Debt with the net cash proceeds of any sale
of Equity Interests (other than Disqualified Capital Stock) of the Borrower, (ii) amend, modify,
waive or otherwise change, consent or agree to any amendment, modification, waiver or other change
to, any of the terms of the Subordinated Debt if (1) the effect thereof would be to shorten its
maturity or average life or increase the amount of any payment of principal thereof or increase
the rate or shorten any period for payment of interest thereon or (2) such action requires the
payment of a consent fee (howsoever described), provided that the foregoing shall not prohibit the
execution of supplemental documents associated with the incurrence of additional Subordinated Debt
to the extent permitted by Section 9.02(e), the execution of supplemental indentures to add
guarantors if required by the terms of any Subordinated Debt documents provided such Person
complies with Section 8.14(b) or (iii) designate any Debt (other than obligations of the Borrower
and the Subsidiaries pursuant to the Loan Documents) as “Specified Senior Indebtedness” or
“Specified Guarantor Senior Indebtedness” or give any such other Debt any other similar
designation for the purposes of any Subordinated Debt.

     Section 9.05 Investments, Loans and Advances. None of the Parent, the Borrower or their
Subsidiaries will make or permit to remain outstanding any Investments in or to any Person, except
that the foregoing restriction shall not apply to:

          (a) Investments reflected in the Financial Statements.

          (b) accounts receivable arising in the ordinary course of business.

          (c) direct obligations of the United States or any agency thereof, or obligations guaranteed
by the United States or any agency thereof, in each case maturing within one year from the date of
creation thereof.

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          (d) commercial paper maturing within one year from the date of creation thereof rated in the
two highest grades by S&P or Moody’s.

          (e) deposits maturing within one year from the date of creation thereof with, including
certificates of deposit issued by, any Lender or any office located in the United States of any
other bank or trust company which is organized under the laws of the United States or any state
thereof, has capital, surplus and undivided profits aggregating at least $250,000,000 (as of the
date of such bank or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or
Moody’s, respectively.

          (f) deposits in money market funds investing exclusively in Investments described in Section
9.05(c), Section 9.05(d) or Section 9.05(e).

          (g) Investments (i) made by the Parent or the Borrower in or to Guarantors, (ii) made by any
Subsidiary or the Parent in or to the Borrower or any Guarantor, and (iii) made by the Borrower or
any Guarantor in Subsidiaries that are not Guarantors, provided that the aggregate of all
Investments made by the Borrower and the Guarantors in or to all Subsidiaries that are not
Guarantors shall not exceed $2,000,000 at any time.

          (h) subject to
the limits in Section 9.06, Investments (including, without limitation,
capital contributions) in general or limited partnerships or other types of entities (each a
“Venture”) entered into by the Parent, the Borrower or any of their Subsidiaries with
others in the ordinary course of business; provided that (i) any such Venture is engaged
exclusively in oil and gas exploration, development, production, processing and related
activities, including transportation, (ii) the interest in such venture is acquired in the
ordinary course of business and on fair and reasonable terms and (iii) such Venture interests
acquired and capital contributions made (valued as of the date such interest was acquired or the
contribution made) do not exceed, in the aggregate at any time outstanding an amount equal to
$2,000,000.

          (i) subject
to the limits in Section 9.06, Investments in Persons by the Borrower or a
Subsidiary; provided, that, contemporaneously with such Investment, such Person becomes a
Wholly-Owned Subsidiary and, as of the date such Investment is made (and after giving effect to
all related transactions) (1) all of the representations and warranties contained in each Loan
Document are true and correct and (2) no Default or Event of Default has occurred and is
continuing or would result from such person being a Wholly-Owned Subsidiary.

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          (j) subject to the limits in Section 9.06, Investments in direct ownership interests in
additional Oil and Gas Properties and gas gathering systems, production facilities or processing
facilities related thereto or related to farm-out, farm-in, joint operating, joint venture or area
of mutual interest agreements, gathering systems, pipelines, production facilities, processing
facilities or other similar arrangements which are usual and customary in the oil and gas
exploration and production business located within the geographic boundaries of the United States
of America.

          (k) loans or advances to employees, officers or directors in the ordinary course of business
of the Parent, the Borrower or any of their Subsidiaries, in each case only as permitted by
applicable law, including Section 402 of the Sarbanes Oxley Act of 2002, but in any event not to
exceed $250,000 in the aggregate at any time.

          (l) Investments in stock, obligations or securities received in settlement of debts arising
from Investments permitted under this Section 9.05 owing to the Parent, the Borrower or any of its
Subsidiaries as a result of a bankruptcy or other insolvency proceeding of the obligor in respect
of such debts or upon the enforcement of any Lien in favor of the Parent, the Borrower or any of
their Subsidiaries; provided that the Borrower shall give the Administrative Agent prompt written
notice in the event that the aggregate amount of all Investments held at any one time under this
Section 9.05(j) exceeds $250,000.

          (m) other Investments not to exceed, in the aggregate, $250,000 at any time outstanding.

     Section 9.06 Nature of Business; International Operations. The Parent and the Borrower
will not, and will not permit any of their Subsidiaries to, allow any material change to be made in the character of its business as independent oil and gas exploration and production
companies. From and after the date hereof, the Parent, the Borrower and their Subsidiaries will
not acquire or make any other expenditure (whether such expenditure is capital, operating or
otherwise) in or related to, any Oil and Gas Properties not located within the geographical
boundaries of the United States.

     Section 9.07 Limitation on Leases. Neither the Borrower nor any of its Subsidiaries will
create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property
of any kind whatsoever (real or personal but excluding leases of Hydrocarbon Interests), under
leases or lease agreements which would cause the aggregate amount of all payments made by the
Borrower and its Subsidiaries pursuant to all such leases or lease agreements, including, without
limitation, any residual payments at the end of any lease, to exceed $2,000,000 in any period of
twelve consecutive calendar months during the life of such leases.

     Section 9.08 Proceeds of Notes. The Borrower will not permit the proceeds of the Notes to
be used for any purpose other than those permitted by Section 7.21. Neither the Borrower nor any
Person acting on behalf of the Borrower has taken or will take any action which might cause any of
the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to
violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in
each case as now in effect or as the same may hereinafter be in

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effect. If requested by the
Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other
form referred to in Regulation U, Regulation T or Regulation X of the Board, as the case may be.

     Section 9.09 ERISA Compliance. The Borrower and its Subsidiaries will not at any time:

          (a) engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with
which the Borrower any of its Subsidiaries or any ERISA Affiliate could be subjected to either a
civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax
imposed by Chapter 43 of Subtitle D of the Code.

          (b) terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any
other action with respect to any Plan, which could result in any liability of the Borrower, any of
its Subsidiaries or any ERISA Affiliate to the PBGC.

          (c) fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all
amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the
Borrower, any of its Subsidiaries or any ERISA Affiliate is required to pay as contributions
thereto.

          (d) permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding
deficiency within the meaning of section 302 of ERISA or section 412 of the Code, whether or not
waived, with respect to any Plan.

          (e) permit, or allow any ERISA Affiliate to permit, the actuarial present value of the
benefit liabilities under any Plan maintained by the Borrower, any of its Subsidiaries or any
ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan
allocable to such benefit liabilities. The term “actuarial present value of the benefit
liabilities” shall have the meaning specified in section 4041 of ERISA.

          (f) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to
contribute to or assume an obligation to contribute to, any Multiemployer Plan.

          (g) acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes
such Person to become an ERISA Affiliate with respect to the Borrower or any of its Subsidiaries
or with respect to any ERISA Affiliate of the Borrower or any of its Subsidiaries if such Person
sponsors, maintains or contributes to, or at any time in the six-year period preceding such
acquisition has sponsored, maintained, or contributed to, (i) any Multiemployer Plan, or (ii) any
other Plan that is subject to Title IV of ERISA under which the actuarial present value of the
benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit
liabilities.

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          (h) incur, or permit any ERISA Affiliate to incur, a liability to or on account of a Plan
under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA.

          (i) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to
contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to
provide benefits to former employees of such entities, that may not be terminated by such entities
in their sole discretion at any time without any material liability.

          (j) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current
liability such that the Borrower, any of its Subsidiaries or any ERISA Affiliate is required to
provide security to such Plan under section 401(a)(29) of the Code.

     Section 9.10 Sale or Discount of Receivables. Except for receivables obtained by the
Borrower or any of its Subsidiaries out of the ordinary course of business or the settlement of
joint interest billing accounts in the ordinary course of business or discounts granted to settle
collection of accounts receivable or the sale of defaulted accounts arising in the ordinary course
of business in connection with the compromise or collection thereof and not in connection with any
financing transaction, neither the Borrower nor any of its Subsidiaries will discount or sell (with
or without recourse) any of its notes receivable or accounts receivable.

     Section 9.11 Mergers, Etc. None of the Parent, the Borrower or any of their Subsidiaries
will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or substantially all of its
Property to any other Person, except that any Wholly-Owned Subsidiary may merge with any other Wholly-Owned Subsidiary and that the Borrower or the Parent may merge with any
Wholly-Owned Subsidiary so long as the Borrower is the survivor.

     Section 9.12 Sale of Properties. The Borrower will not, and will not permit any of its
Subsidiaries to, sell, assign, farm-out, convey or otherwise transfer any Property except for: (a)
the sale of Hydrocarbons in the ordinary course of business; (b) farmouts of undeveloped acreage
and assignments in connection with such farmouts; (c) the sale or transfer of Property that is no
longer necessary for the business of the Borrower or such Subsidiary or is replaced by equipment of
at least comparable value and use; (d) sales or other dispositions (including Casualty Events) of
Oil and Gas Properties or any interest therein or Subsidiaries owning Oil and Gas Properties;
provided that (i) 100% of the consideration received in respect of such sale or other disposition
shall be cash, (ii) the consideration received in respect of such sale or other disposition shall
be equal to or greater than the fair market value of the Oil and Gas Property, interest therein or
Subsidiary subject of such sale or other disposition (as reasonably determined by the board of
directors of EV Management on behalf of the Borrower and, if requested by the Administrative Agent,
the Borrower shall deliver a certificate of a Responsible Officer of the Borrower certifying to
that effect), (iii) if such sale or other disposition of Oil and Gas Property or Subsidiary owning
Oil and Gas Properties included in the most recently delivered Reserve Report during any period
between two successive Scheduled Redetermination Dates has a fair market value (as determined by
the Administrative Agent), individually or in the aggregate, in excess of $5,000,000, the Borrowing
Base shall be reduced, effective immediately upon such sale or disposition, by an amount equal to
the value, if any, assigned such Property as determined

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by the Required Lenders assigned such
Property in the most recently delivered Reserve Report and (iv) if any such sale or other
disposition is of a Subsidiary owning Oil and Gas Properties, such sale or other disposition shall
include all the Equity Interests of such Subsidiary; and (e) sales and other dispositions of
Properties not regulated by Section 9.12(a) to (d) having a fair market value not to exceed
$250,000 during any 12-month period.

     Section 9.13 Environmental Matters. The Borrower will not, and will not permit any
Subsidiary to, violate or permit any of its Property to be in violation of, or do anything or
permit anything to be done which will subject any such Property to any Remedial Work under any
Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where such violations or
remedial obligations could reasonably be expected to have a Material Adverse Effect.

     Section 9.14 Transactions with Affiliates. The Parent and the Borrower will not, and will
not permit any Subsidiary to, enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate
(other than the Guarantors and Wholly-Owned Subsidiaries of the Borrower) unless such transactions
are otherwise permitted under this Agreement and are upon fair and reasonable terms no less
favorable to it than it would obtain in a comparable arm’s length transaction with a Person not an
Affiliate.

     Section 9.15 Subsidiaries. The Parent and the Borrower shall not, and shall not permit
their Subsidiaries to, create or acquire any additional Subsidiary unless the Borrower gives
written notice to the Administrative Agent of such creation or acquisition and complies with Section 8.14(b). The Parent and the Borrower shall not, and shall not permit any of their
Subsidiaries to, sell, assign or otherwise dispose of any Equity Interests in any of its
Subsidiaries except as permitted under Section 9.12. Neither the Parent nor the Borrower shall
have any Foreign Subsidiaries.

     Section 9.16 Negative Pledge Agreements; Dividend Restrictions. Neither the Borrower nor
any of its Subsidiaries will create, incur, assume or suffer to exist any contract, agreement or
understanding (other than this Agreement, Security Instruments, Capital Leases, purchase money
security interests creating Liens permitted by Section 9.03(c) or collateral or margin agreements
permitted by Section 9.03(d) securing Swap Agreements) that in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property in favor of the
Administrative Agent and the Lenders or restricts any Subsidiary from paying dividends or making
distributions to the Borrower or any Guarantor, or which requires the consent of or notice to other
Persons in connection therewith.

     Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower will not, and
will not permit any of its Subsidiaries to, allow gas imbalances, take-or-pay or other prepayments
with respect to the Oil and Gas Properties of the Borrower or any of its Subsidiaries that would
require the Borrower or such Subsidiary to deliver, in the aggregate, two percent (2%) or more of
the aggregate monthly production of Hydrocarbons of the Borrower and its Subsidiaries at some
future time without then or thereafter receiving full payment therefor.

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     Section 9.18 Swap Agreements. Neither the Borrower nor any of its Subsidiaries will enter
into any Swap Agreements with any Person other than Swap Agreements (a) in respect of commodities
(i) with an Approved Counterparty and (ii) the notional volumes for which (when aggregated with
other commodity Swap Agreements then in effect other than basis differential swaps on volumes
already hedged pursuant to other Swap Agreements) do not exceed, as of the date such Swap Agreement
is executed, 90% of the reasonably anticipated projected production from Proved Developed Producing
Properties for each month during the period during which such Swap Agreement is in effect for each
of crude oil and natural gas, calculated separately, for a rolling 5-year period based on
projections from the most recent Reserve Report plus any re-characterization of reserves to Proved
Developed Producing Properties since the date of the most recent Reserve Report and (b) in respect
of interest rates with an Approved Counterparty, as follows: (i) Swap Agreements effectively
converting interest rates from fixed to floating, the notional principal amounts of which (when
aggregated with all other Swap Agreements of the Borrower and its Subsidiaries then in effect
effectively converting interest rates from fixed to floating) do not exceed 50% of the then
outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a
fixed rate and (ii) Swap Agreements effectively converting interest rates from floating to fixed,
the notional principal amounts of which (when aggregated with all other Swap Agreements of the
Borrower and its Subsidiaries then in effect effectively converting interest rates from floating to
fixed) do not exceed 75% of the then outstanding principal amount of the Borrower’s Debt for
borrowed money which bears interest at a floating rate. In no event shall any Swap Agreement
contain any requirement, agreement or covenant for the Borrower or any of its Subsidiaries to post
collateral or margin (other than cash or cash equivalents not to exceed an aggregate amount of
$500,000, and any letters of credit providing credit support for such Swap Agreement) to secure
their obligations under such Swap Agreement or to cover market exposures, except for contingent
obligations, if any, to post
collateral or margin under Swap Agreements with any Lender or an Affiliate of a Lender, in the
event that the Borrower’s or such Subsidiary’s obligations under such Swap Agreement is no longer
secured by the collateral provided under the Loan Documents.

     Section 9.19 Tax Status as Partnership. The Parent and the Borrower shall not alter their
status as partnerships for purposes of United States Federal Income taxes. The Parent and the
Borrower shall not, and shall not permit any Subsidiary to, amend or modify any provision of their
articles, bylaws, or partnership or limited liability company organization or operating documents
or agreements, or any agreements with Affiliates of the type referred to in Section 9.14, if such
amendment or modification could reasonably be expected to have a Material Adverse Effect.

     Section 9.20 Covenants of Parent. Parent covenants and agrees with the Administrative
Agent and the Lenders that:

     (a) Parent shall not conduct or otherwise engage in any business or operations other than (i)
transactions contemplated by the Loan Documents or the provision of administrative, legal,
accounting and management services to or on behalf of Borrower or any of its Subsidiaries, (ii) the
ownership of the equity interests of Borrower and any general partner of the Borrower (or any
successor thereto), and the exercise of rights and performance of obligations (including entering
into guarantees and pledge agreements) in connection therewith, (iii) the

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entry into, and exercise
of rights and performance of obligations in respect of, (1) this Agreement and the other Loan
Documents to which Parent is a party, and any other agreement to which Parent is a party on the
date hereof, in each case as amended, supplemented, waived or otherwise modified from time to time,
and any refinancings, refundings, renewals or extensions thereof, (2) contracts and agreements with
officers, directors and employees of Parent or Borrower relating to their employment or
directorships, (3) insurance policies and related contracts and agreements, and (4) equity
subscription agreements, registration rights agreements, voting and other stockholder agreements,
engagement letters, underwriting agreements and other agreements in respect of its equity
securities or any offering, issuance or sale thereof, (iv) the offering, issuance and sale of its
equity securities, (v) the filing of registration statements, and compliance with applicable
reporting and other obligations, under federal, state or other securities laws, (vi) the listing of
its equity securities and compliance with applicable reporting and other obligations in connection
therewith, (vii) the retention of transfer agents, private placement agents, underwriters, counsel,
accountants and other advisors and consultants, (viii) the performance of obligations under and
compliance with the Parent LP Agreement, or any applicable law, ordinance, regulation, rule, order,
judgment, decree or permit, including, without limitation, as a result of or in connection with the
activities of Borrower and its Subsidiaries, (ix) the incurrence and payment of its operating and
business expenses and any taxes for which it may be liable, and (x) other activities incidental or
related to the foregoing.

     (b) Parent shall not own, lease, manage or otherwise operate any properties or assets (other
than in connection with the activities described in Section 9.20(a)), or incur, create, assume or
suffer to exist any Indebtedness of Parent (other than such as may be incurred, created or assumed
or exist in connection with the activities described in Section 9.20(a)).

ARTICLE X

Events of Default; Remedies

     Section 10.01 Events of Default. One or more of the following events shall constitute an
“Event of Default”:

          (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation
in respect of any LC Disbursement when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or otherwise.

          (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount
(other than an amount referred to in Section 10.01(a)) payable under any Loan Document, when and
as the same shall become due and payable, and such failure shall continue unremedied for a period
of five Business Days.

          (c) any representation or warranty made or deemed made by or on behalf of the Parent, the
Borrower or any of their Subsidiaries in or in connection with any Loan Document or any amendment
or modification of any Loan Document or waiver under such Loan Document, or in any report,
certificate, financial statement or other document furnished pursuant to or in connection with any
Loan Document or any amendment or modification

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thereof or waiver thereunder, shall prove to have
been incorrect in any material respect when made or deemed made.

          (d) the Parent, the Borrower or any of their Subsidiaries shall fail to observe or perform
any covenant, condition or agreement contained in, Section 8.01(m), Section 8.02, Section 8.03 or
in ARTICLE IX.

          (e) the Parent, the Borrower or any of their Subsidiaries shall fail to observe or perform
any covenant, condition or agreement contained in this Agreement (other than those specified in
Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and such
failure shall continue unremedied for a period of 30 days after the earlier to occur of (i) notice
thereof from the Administrative Agent to the Parent or the Borrower (which notice will be given at
the request of any Lender) or (ii) a Responsible Officer of the Parent or the Borrower or any of
their Subsidiaries otherwise becoming aware of such default.

          (f) the Parent, the Borrower or any of their Subsidiaries shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable (after giving effect to any
applicable notice and cure period).

          (g) any event or condition occurs (after giving effect to any notice or cure period) that
results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or both) the holder or holders
of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the Redemption thereof or any offer to Redeem to be made
in respect thereof, prior to its scheduled maturity or require the Parent, the Borrower or any of
their Subsidiaries to make an offer in respect thereof.

          (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the Parent, the Borrower or
any of their Subsidiaries or its debts, or of a substantial part of its assets, under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Parent, the Borrower or any of their Subsidiaries or for a substantial
part of its assets, and, in any such case, such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing shall be entered.

          (i) the Parent, the Borrower or any of their Subsidiaries shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in Section 10.01(h), (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Parent, the Borrower or any of their Subsidiaries or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for
the purpose of effecting any of the foregoing; or any partner of the Parent or the Borrower

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shall
make any request or take any action for the purpose of calling a meeting of the partners of the
Parent or the Borrower to consider a resolution to dissolve and wind-up the Parent’s or the
Borrower’s affairs.

          (j) the Parent, the Borrower or any of their Subsidiaries shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due.

          (k) (i) one or more judgments for the payment of money in an aggregate amount in excess of
$1,000,000 (to the extent not covered by independent third party insurance provided by insurers of
the highest claims paying rating or financial strength as to which the insurer does not dispute
coverage and is not subject to an insolvency proceeding) or (ii) any one or more non monetary
judgments that have, or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, shall be rendered against the Parent, the Borrower, any of their
Subsidiaries or any combination thereof and the same shall remain undischarged for a period of 30
consecutive days during which execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets of the Parent, the Borrower
or any of their Subsidiaries to enforce any such judgment.

          (l) the Loan Documents after delivery thereof shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and valid, binding and
enforceable in accordance with their terms against the Borrower or a Guarantor party thereto or
shall be repudiated by them, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or the Borrower or any of its Subsidiaries shall so
state in writing.

          (m) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when
taken together with all other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Parent, the Borrower and their Subsidiaries in an aggregate amount
exceeding $1,000,000 in any year.

          (n) a Change in Control shall occur.

     Section 10.02 Remedies.

          (a) In the case of an Event of Default other than one described in Section 10.01(h), Section
10.01(i) or Section 10.01(j), at any time thereafter during the continuance of such Event of
Default, the Administrative Agent may, and at the request of the Required Lenders, shall, by
notice to the Borrower, take either or both of the following actions, at the same or different
times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately,
and (ii) declare the Notes and the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may thereafter be declared
to be due and payable), and thereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and all fees and other obligations of the Borrower
and the Guarantors accrued hereunder and under the Notes and the other Loan Documents (including,
without limitation, the payment of cash collateral to secure

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the LC Exposure as provided in
Section 2.08(j)), shall become due and payable immediately, without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which
are hereby waived by the Borrower and each Guarantor; and in case of an Event of Default described
in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the Commitments shall automatically
terminate and the Notes and the principal of the Loans then outstanding, together with accrued
interest thereon and all fees and the other obligations of the Borrower and the Guarantors accrued
hereunder and under the Notes and the other Loan Documents (including, without limitation, the
payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall
automatically become due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower and each Guarantor.

          (b) In the case of the occurrence of an Event of Default, the Administrative Agent and the
Lenders will have all other rights and remedies available at law and equity.

          (c) All proceeds realized from the liquidation or other disposition of collateral or
otherwise received after maturity of the Notes, whether by acceleration or otherwise, shall be
applied: first, to reimbursement of expenses and indemnities provided for in this Agreement and
the Security Instruments; second, to accrued interest on the Notes; third, to fees; fourth, pro
rata to principal outstanding on the Notes and Indebtedness referred to in Clause (b) of the
definition of Indebtedness owing to a Lender or an Affiliate of a Lender; fifth, to any other
Indebtedness; sixth, to serve as cash collateral to be held by the Administrative Agent to secure
the LC Exposure; and any excess shall be paid to the Borrower or as otherwise required by any
Governmental Requirement.

     Section 10.03 Disposition of Proceeds. The Security Instruments contain an assignment
by the Borrower and/or the Guarantors unto and in favor of the Administrative Agent for the
benefit of the Lenders of all of the Borrower’s or each Guarantor’s interest in and to
production and all proceeds attributable thereto which may be produced from or allocated to the
Mortgaged Property. The Security Instruments further provide in general for the application of
such proceeds to the satisfaction of the Indebtedness and other obligations described therein and
secured thereby. Notwithstanding the assignment contained in such Security Instruments, except
after the occurrence and during the continuance of an Event of Default, (a) the Administrative
Agent and the Lenders agree that they will neither notify the purchaser or purchasers of such
production nor take any other action to cause such proceeds to be remitted to the Administrative
Agent or the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower
and its Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to take such
actions as may be necessary to cause such proceeds to be paid to the Borrower and/or its
Subsidiaries.

ARTICLE XI

The Administrative Agent

     Section 11.01 Appointment; Powers. Each of the Lenders and each Issuing Bank hereby
irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent
to take such actions on its behalf and to exercise such powers as are delegated to the

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Administrative Agent by the terms hereof and the other Loan Documents, together with such actions
and powers as are reasonably incidental thereto.

     Section 11.02 Duties and Obligations of Administrative Agent. The Administrative Agent
shall have no duties or obligations except those expressly set forth in the Loan Documents.
Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has occurred and is
continuing (the use of the term “agent” herein and in the other Loan Documents with reference to
the Administrative Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable law; rather, such term is used merely
as a matter of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative Agent shall have no
duty to take any discretionary action or exercise any discretionary powers, except as provided in
Section 11.03, and (c) except as expressly set forth herein, the Administrative Agent shall have no
duty to disclose, and shall not be liable for the failure to disclose, any information relating to
the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as
Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall be
deemed not to have knowledge of any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible for or have any duty
to ascertain or inquire into (i) any statement, warranty or representation made in or in connection
with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or
other document delivered hereunder or under any other Loan Document or in connection herewith or
therewith, (iii) the performance or observance of any of the covenants, agreements or other terms
or conditions set forth herein or in any other Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement,
instrument or document, (v) the satisfaction of any condition set forth in ARTICLE VI or elsewhere
herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, (vi) the existence, value, perfection or priority of any collateral
security or the financial or other condition of the Borrower and its Subsidiaries or any other
obligor or guarantor, or (vii) any failure by the Borrower or any other Person (other than itself)
to perform any of its obligations hereunder or under any other Loan Document or the performance or
observance of any covenants, agreements or other terms or conditions set forth herein or therein.
For purposes of determining compliance with the conditions specified in ARTICLE VI, each Lender
shall be deemed to have consented to, approved or accepted or to be satisfied with, each document
or other matter required thereunder to be consented to or approved by or acceptable or satisfactory
to a Lender unless the Administrative Agent shall have received written notice from such Lender
prior to the proposed closing date specifying its objection thereto.

     Section 11.03 Action by Agent. The Administrative Agent shall have no duty to take any
discretionary action or exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is
required to exercise in writing as directed by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as provided in Section
12.02) and in all cases the Administrative Agent shall be fully justified in failing or

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refusing to
act hereunder or under any other Loan Documents unless it shall (a) receive written instructions
from the Required Lenders or the Lenders, as applicable, (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 12.02) specifying the
action to be taken and (b) be indemnified to its satisfaction by the Lenders against any and all
liability and expenses which may be incurred by it by reason of taking or continuing to take any
such action. The instructions as aforesaid and any action taken or failure to act pursuant thereto
by the Administrative Agent shall be binding on all of the Lenders. If a Default has occurred and
is continuing, then the Administrative Agent shall take such action with respect to such Default as
shall be directed by the requisite Lenders in the written instructions (with indemnities) described
in this Section 11.03, provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem advisable in the
best interests of the Lenders. In no event, however, shall the Administrative Agent be required to
take any action which exposes the Administrative Agent to personal liability or which is contrary
to this Agreement, the Loan Documents or applicable law. If a Default has occurred and is
continuing, neither the Co-Syndication Agents nor the Co-Documentation Agents shall have any
obligation to perform any act in respect thereof. No Agent shall be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders or the Lenders (or such
other number or percentage of the Lenders as shall be necessary under the circumstances as provided
in Section 12.02), and otherwise the Administrative Agent shall not be liable for any action taken
or not taken by it hereunder or under any other Loan Document or under any other document or
instrument referred to or provided for herein or therein or in connection herewith or therewith
INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.

     Section 11.04 Reliance by Agent. Each Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent, statement,
instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. Each Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not incur any liability for
relying thereon and each of the Borrower, the Lenders and each Issuing Bank hereby waives the right
to dispute such Agent’s record of such statement, except in the case of gross negligence or willful
misconduct by such Agent. Each Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall not be liable for
any action taken or not taken by it in accordance with the advice of any such counsel, accountants
or experts. The Agents may deem and treat the payee of any Note as the holder thereof for all
purposes hereof unless and until a written notice of the assignment or transfer thereof permitted
hereunder shall have been filed with the Administrative Agent.

     Section 11.05 Subagents. The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its
duties and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding Sections of this ARTICLE XI shall apply to any such
sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and

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shall
apply to their respective activities in connection with the syndication of the credit facilities
provided for herein as well as activities as Agent.

     Section 11.06 Resignation or Removal of Agents. Subject to the appointment and acceptance
of a successor Agent as provided in this Section 11.06, any Agent may resign at any time by
notifying the Lenders, each Issuing Bank and the Borrower, and any Agent may be removed at any time
with or without cause by the Required Lenders. Upon any such resignation or removal, the Required
Lenders shall have the right, with the approval of the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Agent gives notice of its resignation or removal of
the retiring Agent, then the retiring Agent may, on behalf of the Lenders and each Issuing Bank,
appoint a successor Agent. Upon the acceptance of its appointment as Agent hereunder by a
successor, such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. The fees payable by the Borrower to a successor Agent shall be
the same as those payable to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Agent’s resignation hereunder, the provisions of this ARTICLE XI and Section
12.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be taken by any of them
while it was acting as Agent.

     Section 11.07 Agents and Lenders. Each bank serving as an Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as
though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money
to and generally engage in any kind of business with the Borrower or any Subsidiary or other
Affiliate thereof as if it were not an Agent hereunder.

     Section 11.08 No Reliance. Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent, any other Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit analysis
and decision to enter into this Agreement and each other Loan Document to which it is a party.
Each Lender also acknowledges that it will, independently and without reliance upon the
Administrative Agent, any other Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this Agreement, any other Loan Document, any
related agreement or any document furnished hereunder or thereunder. The Agents shall not be
required to keep themselves informed as to the performance or observance by the Borrower or any of
its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or
provided for herein or to inspect the Properties or books of the Borrower or its Subsidiaries.
Except for notices, reports and other documents and information expressly required to be furnished
to the Lenders by the Administrative Agent hereunder, no Agent and no Arranger shall have any duty
or responsibility to provide any Lender with any credit or other information concerning the
affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come
into the possession of such Agent or any of its Affiliates. In this regard, each Lender
acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as special counsel to the
Administrative Agent only, except to the extent otherwise expressly stated in any legal

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opinion or
any Loan Document. Each other party hereto will consult with its own legal counsel to the extent
that it deems necessary in connection with the Loan Documents and the matters contemplated therein.

     Section 11.09 Administrative Agent May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Borrower or any of its Subsidiaries, the
Administrative Agent (irrespective of whether the principal of any Loan shall then be due and
payable as herein expressed or by declaration or otherwise and irrespective of whether the
Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered,
by intervention in such proceeding or otherwise:

          (a) to file and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans and all other Indebtedness that are owing and unpaid and to file
such other documents as may be necessary or advisable in order to have the claims of the Lenders
and the Administrative Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their respective agents
and counsel and all other amounts due the Lenders and the Administrative Agent under Section
12.03) allowed in such judicial proceeding; and

          (b) to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Lender to make such payments to the
Administrative Agent and, in the event that the Administrative Agent shall consent to the making of
such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its
agents and counsel, and any other amounts due the Administrative Agent under Section 12.03.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or
consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement,
adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize
the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

     Section 11.10 Authority of Administrative Agent to Release Collateral and Liens. Each
Lender and each Issuing Bank hereby authorizes the Administrative Agent to release any collateral
that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender
and each Issuing Bank hereby authorizes the Administrative Agent to execute and deliver to the
Borrower, at the Borrower’s sole cost and expense, any and all releases of Liens, termination
statements, assignments or other documents reasonably requested by the Borrower in connection with
any sale or other disposition of Property to the extent such sale or other disposition is permitted
by the terms of Section 9.12 or is otherwise authorized by the terms of the Loan Documents.

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     Section 11.11 The Arranger, the Co-Syndication Agents and the Co-Documentation Agents. The
Arranger, the Co-Syndication Agents and the Co-Documentation Agents shall have no duties,
responsibilities or liabilities under this Agreement and the other Loan Documents other than their
duties, responsibilities and liabilities in their capacity as Lenders hereunder.

ARTICLE XII

Miscellaneous

     Section 12.01 Notices.

          (a) Except in the case of notices and other communications expressly permitted to be given by
telephone (and subject to Section 12.01(b)), all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by telecopy, as follows:

          (i)
if to the Borrower or the Parent, to it at 1001 Fannin St., Suite 800, Attention of
Michael E. Mercer, Chief Financial Officer (Telecopy No. (713) 359-3556);

          (ii) if to the Administrative Agent, to it at 10 South Dearborn, Fl 19, IL1 0010,
Chicago, Illinois 60693, Attention of Loan and Agency Services, Attention of Kerry
Sroczynski (Telecopy No. (312) 385-7096), with a copy to 600 Travis, 20th Floor, Houston,
Texas 77002, Attention of Lisa Miller (Telecopy No. (713) 750-2666), and for all other
correspondence other than borrowings, continuation, conversion and Letter of Credit requests
600 Travis, 20th Floor, Houston, Texas 77002, Attention of Chuck Kingswell-Smith (Telecopy
No. (713) 716-7770);

               (iii) if to any other Lender, in its capacity as such, or any other Lender in its capacity as
an Issuing Bank, to it at its address (or telecopy number) set forth in its Administrative
Questionnaire.

          (b) Notices and other communications to the Lenders hereunder may be delivered or furnished
by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices pursuant to
ARTICLE II, ARTICLE III, ARTICLE IV and ARTICLE V unless otherwise agreed by the Administrative
Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion,
agree to accept notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such procedures may be limited to
particular notices or communications.

          (c) Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt.
 

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     Section 12.02 Waivers; Amendments

          (a) No failure on the part of the Administrative Agent, any other Agent, any Issuing Bank or
any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any
right, power or privilege, or any abandonment or discontinuance of steps to enforce such right,
power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies of the Administrative Agent, any other Agent, each Issuing
Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom
shall in any event be effective unless the same shall be permitted by Section 12.02(b), and then
such waiver or consent shall be effective only in the specific instance and for the purpose for
which given. Without limiting the generality of the foregoing, the making of a Loan or issuance
of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the
Administrative Agent, any other Agent, any Lender or any Issuing Bank may have had notice or
knowledge of such Default at the time.

          (b) Neither this Agreement nor any provision hereof nor any Security Instrument nor any
provision thereof may be waived, amended or modified except pursuant to an agreement or agreements
in writing entered into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders; provided that no such agreement
shall (i) increase the Maximum Credit Amount of any Lender without the written consent of such
Lender, (ii) increase the Borrowing Base without the written consent of each Lender, decrease or
maintain the Borrowing Base without the consent of the Required Lenders, or modify in any manner
Section 2.07 without the consent of each Lender, (iii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, or
reduce any other Indebtedness hereunder or under any other Loan Document, without the written
consent of each Lender affected thereby, (iv) postpone the scheduled date of payment of the
principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable
hereunder, or any other Indebtedness hereunder or under any other Loan Document, or reduce the
amount of, waive or excuse any such payment, or postpone or extend the Termination Date or the
Maturity Date without the written consent of each Lender affected thereby, (v) change Section
4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of payments required
thereby, without the written consent of each Lender, (vi) waive or amend Section 6.01, Section
10.02(c) or Section 8.14 or change the definition of the terms “Domestic Subsidiary”, “Foreign
Subsidiary”, “Material Domestic Subsidiary” or “Subsidiary”, without the written consent of each
Lender, (vii) release any Guarantor (except as set forth in the Guarantee Agreement), release all
or substantially all of the collateral (other than as provided in Section 11.09), or reduce the
percentage set forth in Section 8.14(a) to less than 75%, without the written consent of each
Lender, or (viii) change any of the provisions of this Section 12.02(b) or the definition of
“Required Lenders” or any other provision hereof specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or under any other Loan

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Documents or make
any determination or grant any consent hereunder or any other Loan Documents, without the written
consent of each Lender; provided further that no such agreement shall amend, modify or otherwise
affect the rights or duties of the Administrative Agent, any other Agent, or any Issuing Bank
hereunder or under any other Loan Document without the prior written consent of the Administrative
Agent, such other Agent or such Issuing Bank, as the case may be. Notwithstanding the foregoing,
any supplement to Schedule 7.14 (Subsidiaries) shall be effective simply by delivering to the
Administrative Agent a supplemental schedule clearly marked as such and, upon receipt, the
Administrative Agent will promptly deliver a copy thereof to the Lenders.

     Section 12.03 Expenses, Indemnity; Damage Waiver.

          (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including, without limitation, the reasonable fees,
charges and disbursements of counsel and other outside consultants for the Administrative Agent,
the reasonable travel, photocopy, mailing, courier, telephone and other similar expenses and, in
connection with the syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the execution hereof
and including advice of counsel to the Administrative Agent as to the rights and duties of the
Administrative Agent and the Lenders with respect thereto) of this Agreement and the other Loan
Documents and any amendments, modifications or waivers of or consents related to the provisions
hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all out-of-pocket costs, expenses, Taxes, assessments and other charges
incurred by any Agent in connection with any filing, registration, recording or perfection of any
security interest contemplated by this Agreement or any Security Instrument or any other document
referred to therein, (iii) all reasonable out-of-pocket expenses incurred by each Issuing Bank in
connection with the issuance, amendment, renewal or extension of any Letter of Credit issued by
such Issuing Bank or any demand for payment thereunder, (iv) all out-of-pocket expenses incurred
by any Agent, any Issuing Bank or any Lender, including the fees, charges and disbursements of any
counsel for any Agent, any Issuing Bank or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement or any other Loan Document, including
its rights under this Section 12.03, or in connection with the Loans made or Letters of Credit
issued hereunder, including, without limitation, all such out-of-pocket expenses incurred during
any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

          (b) THE BORROWER SHALL INDEMNIFY EACH AGENT, THE ARRANGERS, EACH ISSUING BANK AND EACH
LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN
“INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,
DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY
COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN
CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY
THE PARTIES HERETO OR THE PARTIES
TO

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ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS
HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY
OTHER LOAN DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH
THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT,
(iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF THE
BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR
CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF
THE PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY ANY ISSUING BANK TO
HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT ISSUED BY SUCH ISSUING BANK IF THE DOCUMENTS
PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF
CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE
NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN
CONNECTION THEREWITH, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE
BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii) ANY
ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE
SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ITS SUBSIDIARIES
OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE,
RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF
OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (ix) THE
BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, (x) THE PAST OWNERSHIP BY THE BORROWER OR
ANY OF ITS SUBSIDIARIES OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES
WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (xi)
THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR
DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE
PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OR ANY ACTUAL OR ALLEGED
PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE
BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE
BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION
IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,
INVESTIGATION OR

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 PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION,
INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED
WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO
ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR
RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE
JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

          (c) To the extent that the Borrower fails to pay any amount required to be paid by it to such
Agent or any Issuing Bank under Section 12.03(a) or (b), each Lender severally agrees to pay to
such Agent or such Issuing Bank, as the case may be, such Lender’s Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or indemnity payment is
sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or asserted against such
Agent or such Issuing Bank in its capacity as such.

          (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby
waives, any claim against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement, any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the
use of the proceeds thereof.

          (e) All amounts due under this Section 12.03 shall be payable within ten (10) Business Days
of written demand therefor.

     Section 12.04 Successors and Assigns.

          (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby (including any
Affiliate of any Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may
not assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the Borrower without
such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its
rights or obligations hereunder except in accordance with this Section 12.04. Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person (other than the
parties hereto, their respective successors and assigns permitted hereby (including any Affiliate
of any Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in
Section 12.04(c)) and, to the extent expressly contemplated hereby, the

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Related Parties of each of
the Administrative Agent, each Issuing Bank and the Lenders) any legal or equitable right, remedy
or claim under or by reason of this Agreement.

          (b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any Lender may assign
to one or more assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing to it) with the
prior written consent (such consent not to be unreasonably withheld) of:

                    (A) the Borrower, provided that no consent of the Borrower shall be required
for an assignment to a Lender or an Affiliate of a Lender or, if an Event of Default
has occurred and is continuing, to any other assignee; and

                    (B) the Administrative Agent, provided that no consent of the Administrative
Agent shall be required for an assignment to an assignee that is a Lender or any
Affiliate of a Lender, immediately prior to giving effect to such assignment.

               (ii) Assignments shall be subject to the following additional conditions:

                    (A) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender’s
Commitment, the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Assumption with
respect to such assignment is delivered to the Administrative Agent) shall not be
less than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent, provided that no such consent of the Borrower shall be required
if an Event of Default has occurred and is continuing;

                    (B) each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement;

                    (C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing and
recordation fee of $3,500;

                    (D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and

                    (E) any assignment of a given percentage of a Lender’s Commitment shall cover
the same percentage of such Lender’s Working Capital Revolving Commitment, and vice
versa.

               (iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after
the effective date specified in each Assignment and Assumption the

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assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have
the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder
shall, to the extent of the interest assigned by such Assignment and Assumption, be released from
its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all
of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Section 5.01, Section 5.02,
Section 5.03 and Section 12.03). Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this Section 12.04 shall be treated for purposes of
this Agreement as a sale by such Lender of a participation in such rights and obligations in
accordance with Section 12.04(c).

               (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall
maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the Maximum Credit
Amount of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to
the terms hereof from time to time (the “Register”). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, each Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register
shall be available for inspection by the Borrower, any Issuing Bank and any Lender, at any
reasonable time and from time to time upon reasonable prior notice. In connection with any changes
to the Register, if necessary, the Administrative Agent will reflect the revisions on Annex I and
forward a copy of such revised Annex I to the Borrower, each Issuing Bank and each Lender.

               (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning
Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee
shall already be a Lender hereunder), the processing and recordation fee referred to in Section
12.04(b) and any written consent to such assignment required by Section 12.04(b), the
Administrative Agent shall accept such Assignment and Assumption and record the information
contained therein in the Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this Section 12.04(b).

          (c) (i) Any Lender may, without the consent of the Borrower the Administrative Agent or any
Issuing Bank, sell participations to one or more banks or other entities (a “Participant”)
in all or a portion of such Lender’s rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans owing to it); provided that (1) such Lender’s
obligations under this Agreement shall remain unchanged, (2) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations and (3) the
Borrower, the Administrative Agent, each Issuing Bank and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender’s rights and obligations under
this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this Agreement; provided that
such agreement or instrument may provide that such

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Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the proviso to Section
12.02 that affects such Participant. In addition such agreement must provide that the Participant
be bound by the provisions of Section 12.03. Subject to Section 12.04(c)(ii), the Borrower agrees
that each Participant shall be entitled to the benefits of Section 5.01, Section 5.02 and Section
5.03 to the same extent as if it were a Lender and had acquired its interest by assignment
pursuant to Section 12.04(b). To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 12.08 as though it were a Lender, provided such Participant
agrees to be subject to Section 4.01(c) as though it were a Lender.

               (ii) A Participant shall not be entitled to receive any greater payment under Section 5.01 or
Section 5.03 than the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to such Participant is
made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it
were a Lender shall not be entitled to the benefits of Section 5.03 unless the Borrower is notified
of the participation sold to such Participant and such Participant agrees, for the benefit of the
Borrower, to comply with Section 5.03(e) as though it were a Lender.

          (d) Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement to secure obligations of such Lender, including any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not
apply to any such pledge or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.

     Section 12.05 Survival; Revival; Reinstatement.

          (a) All covenants, agreements, representations and warranties made by the Borrower herein and
in the certificates or other instruments delivered in connection with or pursuant to this
Agreement or any other Loan Document shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this
Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of
any investigation made by any such other party or on its behalf and notwithstanding that the
Administrative Agent, any other Agent, any Issuing Bank or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this Agreement is
outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have
not expired or terminated. The provisions of Section 5.01, Section 5.02, Section 5.03 and Section
12.03 and ARTICLE XI shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration
or termination of the Letters of Credit and the Commitments or the termination of this Agreement,
any other Loan Document or any provision hereof or thereof.

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          (b) To the extent that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be
repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law,
common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived
and continue as if such payment or proceeds had not been received and the Administrative Agent’s
and the Lenders’ Liens, security interests, rights, powers and remedies under this Agreement and
each Loan Document shall continue in full force and effect. In such event, each Loan Document
shall be automatically reinstated and the Borrower shall take such action as may be reasonably
requested by the Administrative Agent and the Lenders to effect such reinstatement.

     Section 12.06 Counterparts; Integration; Effectiveness.

          (a) This Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of which when taken
together shall constitute a single contract.

          (b) This Agreement, the other Loan Documents and any separate letter agreements with respect
to fees payable to the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and thereof and supersede any and all previous agreements
and understandings, oral or written, relating to the subject matter hereof and thereof. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

          (c) Except as provided in Section 6.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of each of the other
parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.

     Section 12.07 Severability. Any provision of this Agreement or any other Loan Document held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability without affecting the
validity, legality and enforceability of the remaining provisions hereof or thereof; and the
invalidity of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.

     Section 12.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender
and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations (of whatsoever kind,
including, without limitations obligations under Swap Agreements) at any time

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owing by such Lender
or Affiliate to or for the credit or the account of the Borrower or any of its Subsidiaries against
any of and all the obligations of the Borrower or any of its Subsidiaries owed to such Lender now
or hereafter existing under this Agreement or any other Loan Document, irrespective of whether or
not such Lender shall have made any demand under this Agreement or any other Loan Document and
although such obligations may be unmatured. The rights of each Lender under this Section 12.08 are
in addition to other rights and remedies (including other rights of setoff) which such Lender or
its Affiliates may have.

     Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.

          (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER
TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE
STATE WHERE SUCH LENDER IS LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS
AGREEMENT OR THE NOTES.

          (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE
COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
TEXAS, HOUSTON DIVISION, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY
ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING
JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

          (c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER
ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE
TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.

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          (d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL
FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION 12.09.

     Section 12.10 Headings. Article and Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Agreement and shall not affect the construction
of, or be taken into consideration in interpreting, this Agreement.

     Section 12.11 Confidentiality. Each of the Agents, each Issuing Bank and the Lenders agrees to maintain the confidentiality of
the Information (as defined below), except that Information may be disclosed (a) to its and its
Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and
other advisors (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required
by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other
party to this Agreement or any other Loan Document, (e) in connection with the exercise of any
remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to
this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f)
subject to an agreement containing provisions substantially the same as those of this Section
12.11, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement or (ii) any actual or prospective
counterparty (or its advisors) to any Swap Agreement relating to the Borrower and their
obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section 12.11 or (ii) becomes
available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section 12.11,
“Information” means all information received from the Borrower or any of its Subsidiaries
relating to the Borrower or any of its Subsidiaries and their businesses, other than any such
information that is available to the Administrative Agent, any Issuing Bank or any Lender on a
nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries; provided
that, in the case of information received from the Borrower, or any of its Subsidiaries after the
date hereof, such information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in

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this Section 12.11
shall be considered to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such Person would accord
to its own confidential information.

     Section 12.12 Interest Rate Limitation. It is the intention of the parties hereto that each Lender shall
conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated
hereby would be usurious as to any Lender under laws applicable to it (including the laws of the
United States of America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement),
then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any
agreement entered into in connection with or as security for the Notes, it is agreed as follows:
(a) the aggregate of all consideration which constitutes interest under law applicable to any
Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the
Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances
exceed the maximum amount allowed by such applicable law, and any excess shall be canceled
automatically and if theretofore paid shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been
or would thereby be paid in full, refunded by such Lender to the Borrower); and (b) in the event
that the maturity of the Notes is accelerated by reason of an
election of the holder thereof resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement
or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been
or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or
agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall,
to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and
spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that
the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such
Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent interest computation
period the amount of interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then
the amount of interest payable to such Lender in respect of such subsequent interest computation
period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the
total amount of interest payable to such Lender shall equal the total amount of interest which
would have been payable to such Lender if the total amount of interest had been computed without
giving effect to this Section 12.12. To the extent that Chapter 303 of the Texas Finance Code is
relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender
elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time
to time in effect. Chapter 346 of the Texas Finance Code does not apply to the Borrower’s
obligations hereunder.

96

 

     Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY
TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND
KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ
THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND
EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE
THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS;
AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION
AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES
AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY
PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE
OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

     Section 12.14 Collateral Matters; Swap Agreements. The benefit of the Security Instruments and of the
provisions of this Agreement relating to any collateral securing the Indebtedness shall also extend
to and be available to those Lenders or their Affiliates which are counterparties to any Swap
Agreement with the Borrower or any of its Subsidiaries on a pro rata basis in respect of any
obligations of the Borrower or any of its Subsidiaries which arise under any such Swap Agreement
while such Person or its Affiliate is a Lender, but only while such Person or its Affiliate is a
Lender, including any Swap Agreements between such Persons in existence prior to the date hereof.
No Lender or any Affiliate of a Lender shall have any voting rights under any Loan Document as a
result of the existence of obligations owed to it under any such Swap Agreements.

     Section 12.15 No Third Party Beneficiaries. This Agreement, the other Loan Documents, and the agreement
of the Lenders to make Loans and the Issuing Bank to issue, amend, renew or extend Letters of
Credit hereunder are solely for the benefit of the Borrower, and no other Person (including,
without limitation, any Subsidiary of the Borrower, any obligor, contractor, subcontractor,
supplier or materialman) shall have any rights, claims, remedies or privileges hereunder or under
any other Loan Document against the Administrative Agent, any other Agent, the Issuing Bank or any
Lender for any reason whatsoever. There are no third party beneficiaries.

     Section 12.16 USA Patriot Act Notice. Each Lender hereby notifies the Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) (the “Act”), it is required to obtain, verify and record information that identifies
the Borrower, which information includes the name and address of the Borrower and

97

 

other information
that will allow such Lender to identify the Borrower in accordance with the Act.

     Section 12.17 General Partner Liability. The Lenders agree for themselves and their respective
successors and assigns, including any subsequent holder of any Note, no claim arising against the
Borrower or the Parent under any Loan Document shall be asserted against the General Partner or EV
Management (or any member, manager, officer, director, partner, employee, or agent of the General
Partner or EV Management) and no judgment, order or execution entered in any suit, action or
proceeding, whether legal or equitable, on this Agreement, such Note or any of the other Loan
Documents shall be obtained or enforced against the General Partner or EV Management or their
respective assets for the purpose of obtaining satisfaction and payment of such Note, the
Indebtedness evidenced thereby or any claims arising thereunder or under this Agreement or any
other Loan Document, any right to proceed against the General Partner or EV Management (or any
member, manager, officer, director, partner, employee, or agent of the General Partner or EV
Management) individually or its respective assets being hereby expressly waived, renounced and
remitted by the Lenders for themselves and their respective successors and assigns. Nothing in
this Section 12.17, however, shall be construed so as to prevent the Administrative Agent, any
Lender or any other holder of any Note from commencing any action, suit or proceeding with respect
to or causing legal papers to be served upon the General Partner or EV Management for the purpose
of (i) obtaining jurisdiction over the Borrower or the Parent or (ii) obtaining judgment, order or
execution against the General Partner or EV Management arising out of any fraud or intentional
misrepresentation by the General Partner or EV Management in connection with the Loan Documents or
of recovery of moneys received by the General Partner or EV Management in violation of the terms of
this Agreement.

[SIGNATURES BEGIN NEXT PAGE]

98

 

     The parties hereto have caused this Agreement to be duly executed as of the day and year first
above written.

	 	 	 	 	 	 	 
	BORROWER:	 	EV PROPERTIES, L.P.	 	 
	 
	 	 	 	 	 	 
	 	 	By: EV Properties GP, LLC, its general partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: EV Energy Partners, L.P., its sole member	 	 
	 
	 	 	 	 	 	 
	 	 	By: EV Energy GP, L.P., its general partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: EV Management, L.L.C., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	PARENT:	 	EV ENERGY PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 	 	By: EV Energy GP, L.P., its general partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: EV Management, L.L.C., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 

 Signature Page

Credit Agreement

1

 

	 	 	 	 	 	 	 
	ADMINISTRATIVE AGENT:	 	JPMORGAN CHASE BANK, N.A., as

Administrative Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

Signature Page

Credit Agreement

2

 

	 	 	 	 	 	 	 
	CO-SYNDICATION AGENT:	 	BNP PARIBAS, as Co-Syndication Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

Signature Page

Credit Agreement

3

 

	 	 	 	 	 	 	 
	CO-SYNDICATION AGENT:	 	WACHOVIA BANK, N.A., as Co-Syndication
Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

Signature Page

Credit Agreement

4

 

	 	 	 	 	 	 	 
	CO-DOCUMENTATION AGENT:	 	COMPASS BANK, as Co-Documentation Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

Signature Page

Credit Agreement

5

 

	 	 	 	 	 	 	 
	CO-DOCUMENTATION AGENT:	 	UNION BANK OF CALIFORNIA, N.A., as

Co-Documentation Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

Signature Page

Credit Agreement

6

 

	 	 	 	 	 	 	 
	LENDERS:	 	JPMORGAN CHASE BANK, N.A., as a Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	BNP PARIBAS, as a Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	WACHOVIA BANK, N.A., as a Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	COMPASS BANK, as a Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 

 Signature Page

Credit Agreement

7

 

	 	 	 	 	 	 	 
	 	 	UNION BANK OF CALIFORNIA, N.A., as a
Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 

 Signature Page

Credit Agreement

8exv10w5

 

EXHIBIT 10.5

A.A.P.L.
FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

A.A.P.L. FORM 610 — 1989

MODEL FORM OPERATING AGREEMENT

DATED

                    , 2006

OPERATOR: EnerVest Operating LLC, acting as Contract Operator for                                         ,LP

CONTRACT AREA:                     

COUNTY OR PARISH OF                     , STATE OF                     

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE I. definitions
	 	 	1	 
	ARTICLE II. EXHIBITS
	 	 	2	 
	ARTICLE III. INTERESTS OF PARTIES
	 	 	3	 
	A Oil and Gas Interests:
	 	 	3	 
	B Interests of Parties in Costs and Production:
	 	 	3	 
	C Subsequently Created Interests:
	 	 	4	 
	ARTICLE IV. TITLES
	 	 	4	 
	A Title Examination:
	 	 	4	 
	B Loss or Failure of Title:
	 	 	5	 
	ARTICLE V. OPERATOR
	 	 	6	 
	A Designation and Responsibilities of Operator:
	 	 	6	 
	B Resignation or Removal of Operator and Selection of Successor:
	 	 	7	 
	C Employees and Contractors:
	 	 	7	 
	D Rights and Duties of Operator:
	 	 	8	 
	ARTICLE VI. DRILLING AND DEVELOPMent
	 	 	9	 
	C . Completion of Wells; Reworking and Plugging Back:
	 	 	15	 
	ARTICLE VII. EXPENDITURES AND LIABILITY OF PARTIES
	 	 	18	 
	A Liability of Parties:
	 	 	18	 
	B Liens and Security Interests:
	 	 	18	 
	C Advances:
	 	 	19	 
	D Defaults and Remedies:
	 	 	19	 
	E Rentals, Shut-in Well Payments and Minimum Royalties:
	 	 	21	 
	F Taxes:
	 	 	21	 
	ARTICLE VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
	 	 	22	 
	A Surrender of Leases:
	 	 	22	 
	B Renewal or Extension of Leases:
	 	 	22	 
	C Acreage or Cash Contributions:
	 	 	23	 
	D Assignment; Maintenance of Uniform Interest:
	 	 	23	 
	E Waiver of Rights to Partition:
	 	 	24	 
	ARTICLE IX. INTERNAL REVENUE CODE ELECTION
	 	 	24	 
	ARTICLE X. CLAIMS AND LAWSUITS
	 	 	24	 
	ARTICLE XI. FORCE MAJEURE
	 	 	25	 
	ARTICLE XII. NOTICES
	 	 	25	 
	ARTICLE XIII. TERM OF AGREEMENT
	 	 	25	 
	ARTICLE XIV. COMPLIANCE WITH LAWS AND REGULATIONS
	 	 	26	 
	A Laws, Regulations and Orders:
	 	 	26	 
	B Governing Law:
	 	 	26	 
	C Regulatory Agencies:
	 	 	26	 
	ARTICLE XV. MISCELLANEOUS
	 	 	27	 
	A Execution:
	 	 	27	 
	B Successors and Assigns:
	 	 	27	 
	C Counterparts:
	 	 	27	 
	D Severability:
	 	 	27	 
	ARTICLE XVI. OTHER PROVISIOns
	 	 	28	 

i

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

OPERATING AGREEMENT

     THIS AGREEMENT, entered into by and between EnerVest Operating LLC, acting as the contract
operator for the other signatory party or parties, hereinafter designated and referred to as
‘Operator,’ and the signatory party or parties other than Operator, sometimes hereinafter referred
to individually 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 “AFE” shall mean an Authority for Expenditure prepared by a party to
this agreement for the purpose of estimating the costs to be incurred in conducting an
operation hereunder.
	 
	 	B.	 	the term “Completion” or “Complete” shall mean a single operation intended to
complete a well as a producer of Oil and Gas in one or more Zones, including, but not
limited to, the setting of production casing, perforating, well stimulation and
production testing conducted in such operation.
	 
	 	C.	 	The term “Contract Area” shall mean all of the lands, Oil and Gas Leases and/or
Oil and Gas Interests intended to be developed and operated for Oil and Gas purposes
under this agreement. Such lands, Oil and Gas Leases and Oil and Gas Interests are
described in Exhibit “A.”
	 
	 	D.	 	The term “Deepen” shall mean a single operation whereby a well is drilled to an
objective Zone below the deepest Zone in which the well was previously drilled, or
below the Deepest Zone proposed in the associated AFE, whichever is the lesser.
	 
	 	E.	 	The terms “Drilling Party” and “Consenting Party” 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.
	 
	 	F.	 	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
established by the pattern of drilling in the Contract Area unless fixed by express
agreement of the Drilling Parties.
	 
	 	G.	 	The term “Drillsite” shall mean the Oil and Gas Lease or Oil and Gas Interest
on which a proposed well is to be located.
	 
	 	H.	 	The term “Initial Well” shall mean the well required to be drilled by the
parties hereto as provided in Article VIA.
	 
	 	I.	 	The term “Non-Consent Well” shall mean a well in which less than all parties
have conducted an operation as provided in Article VI.B.2.
	 
	 	J.	 	The terms “Non-Drilling Party” and “Non-Consenting Party” shall mean a party
who elects not to participate in a proposed operation.

1

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	 	K.	 	The term “Oil and Gas” shall mean oil, gas, casinghead gas, gas condensate,
and/or 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.
	 
	 	L.	 	The term “Oil and Gas Interests” or “Interests” shall mean unleased fee and
mineral interests in Oil and Gas in tracts of land lying within the Contract Area which
are owned by parties to this agreement.
	 
	 	M.	 	The terms “Oil and Gas Lease,” “Lease” and “Leasehold” shall mean the oil and
gas leases or interests therein covering tracts of land lying within the Contract Area
which are owned by the parties to this agreement.
	 
	 	N.	 	The term “Plug Back” shall mean a single operation whereby a deeper Zone is
abandoned in order to attempt a Completion in a shallower Zone.
	 
	 	O.	 	The term “Recompletion” or “Recomplete” shall mean an operation whereby a
Completion in one Zone is abandoned in order to attempt a Completion in a different
Zone within the existing wellbore.
	 
	 	P.	 	The term “Rework” shall mean an operation conducted in the wellbore of a well
after it is Completed to secure, restore, or improve production in a Zone which is
currently open to production in the wellbore. Such operations include, but are not
limited to, well stimulation operations but exclude any routine repair or maintenance
work or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back
of a well.
	 
	 	Q.	 	The term “Sidetrack” shall mean the directional control and intentional
deviation of a well from vertical so as to change the bottom hole location unless done
to straighten the hole or drill around junk in the hole to overcome other mechanical
difficulties.
	 
	 	R.	 	The term “Zone” shall mean a stratum of earth containing or thought to contain
a common accumulation of Oil and Gas separately producible from any other common
accumulation of Oil and Gas.

     Unless the context otherwise clearly indicates, words used in the singular include the plural,
the word “person” includes natural and artificial persons, the plural includes the singular, and
any gender includes the masculine, feminine, and neuter.

ARTICLE II.

EXHIBITS

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

     ___
A.     Exhibit “A,” shall include the following information:

	 	(1)	 	Description of lands subject to this agreement,
	 
	 	(2)	 	Restrictions, if any, as to depths, formations, or substances,
	 
	 	(3)	 	Parties to agreement with addresses and telephone numbers for notice purposes,
	 
	 	(4)	 	Percentages or fractional interests of parties to this agreement,
	 
	 	(5)	 	Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,
	 
	 	(6)	 	Burdens on production.

2

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

     ___ B.     Exhibit “B,” Form of Lease.

     ___ C.     Exhibit “C,” Accounting Procedure.

     ___ D.     Exhibit “D,” Insurance.

     ___ E.     Exhibit “E,” Gas Balancing Agreement.

     ___ F.     Exhibit “F,” Non-Discrimination and Certification of Non-Segregated Facilities.

     ___ G.     Exhibit “G,” Tax Partnership.

     ___ H.     Other:                                         

     If any provision of any exhibit, except Exhibits “E,” “F” and “G,” 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 the form of
Oil and Gas Lease attached hereto as Exhibit “B,” and the owner thereof shall be deemed to own both
royalty interest 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, however, to the payment of royalties and other burdens on production as described
hereafter.

     Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on
which royalty or other burdens may be payable and except as otherwise expressly provided in this
agreement, each party shall pay or deliver, or cause to be paid or delivered, all burdens on its
share of the production from the Contract Area up to, but not in excess of, ___and shall
indemnify, defend and hold the other parties free from any liability therefor. Except as otherwise
expressly provided in this agreement, if any party has contributed hereto any Lease or Interest
which is burdened with any royalty, overriding royalty, production payment or other burden on
production in excess of the amounts stipulated above, such party so burdened shall assume and alone
bear all such excess obligations and shall indemnify, defend and hold the other parties hereto
harmless from any and all claims attributable to such excess burden. However, so long as the
Drilling Unit for the productive Zone(s) is identical with the Contract Area, each party shall pay
or deliver, or cause to be paid or delivered, all burdens on production from the Contract Area due
under the terms of the Oil and Gas Lease(s) which such party has contributed to this agreement, and
shall indemnify, defend and hold the other parties free from any liability therefor.

     No party shall ever be responsible, on a price basis higher than the price received by such
party, to any other party’s lessor or royalty owner, and if 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.

     Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of
interests covered hereby, and in the event two or more parties contribute to this agreement jointly
owned Leases, the parties’

3

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

undivided interests in said Leaseholds shall be deemed separate leasehold interests for the
purposes of this agreement.

C Subsequently Created Interests:

     If any party has contributed hereto a Lease or Interest that is burdened with an assignment of
production given as security for the payment of money, or if, after the date of this agreement, any
party creates an overriding royalty, production payment, net profits interest, assignment of
production or other burden payable out of production attributable to its working interest
hereunder, such burden shall be deemed a “Subsequently Created Interest.” Further, if any party
has contributed hereto a Lease or Interest burdened with an overriding royalty, production payment,
net profits interests, or other burden payable out of production created prior to the date of this
agreement, and such burden is not shown on Exhibit “A,” such burden also shall be deemed a
Subsequently Created Interest to the extent such burden causes the burdens on such party’s Lease or
Interest to exceed the amount stipulated in Article III.B. above.

     The party whose interest is burdened with the Subsequently Created Interest (the “Burdened
Party”) shall assume and alone bear, pay and discharge the Subsequently Created Interest and shall
indemnify, defend and hold harmless the other parties from and against any liability therefor.
Further, 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. 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, defend and hold harmless
said other party, or parties, from any and all claims and demands for payment asserted by owners of
the Subsequently Created Interest.

ARTICLE IV.

TITLES

A Title Examination:

     Title examination shall be made on the Drillsite of any proposed well prior to commencement of
drilling operations and, if a majority in interest of the Drilling Parties so request or Operator
so elects, title examination shall be made on the entire Drilling Unit, or maximum anticipated
Drilling Unit, of the well. The opinion will include the ownership of the working interest,
minerals, royalty, overriding royalty and production payments under the applicable Leases. Each
party contributing Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling
Unit, if appropriate, 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 Drilling Party. Costs incurred by Operator in procuring
abstracts, fees paid outside attorneys for title examination (including preliminary, supplemental,
shut-in royalty opinions and division order title opinions) and other direct charges as provided in
Exhibit “C” 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 and communitization agreements as well as the conduct of hearings before governmental
agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate
to the conduct of operations hereunder. This shall not prevent any party from appearing on its own
behalf at such hearings. Costs incurred by Operator, including fees paid to outside attorneys,
which are associated with hearings before governmental agencies, and which costs are necessary and
proper for the activities contemplated under this agreement, shall be direct charges to the joint
account and shall not be covered by

4

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

the administrative overhead charges as provided in Exhibit “C.” Operator shall make no charge
for services rendered by its staff attorneys or other personnel in the performance of the above
functions.

     No well shall be driled on the Contract Area until after (1) the title to the Drillsite or
Drilling Unit, if appropriate, has been examined as above provided, and (2) the title has been
approved by the examining attorney or title has been accepted by all of the Drilling Parties in
such well.

B Loss or Failure of Title:

     1. Failure of Title: Should any Oil and Gas Interest or Oil and Gas Lease be lost
through failure of title, which results in a reduction of interest from that shown on Exhibit “A,”
the party credited with contributing the affected Lease or Interest (including, if applicable, a
successor in interest to such party) shall have ninety (90) days from final determination of title
failure to acquire a new lease or other instrument curing the entirety of the title failure, which
acquisition will not be subject to Article VIII.B., and failing to do so, this agreement,
nevertheless, shall continue in force as to all remaining Oil and Gas Leases and Interests; and,

          (a) The party credited with contributing the Oil and Gas Lease or Interest affected by the
title failure (including, if applicable, a successor in interest to such party) shall bear alone
the entire loss and it shall not be entitled to recover from Operator or the other parties any
development or operating costs which it may have previously paid or incurred, but there shall be no
additional liability on its part to the other parties hereto by reason of such title failure;

          (b) There shall be no retroactive adjustment of expenses incurred or revenues received from
the operation of the Lease or Interest which has failed, but the interests of the parties contained
on Exhibit “A” shall be revised on an acreage basis, as of the time it is determined finally that
title failure has occurred, so that the interest of the party whose Lease or Interest is affected
by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or
Interest failed;

          (c) If the proportionate interest of the other parties hereto in any producing well previously
drilled on the Contract Area is increased by reason of the title failure, the party who bore the
costs incurred in connection with such well attributable to the Lease or Interest which has failed
shall receive the proceeds attributable to the increase in such interest (less costs and burdens
attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection
with such well attributable to such failed Lease or Interest;

          (d) Should any person not a party to this agreement, who is determined to be the owner of any
Lease or Interest which has failed, pay in any manner any part of the cost of operation,
development, or equipment, such amount shall be paid to the party or parties who bore the costs
which are so refunded;

          (e) Any liability to account to a person not a party to this agreement for prior production of
Oil and Gas which arises by reason of title failure shall be borne severally by each party
(including a predecessor to a current party) who received production for which such accounting is
required based on the amount of such production received, and each such party shall severally
indemnify, defend and hold harmless all other parties hereto for any such liability to account;

          (f) No charge shall be made to the joint account for legal expenses, fees or salaries in
connection with the defense of the Lease or Interest claimed to have failed, but if the party
contributing such Lease or Interest hereto elects to defend its title it shall bear all expenses in
connection therewith; and

          (g) If any party is given credit on Exhibit “A” to a Lease or Interest which is limited solely
to ownership of an interest in the wellbore of any well or wells and the production therefrom, such
party’s absence of interest in the remainder of the Contract Area shall be considered a Failure of
Title as to such remaining Contract Area unless that absence of interest is reflected on Exhibit
“A.”

     2. Loss by Non-Payment or Erroneous Payment of Amount Due: If, through mistake or
oversight, any rental, shut-in well payment, minimum royalty or royalty payment, or other payment
necessary to maintain all

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

or a portion of an Oil and Gas Lease or interest is not paid or is erroneously paid, and as a
result a Lease or Interest terminates, there shall be no monetary liability against the party who
failed to make such payment. Unless the party who failed to make the required payment secures a
new Lease or Interest covering the same interest within ninety (90) days from the discovery of the
failure to make proper payment, which acquisition will not be subject to Article VIII.B., the
interests of the parties reflected on Exhibit “A” shall be revised on an acreage basis, effective
as of the date of termination of the Lease or Interest involved, and the party who failed to make
proper payment will no longer be credited with an interest in the Contract Area on account of
ownership of the Lease or Interest which has terminated. If the party who failed to make the
required payment shall not have been fully reimbursed, at the time of the loss, from the proceeds
of the sale of Oil and Gas attributable to the lost Lease or Interest, calculated on an acreage
basis, for the development and operating costs previously paid on account of such Lease or
Interest, it shall be reimbursed for unrecovered actual costs previously paid by it (but not for
its share of the cost of any dry hole previously drilled or wells previously abandoned) from so
much of the following as is necessary to effect reimbursement:

          (a) Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less
operating expenses and lease burdens chargeable hereunder to the person who failed to make payment,
previously accrued to the credit of the lost Lease or Interest, on an acreage basis, up to the
amount of unrecovered costs;

          (b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to
the person who failed to make payment, up to the amount of unrecovered costs attributable to that
portion of Oil and Gas thereafter produced and marketed (excluding production from any wells
thereafter drilled) which, in the absence of such Lease or Interest termination, would be
attributable to the lost Lease or Interest on an acreage basis and which as a result of such Lease
or Interest termination is credited to other parties, the proceeds of said portion of the Oil and
Gas to be contributed by the other parties in proportion to their respective interests reflected on
Exhibit “A”; and,

          (c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is,
or becomes, the owner of the Lease or Interest lost, for the privilege of participating in the
Contract Area or becoming a party to this agreement.

     3. Other Losses: All losses of Leases or Interests committed to this agreement, other
than those set forth in Articles IV.B.l . and IV.B.2. above, shall be joint losses and shall be
borne by all parties in proportion to their interests shown on Exhibit “A.” This shall include but
not be limited to the loss of any Lease or Interest through failure to develop or because express
or implied covenants have not been performed (other than performance which requires only the
payment of money), and the loss of any Lease by expiration at the end of its primary term if it is
not renewed or extended. There shall be no readjustment of interests in the remaining portion of
the Contract Area on account of any joint loss.

     4. Curing Title: In the event of a Failure of Title under Article IV.B.l. or a loss
of title under Article IV.B.2. above, any Lease or Interest acquired by any party hereto (other
than the party whose interest has failed or was lost) during the ninety (90) day period provided by
Article IV.B.l. and Article IV.B.2. above covering all or a portion of the interest that has failed
or was lost shall be offered at cost to the party whose interest has failed or was lost, and the
provisions of Article VIII.B. shall not apply to such acquisition.

ARTICLE V.

OPERATOR

A Designation and Responsibilities of Operator:

     EnerVest Operating LLC 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. In its performance of services hereunder for the
Non-Operators, Operator shall be an independent contractor not subject to the control or direction
of the Non-Operators except as to the type of operation to be undertaken in accordance with the
election procedures contained in this agreement. Operator shall not be deemed, or hold itself out
as, the agent of the Non-Operators with authority to bind them to any obligation or liability
assumed or incurred by Operator as to any third party. Operator shall conduct its activities under
this agreement as a

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

reasonable prudent operator, in a good and workmanlike manner, with due diligence and
dispatch, in accordance with good oilfield practice, and in compliance with applicable law and
regulation, but in no event shall it have any 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 only for good cause by the affirmative vote of
Non-Operators owning a majority interest based on ownership as shown on Exhibit “A” remaining after
excluding the voting interest of Operator; such vote shall not be deemed effective until a written
notice has been delivered to the Operator by a Non-Operator detailing the alleged default and
Operator has failed to cure the default within thirty (30) days from its receipt of the notice or,
if the default concerns an operation then being conducted, within forty-eight (48) hours of its
receipt of the notice. For purposes hereof. “good cause” shall mean not only gross negligence or
willful misconduct but also the material breach of or inability to meet the standards of operation
contained in Article V.A. or material failure or inability to perform its obligations under this
agreement.

     Subject to Article VII.D.l., such resignation or removal shall not become effective until 7:00
o’clock AM. 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 under
any provision of this agreement, 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 two (2) or more parties owning a majority interest based on ownership as shown
on Exhibit “A”; provided, however, if an Operator which has been removed or is deemed to have
resigned fails to vote or votes only to succeed itself, the successor Operator shall be selected by
the affirmative vote of the party or 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 or
resigned. The former Operator shall promptly deliver to the successor Operator all records and
data relating to the operations conducted by the former Operator to the extent such records and
data are not already in the possession of the successor operator. Any cost of obtaining or copying
the former Operator’s records and data shall be charged to the joint account.

     3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in
receivership, it shall be deemed to have resigned without any action by Non-Operators, except the
selection of a successor. If a petition for relief under the federal bankruptcy laws is filed by
or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all
Non-Operators and Operator shall comprise an interim operating committee to serve until Operator
has elected to reject or assume this agreement pursuant to the Bankruptcy Code, and an election to
reject this agreement by Operator as a debtor in possession, or by a trustee in bankruptcy, shall
be deemed a resignation as Operator without any action by Non-Operators, except the selection of a
successor. During the period of time the operating committee controls operations, all actions
shall require the approval of two (2) or more parties owning a majority interest based on ownership
as shown on Exhibit “A.” In the event there are only two (2) parties to this agreement, during the
period of time the operating committee controls operations, a third party acceptable to Operator,
Non-Operator and the federal bankruptcy court shall be selected as a member of the operating
committee, and all actions shall require the approval of two (2) members of the operating committee
without regard for their interest in the Contract Area based on Exhibit “A.”

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

     C Employees and Contractors:

     The number of employees or contractors 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 or contractors shall be the employees or contractors
of Operator.

D Rights and Duties of Operator:

     1. Competitive Rates and Use of Affiliates: 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. All
work performed or materials supplied by affiliates or related parties of Operator shall be
performed or supplied at competitive rates, pursuant to written agreement, and in accordance with
customs and standards prevailing in the industry.

     2. Discharge of Joint Account Obligations: 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. Attached to and made a part of Exhibit C hereto shall
be Addenda indicating the direct charges and overhead for specified regions within the Contract
Area.

     3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they
become due and payable, all accounts of contractors and suppliers and wages and salaries for
services rendered or performed, and for materials supplied on, to or in respect of the Contract
Area or any operations for the joint account thereof, and shall keep the Contract Area free from
liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as
to services rendered or materials supplied.

     4. Custody of Funds: Operator shall hold for the account of the Non-Operators any
funds of the Non-Operators advanced or paid to the Operator, either for the conduct of operations
hereunder or as a result of the sale of production from the Contract Area, and such funds shall
remain the funds of the Non-Operators on whose account they are advanced or paid until used for
their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of
debts as provided in Article VII.B. Nothing in this paragraph shall be construed to establish a
fiduciary relationship between Operator and Non-Operators for any purpose other than to account for
Non-Operator funds as herein specifically provided. Nothing in this paragraph shall require the
maintenance by Operator of separate accounts for the funds of Non-Operators unless the parties
otherwise specifically agree.

     5. Access to Contract Area and Records: Operator shall, except as otherwise provided
herein, permit each Non-Operator or its duly authorized representative, at the Non-Operator’s sole
risk and cost, full and free access at all reasonable times to all operations of every kind and
character being conducted for the joint account on the Contract Area and to the records of
operations conducted thereon or production therefrom, including Operator’s books and records
relating thereto. Such access rights shall not be exercised in a manner interfering with
Operator’s conduct of an operation hereunder and shall not obligate Operator to furnish any
geologic or geophysical data of an interpretive nature unless the cost of preparation of such
interpretive data was charged to the joint account. Operator will furnish to each Non-Operator
upon request copies of any and all reports and information obtained by Operator in connection with
production and related items, including, without limitation, meter and chart reports, production
purchaser statements, run tickets and monthly gauge reports, but excluding purchase contracts and
pricing information to the extent not applicable to the production of the Non-Operator seeking the
information. Any audit of Operator’s records relating to amounts expended and the appropriateness
of such expenditures shall be conducted in accordance with the audit protocol specified in Exhibit
“C.”

     6. Filing and Furnishing Governmental Reports: Operator will file, and upon written
request promptly furnish copies to each requesting Non-Operator not in default of its payment
obligations, all operational notices, reports or applications required to be filed by local, State,
Federal or Indian agencies or authorities having jurisdiction over operations hereunder. Each
Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to
make such filings.

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

     7. Drilling and Testing Operations: The following provisions shall apply to each well
drilled hereunder, including but not limited to the Initial Well:

          (a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or
the date on which drilling operations are commenced.

          (b) Operator will send to Non-Operators such reports, test results and notices regarding the
progress of operations on the well as the Non-Operators shall reasonably request, including, but
not limited to, daily drilling reports, completion reports, and well logs.

          (c) Operator shall adequately test all Zones encountered which may reasonably be expected to
be capable of producing Oil and Gas in paying quantities as a result of examination of the electric
log or any other logs or cores or tests conducted hereunder.

     8. Cost Estimates: Upon request of any Consenting Party, Operator shall furnish
estimates of current and cumulative costs incurred for the joint account at reasonable intervals
during the conduct of any operation pursuant to this agreement. Operator shall not be held liable
for errors in such estimates so long as the estimates are made in good faith.

     9. Insurance: At all times while operations are conducted hereunder, Operator shall
comply with the workers 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 insurance for the benefit of the joint account
of the parties as outlined in Exhibit “D” attached hereto and made a part hereof. Operator shall
require all contractors engaged in work on or for the Contract Area to comply with the workers
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 liability insurance is specified in said Exhibit “D,” or subsequently
receives the approval of the parties, no direct charge shall be made by Operator for premiums paid
for such insurance for Operator’s automotive equipment.

ARTICLE VI.

DRILLING AND DEVELOPMENT

     1. Proposed Operations: If any party hereto should desire to drill any well on the
Contract Area or if any party should desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back a
dry hole or a well no longer capable of producing in paying quantities in which such party has not
otherwise relinquished its interest in the proposed objective Zone under this agreement, the party
desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give
written notice of the proposed operation to the parties who have not otherwise relinquished their
interest in such objective Zone under this agreement and to all other parties in the case of a
proposal for Sidetracking or Deepening, specifying the work to be performed, the location, proposed
depth, objective Zone and the estimated cost of the operation. The parties to whom such a notice
is delivered shall have thirty (30) days after receipt of the notice within which to notify the
party proposing 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 Rework, Sidetrack,
Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited
to twenty-four (24) hours. Failure of a party to whom such notice is delivered 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 proposal by a party to conduct an operation conflicting with the operation
initially proposed shall be delivered to all parties within the time and in the manner provided in
Article VI.B.6.

     If all parties to whom such notice is delivered elect to participate in such a proposed
operation, the parties shall be contractually committed to participate therein provided such
operations are commenced within the time period hereafter set forth, and Operator shall, no later
than ninety (90) days after expiration of the notice period of thirty (30) days (or as promptly as
practicable after the

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

expiration of the twenty-four (24) hour period when a drilling rig is on location, as the case
may be), actually commence the proposed operation and thereafter complete it with due diligence at
the risk and expense of the parties participating therein; 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. If the actual operation has not been commenced
within the time provided (including any extension thereof as specifically permitted herein or in
the force majeure provisions of Article XI) and if any party hereto still desires to conduct said
operation, written notice proposing same must be resubmitted to the other parties in accordance
herewith as if no prior proposal had been made. Those parties that did not participate in the
drilling of a well for which a proposal to Deepen or Sidetrack is made hereunder shall, if such
parties desire to participate in the proposed Deepening or Sidetracking operation, reimburse the
Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in
accordance with Article VI.B.5. in the event of a Sidetracking operation.

     2. Operations by Less Than All Parties:

          (a) Determination of Participation. If any party to whom such notice is delivered as
provided in Article VI.B.1. or VI.C.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, no
later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as
promptly as practicable after the expiration of the twenty-four (24) 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: (i) request Operator to perform the work
required by such proposed operation for the account of the Consenting Parties, or (ii) designate
one of the Consenting Parties as Operator to perform such work. The rights and duties granted to
and imposed upon the Operator under this agreement are granted to and imposed upon the party
designated as Operator for an operation in which the original Operator is a Non-Consenting Party.
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.

     If less than all parties approve any proposed operation, the proposing party, immediately
after the expiration of the applicable notice period, shall advise all 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
twenty-four (24) hours after delivery of such notice, shall advise the proposing party of its
desire to (i) limit participation to such party’s interest as shown on Exhibit “A” or (ii) carry
only its proportionate part (determined by dividing such party’s interest in the Contract Area by
the interests of all Consenting Parties in the Contract Area) of Non-Consenting Parties’ interests,
or (iii) carry its proportionate part (determined as provided in (ii)) of Non-Consenting Parties’
interests together with all or a portion of its proportionate part of any Non-Consenting Parties’
interests that any Consenting Party did not elect to take. Any interest of Non-Consenting Parties
that is not carried by a Consenting Party shall be deemed to be carried by the party proposing the
operation if such party does not withdraw its proposal. Failure to advise the proposing party
within the time required shall be deemed an election under (i). In the event a drilling rig is on
location, notice may be given by telephone, and the time permitted for such a response shall not
exceed a total of twenty-four (24) hours. The proposing party, at its election, may withdraw such
proposal if there is less than 100% participation and shall notify all parties of such decision
within ten (10) days, or within twenty-four (24) hours if a drilling rig is on location, following
expiration of the applicable response period. If 100% subscription to the proposed operation is
obtained, the proposing party shall promptly notify the Consenting Parties of their proportionate
interests in the operation and the party serving as Operator shall commence such operation within
the period provided in Article VI.B.1., subject to the same extension right as provided therein.

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

          (b) Relinquishment of Interest for Non-Participation. 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, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall
plug and abandon the well and restore the surface location at their sole cost, risk and expense;
provided, however, that those Non-Consenting Parties that participated in the drilling, Deepening
or Sidetracking of the well shall remain liable for, and shall pay, their proportionate shares of
the cost of plugging and abandoning the well and restoring the surface location insofar only as
those costs were not increased by the subsequent operations of the Consenting Parties. If any well
drilled, Reworked, Sidetracked, Deepened, Recompleted or Plugged Back under the provisions of this
Article results in a well capable of producing 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 (if the Operator did not conduct the operation) and shall be
operated by it at the expense and for the account of the Consenting Parties. Upon commencement of
operations for the drilling, Reworking, Sidetracking, Recompleting, 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 or, in the case
of a Reworking, Sidetracking, Deepening, Recompleting or Plugging Back, or a Completion pursuant to
Article VI.C.1. Option No. 2, all of such Non-Consenting Party’s interest in the production
obtained from the operation in which the Non-Consenting Party did not elect to participate. Such
relinquishment shall be effective 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 applicable ad valorem,
production, severance, and excise taxes, royalty, overriding royalty and other interests not
excepted by Article III.C. 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:

     (i) 400% 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

     (ii) 400% of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking,
Deepening, Plugging Back, testing, Completing, and Recompleting, after deducting any cash
contributions received under Article VIII.C., and of (b) 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.

     Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the
deepest objective Zone described in the notice proposing the well for reasons other than the
encountering of granite or practically impenetrable substance or other condition in the hole
rendering further operations impracticable, Operator shall give notice thereof to each
Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to
drill the well to a shallower Zone than the deepest objective Zone proposed in the notice under
which the well was drilled, and each such Non-Consenting Party shall have the option to participate
in the initial proposed Completion of the well by paying its share of the cost of drilling the well
to its actual depth, calculated in the manner provided in Article VI.B.4. (a). If any such
Non-Consenting Party does not elect to participate in the first Completion proposed for such well,
the relinquishment provisions of this Article VI.B.2. (b) shall apply to such party’s interest.

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

          (c) Reworking, Recompleting or Plugging Back. An election not to participate in the
drilling, Sidetracking or Deepening of a well shall be deemed an election not to participate in any
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 amount. Similarly, an election not to
participate in the Completing or Recompleting of a well shall be deemed an election not to
participate in any Reworking 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 amount. Any such Reworking,
Recompleting 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 400% of that portion of the costs of the Reworking, Recompleting or Plugging
Back operation which would have been chargeable to such Non-Consenting Party had it participated
therein. If such a Reworking, Recompleting 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.

          (d) Recoupment Matters. 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 ad valorem, 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.C.

     In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening
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, Sidetracking, Plugging Back, Recompleting or
Deepening, 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.

     Within ninety (90) 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, Sidetracking, Deepening, Plugging Back, testing, Completing, Recompleting, 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 as of 7:00 a.m. on the day following the day on which such recoupment
occurs, 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,
Sidetracking, Reworking, Deepening, Recompleting or Plugging Back of said well. Thereafter, such
Non-Consenting Party shall be charged

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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 Exhibit “C” attached hereto.

     3. Stand-By Costs: 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, or when operations on the well have been otherwise terminated pursuant to Article VI.F.,
stand-by costs incurred pending response to a party’s notice proposing a Reworking, Sidetracking,
Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period
required under Article VI.B.6. to resolve competing proposals) 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. (a), 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.

     In the event that notice for a Sidetracking operation is given while the drilling rig to be
utilized is on location, any party may request and receive up to five (5) additional days after
expiration of the twenty-four (24) hour response period specified in Article VI.B.1. within which
to respond by paying for all stand-by costs and other costs incurred during such extended response
period; Operator may require such party to pay the estimated stand-by time in advance as a
condition to extending the response period. If more than one party elects to take such additional
time to respond to the notice, standby 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.

     4. Deepening: If less than all parties elect to participate in a drilling,
Sidetracking, or Deepening operation proposed pursuant to Article VI.B.1., the interest
relinquished by the Non-Consenting Parties to the Consenting Parties under Article VI.B.2. shall
relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the
objective depth or Zone of which the parties were given notice under Article VI.B.1. (“Initial
Objective”). Such well shall not be Deepened beyond the Initial Objective without first complying
with this Article to afford the Non-Consenting Parties the opportunity to participate in the
Deepening operation.

     In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth
below the Initial Objective, such party shall give notice thereof, complying with the requirements
of Article VI.B.1., to all parties (including Non-Consenting Parties). Thereupon, Articles VI.B.1.
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.1. 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 pay or make reimbursement
(as the case may be) of the following costs and expenses.

     (a) 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 Initial Objective 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 Initial Objective shall be for the sole account of
Consenting Parties.

     (b) 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

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quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the
case may be) its proportionate share of all costs of drilling, Completing, and equipping said well
from the surface to the Initial Objective, calculated in the manner provided in paragraph (a)
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 re-entering the well for
Deepening

     The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a
Non-Consent Well prior to the drilling of such well to its Initial Objective without the consent of
the other Consenting Parties as provided in Article VI.F.

     5. Sidetracking: Any party having the right to participate in a proposed Sidetracking
operation that does not own an interest in the affected wellbore at the time of the notice shall,
upon electing to participate, tender to the wellbore owners its proportionate share (equal to its
interest in the Sidetracking operation) of the value of that portion of the existing wellbore 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 such party’s proportionate share of drilling and equipping costs incurred
in the initial drilling of the well down to the depth at which the Sidetracking operation is
conducted, calculated in the manner described in Article VI.B.4(b) above. Such party’s
proportionate share of the cost of the well’s salvable materials and equipment down to the depth at
which the Sidetracking operation is initiated shall be determined in accordance with the provisions
of Exhibit “C.”

     6. Order of Preference of Operations. Except as otherwise specifically provided in
this agreement, if any party desires to propose the conduct of an operation that conflicts with a
proposal that has been made by a party under this Article VI, such party shall have fifteen (15)
days from delivery of the initial proposal, in the case of a proposal to drill a well or to perform
an operation on a well where no drilling rig is on location, or twenty-four (24) hours, from
delivery of the initial proposal, if a drilling rig is on location for the well on which such
operation is to be conducted, to deliver to all parties entitled to participate in the proposed
operation such party’s alternative proposal, such alternate proposal to contain the same
information required to be included in the initial proposal. Each party receiving such proposals
shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal
period, or within twenty-four (24) hours if a drilling rig is on location for the well that is the
subject of the proposals, to participate in one of the competing proposals. Any party not electing
within the time required shall be deemed not to have voted. The proposal receiving the vote of
parties owning the largest aggregate percentage interest of the parties voting shall have priority
over all other competing proposals; in the case of a tie vote, the initial proposal shall prevail.
Operator shall deliver notice of such result to all parties entitled to participate in the
operation within five (5) days after expiration of the election period (or within twenty-four (24)
hours if a drilling rig is on location). Each party shall then have two (2) days (or twenty-four
(24) hours if a rig is on location) from receipt of such notice to elect by delivery of notice to
Operator to participate in such operation or to relinquish interest in the affected well pursuant
to the provisions of Article VI.B.2.; failure by a party to deliver notice within such period shall
be deemed an election not to participate in the prevailing proposal.

     7. Conformity to Spacing Pattern. Notwithstanding the provisions of this Article
VI.B.2., it is agreed that no wells shall be proposed to be drilled to or Completed in or produced
from a Zone from which a

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

well located elsewhere on the Contract Area is producing, unless such well conforms to the
then-existing well spacing pattern for such Zone.

     8. Paving Wells. No party shall conduct any Reworking, Deepening, Plugging Back,
Completion, Recompletion, or Sidetracking operation under this agreement with respect to any well
then capable of producing in paying quantities except with the consent of all parties that have not
relinquished interests in the well at the time of such operation.

C . Completion of Wells; Reworking and Plugging Back:

     1. Completion: Without the consent of all parties, no well shall be drilled, Deepened
or Sidetracked, except any well drilled, Deepened or Sidetracked pursuant to the provisions of
Article VI.B.2. of this agreement. Consent to the drilling, Deepening or Sidetracking shall
include:

	 	þ	 	Option No. 1: All necessary expenditures for the drilling,
Deepening or Sidetracking, testing, Completing and equipping of
the well, including necessary tankage and/or surface facilities.
	 
	 	o	 	Option No. 2: All necessary expenditures for the drilling,
Deepening or Sidetracking and testing of the well. When such well
has reached its authorized depth, and all logs, cores and other
tests have been completed, and the results thereof furnished to
the parties, Operator shall give immediate notice to the
Non-Operators having the right to participate in a Completion
attempt whether or not Operator recommends attempting to Complete
the well, together with Operator’s AFE for Completion costs if not
previously provided. The parties receiving such notice shall have
forty-eight (48) hours (exclusive of Saturday, Sunday and legal
holidays) in which to elect by delivery of notice to Operator to
participate in a recommended Completion attempt or to make a
Completion proposal with an accompanying AFE. Operator shall
deliver any such Completion proposal, or any Completion proposal
conflicting with Operator’s proposal, to the other parties
entitled to participate in such Completion in accordance with the
procedures specified in Article VI.B.6. Election to participate
in a Completion attempt shall include consent to all necessary
expenditures for the Completing and equipping of such well,
including necessary tankage and/or surface facilities but
excluding any stimulation operation not contained on the
Completion AFE. 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; provided, that Article VI.B.6. shall control in the case
of conflicting Completion proposals. If one or more, but less than
all of the parties, elect to attempt a Completion, the provision
of Article VI.B.2. hereof (the phrase “Reworking, Sidetracking,
Deepening, Recompleting 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;
provided, however, that Article VI.B.2. shall apply separately to
each separate Completion or Recompletion attempt undertaken
hereunder, and an election to become a Non-Consenting Party as to
one Completion or Recompletion attempt shall not prevent a party
from becoming a Consenting Party in subsequent Completion or
Recompletion attempts regardless whether the Consenting Parties as
to earlier Completions or Recompletion have recouped their costs
pursuant to Article VI.B.2.; provided further, that any recoupment
of costs by a Consenting Party shall be made solely from the
production attributable to the Zone in which the Completion
attempt is made. Election by a previous Non-Consenting party to
participate in a subsequent Completion or Recompletion attempt
shall require such party to pay its proportionate share of the
cost of salvable materials and equipment installed in the well
pursuant to the previous Completion or Recompletion attempt,
insofar and only insofar as such materials and equipment benefit
the Zone in which such party participates in a Completion attempt.

     2. Rework Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged
Back except a well Reworked, Recompleted, or Plugged Back pursuant to the provisions of Article
VI.B.2. of this agreement. Consent to the Reworking, Recompleting 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.

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

D. Other Operations:

     Operator shall not undertake any single project reasonably estimated to require an expenditure
in excess of Twenty-five thousand Dollars ($25,000.00) except in connection with the drilling,
Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that 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 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 Twenty-five thousand Dollars ($25,000.00). Any party who has not relinquished its
interest in a well shall have the right to propose that Operator perform repair work or undertake
the installation of artificial lift equipment or ancillary production facilities such as salt water
disposal wells or to conduct additional work with respect to a well drilled hereunder or other
similar project (but not including the installation of gathering lines or other transportation or
marketing facilities, the installation of which shall be governed by separate agreement between the
parties) reasonably estimated to require an expenditure in excess of the amount first set forth
above in this Article VI.D. (except in connection with an operation required to be proposed under
Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively by those Articles).
Operator shall deliver such proposal to all parties entitled to participate therein. If within
thirty (30) days thereof Operator secures the written consent of any party or parties owning at
least 50% of the interests of the parties entitled to participate in such operation, each party
having the right to participate in such project shall be bound by the terms of such proposal and
shall be obligated to pay its proportionate share of the costs of the proposed project as if it had
consented to such project pursuant to the terms of the proposal.

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 delivery 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 by notice delivered to Operator within forty-eight (48) hours
(exclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposed
plugging shall take over the well as of the end of such forty-eight (48) hour notice period and
conduct further operations in search of Oil and/or Gas subject to the provisions of Article VI.B.;
failure of such party to provide proof reasonably satisfactory to Operator of its financial
capability to conduct such operations or to take over the well within such period or thereafter to
conduct operations on such well or plug and abandon such well shall entitle Operator to retain or
take possession of the well and plug and abandon the well. The party taking over the well shall
indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against
liability for any further operations conducted on such well except for the costs of plugging and
abandoning the well and restoring the surface, for which the abandoning parties shall remain
proportionately liable.

     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. Failure of a party to reply within sixty
(60) days of delivery of notice of proposed abandonment shall be deemed an election to consent to
the proposal. If, within sixty (60) days after delivery 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 Zone then open to

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

production shall be obligated to take over the well as of the expiration of the applicable
notice period and shall indemnify Operator (if Operator is an abandoning party) and the other
abandoning parties against liability for any further operations on the well conducted by such
parties. Failure of such party or parties to provide proof reasonably satisfactory to Operator of
their financial capability to conduct such operations or to take over the well within the required
period or thereafter to conduct operations on such well shall entitle Operator to retain or take
possession of such well and plug and abandon the well.

     Parties taking over a well as provided herein 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 and restoring the surface; provided, however, that in the
event the estimated plugging and abandoning and surface restoration costs and the estimated cost of
salvaging are higher than the value of the well’s salvable material and equipment, each of the
abandoning parties shall tender to the parties continuing operations their proportionate shares of
the estimated excess cost. Each abandoning party shall assign to 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 wellbore of the well and related equipment,
together with its interest in the Leasehold insofar and only insofar as such Leasehold covers the
right to obtain production from that wellbore in the Zone 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 wellbore and
the Zone then open to production, for a term of one (1) year and so long thereafter as Oil and/or
Gas is produced from the Zone covered thereby, such lease to be on the form attached as Exhibit
“B.” 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 portions of the Contract Area.

     Thereafter, abandoning parties shall have no further responsibility, liability, or interest in
the operation of or production from the well in the Zone 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 Zone
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.; and provided
further, that Non-Consenting Parties who own an interest in a portion of the well shall pay their
proportionate shares of abandonment and surface restoration cosst for such well as provided in
Article VI.B.2.(b).

F. Termination of Operations:

     Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging
Back, Deepening, testing, Completion or plugging of a well, including but not limited to the
Initial Well, such operation shall not be terminated without consent of parties bearing 50% of the
costs of such operation; provided, however, that in the event granite or other practically
impenetrable substance or condition in the hole is encountered which renders further operations
impractical, Operator may discontinue operations and give notice of such condition in the manner
provided in Article VI.B.1, and the provisions of Article VI.B. or VI.E. shall thereafter apply to
such operation, as appropriate.

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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, and no party shall
have any liability to third parties hereunder to satisfy the default of any other party in the
payment of any expense or obligation hereunder. It is not the intention of the parties to create,
nor shall this agreement be construed as creating, a mining or other partnership, joint venture,
agency relationship or association, or to render the parties liable as partners, co-venturers, or
principals. In their relations with each other under this agreement, the parties shall not be
considered fiduciaries or to have established a confidential relationship but rather shall be free
to act on an arm’s-length basis in accordance with their own respective self-interest, subject,
however, to the obligation of the parties to act in good faith in their dealings with each other
with respect to activities hereunder.

B Liens and Security Interests:

     Each party grants to the other parties hereto a lien upon any interest it now owns or
hereafter acquires in Oil and Gas Leases and Oil and Gas Interests in the Contract Area, and a
security interest and/or purchase money security interest in any interest it now owns or hereafter
acquires in the personal property and fixtures on or used or obtained for use in connection
therewith, to secure performance of all of its obligations under this agreement including but not
limited to payment of expense, interest and fees, the proper disbursement of all monies paid
hereunder, the assignment or relinquishment of interest in Oil and Gas Leases as required
hereunder, and the proper performance of operations hereunder. Such lien and security interest
granted by each party hereto shall include such party’s leasehold interests, working interests,
operating rights, and royalty and overriding royalty interests in the Contract Area now owned or
hereafter acquired and in lands pooled or unitized therewith or otherwise becoming subject to this
agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or used or
obtained for use in connection therewith (including, without limitation, all wells, tools, and
tubular goods), and accounts (including, without limitation, accounts arising from gas imbalances
or from the sale of Oil and/or Gas at the wellhead), contract rights, inventory and general
intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing.

     To perfect the lien and security agreement provided herein, each party hereto shall execute
and acknowledge the recording supplement and/or any financing statement prepared and submitted by
any party hereto in conjunction herewith or at any time following execution hereof, and Operator is
authorized to file this agreement or the recording supplement executed herewith as a lien or
mortgage in the applicable real estate records and as a financing statement with the proper officer
under the Uniform Commercial Code in the state in which the Contract Area is situated and such
other states as Operator shall deem appropriate to perfect the security interest granted hereunder.
Any party may file this agreement, the recording supplement executed herewith, or such other
documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or
a financing statement with the proper officer under the Uniform Commercial Code.

     Each party represents and warrants to the other parties hereto that the lien and security
interest granted by such party to the other parties shall be a first and prior lien, and each party
hereby agrees to maintain the priority of said lien and security interest against all persons
acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or
under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas
Interests covered by this agreement, whether by assignment, merger, mortgage, operation of law, or
otherwise, shall be deemed to have taken subject to the lien and security interest granted by this
Article VII.B. as to all obligations attributable to such interest hereunder whether or not such
obligations arise before or after such interest is acquired.

     To the extent that parties have a security interest under the Uniform Commercial Code of the
state in which the Contract Area is situated, they 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 party for the secured indebtedness shall not be deemed an election of remedies or otherwise
affect

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

the lien rights or security interest as security for the payment thereof. In addition, upon
default by any party in the payment of its share of expenses, interests or fees, or upon the
improper use of funds by the Operator, the other parties shall have the right, without prejudice to
other rights or remedies, to collect from the purchaser the proceeds from the sale of such
defaulting party’s share of Oil and Gas until the amount owed by such party, plus interest as
provided in “Exhibit C,” has been received, and shall have the right to offset the amount owed
against the proceeds from the sale of such defaulting party’s share of Oil and Gas. All purchasers
of production may rely on a notification of default from the non-defaulting party or parties
stating the amount due as a result of the default, and all parties waive any recourse available
against purchasers for releasing production proceeds as provided in this paragraph.

     If any party fails to pay its share of cost within one hundred twenty (120) 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. The amount paid by each party so paying its
share of the unpaid amount shall be secured by the liens and security rights described in Article
VII.B., and each paying party may independently pursue any remedy available hereunder or otherwise.

     If any party does not perform all of its obligations hereunder, and the failure to perform
subjects such party to foreclosure or execution proceedings pursuant to the provisions of this
agreement, to the extent allowed by governing law, the defaulting party waives any available right
of redemption from and after the date of judgment, any required valuation or appraisement of the
mortgaged or secured property prior to sale, any available right to stay execution or to require a
marshalling of assets and any required bond in the event a receiver is appointed. In addition, to
the extent permitted by applicable law, each party hereby grants to the other parties a power of
sale as to any property that is subject to the lien and security rights granted hereunder, such
power to be exercised in the manner provided by applicable law or otherwise in a commercially
reasonable manner and upon reasonable notice.

     Each party agrees that the other parties shall be entitled to utilize the provisions of Oil
and Gas lien law or other lien law of any state in which the Contract Area is situated to enforce
the obligations of each party hereunder. Without limiting the generality of the foregoing, to the
extent permitted by applicable law, Non-Operators agree that Operator may invoke or utilize the
mechanics’ or materialmen’s lien law of the state in which the Contract Area is situated in order
to secure the payment to Operator of any sum due hereunder for services performed or materials
supplied by Operator.

C Advances:

     Operator, at its election, shall have the right from time to time to demand and receive from
one or more of 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 fifteen (15) 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.

D Defaults and Remedies:

     If any party fails to discharge any financial obligation under this agreement, including
without limitation the failure to make any advance under the preceding Article VII.C. or any other
provision of this agreement, within the period required for such payment hereunder, then in
addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the remedies
specified below shall be applicable. For purposes of this Article VII.D., all notices and elections
shall be delivered only by Operator, except that Operator shall deliver any such notice and
election requested by a non-defaulting Non-Operator, and when

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

Operator is the party in default, the applicable notices and elections can be delivered by any
Non-Operator. Election of any one or more of the following remedies shall not preclude the
subsequent use of any other remedy specified below or otherwise available to a non-defaulting
party.

     1. Suspension of Rights: Any party may deliver to the party in default a Notice of
Default, which shall specify the default, specify the action to be taken to cure the default, and
specify that failure to take such action will result in the exercise of one or more of the remedies
provided in this Article. If the default is not cured within thirty (30) days of the delivery of
such Notice of Default, all of the rights of the defaulting party granted by this agreement may
upon notice be suspended until the default is cured, without prejudice to the right of the
non-defaulting party or parties to continue to enforce the obligations of the defaulting party
previously accrued or thereafter accruing under this agreement. If Operator is the party in
default, the Non-Operators shall have in addition the right, by vote of Non-Operators owning a
majority in interest in the Contract Area after excluding the voting interest of Operator, to
appoint a new Operator effective immediately. The rights of a defaulting party that may be
suspended hereunder at the election of the non-defaulting parties shall include, without
limitation, the right to receive information as to any operation conducted hereunder during the
period of such default, the right to elect to participate in an operation proposed under Article
VI.B. of this agreement, the right to participate in an operation being conducted under this
agreement even if the party has previously elected to participate in such operation, and the right
to receive proceeds of production from any well subject to this agreement.

     2. Suit for Damages: Non-defaulting parties or Operator for the benefit of
non-defaulting parties may sue (at joint account expense) to collect the amounts in default, plus
interest accruing on the amounts recovered from the date of default until the date of collection at
the rate specified in Exhibit “C” attached hereto. Nothing herein shall prevent any party from
suing any defaulting party to collect consequential damages accruing to such party as a result of
the default.

     3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of
Non-Consent Election to the defaulting party at any time after the expiration of the thirty-day
cure period following delivery of the Notice of Default, in which event if the billing is for the
drilling of a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a well which
is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the
defaulting party will be conclusively deemed to have elected not to participate in the operation
and to be a Non-Consenting Party with respect thereto under Article VI.B. or VI.C., as the case may
be, to the extent of the costs unpaid by such party, notwithstanding any election to participate
theretofore made. If election is made to proceed under this provision, then the non-defaulting
parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

     Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party
shall have the right to cure its default by paying its unpaid share of costs plus interest at the
rate set forth in Exhibit “C,” provided, however, such payment shall not prejudice the rights of
the non-defaulting parties to pursue remedies for damages incurred by the non-defaulting parties as
a result of the default. Any interest relinquished pursuant to this Article VII.D.3. shall be
offered to the non-defaulting parties in proportion to their interests, and the non-defaulting
parties electing to participate in the ownership of such interest shall be required to contribute
their shares of the defaulted amount upon their election to participate therein.

     4. Advance Payment: If a default is not cured within thirty (30) days of the delivery
of a Notice of Default, Operator, or Non-Operators if Operator is the defaulting party, may
thereafter require advance payment from the defaulting party of such defaulting party’s anticipated
share of any item of expense for which Operator, or Non-Operators, as the case may be, would be
entitled to reimbursement under any provision of this agreement, whether or not such expense was
the subject of the previous default. Such right includes, but is not limited to, the right to
require advance payment for the estimated costs of drilling a well or Completion of a well as to
which an election to participate in drilling or Completion has been made. If the defaulting party
fails to pay the required advance payment, the non-defaulting parties may pursue any of the
remedies provided in this Article VII.D. or any other default remedy

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

provided elsewhere in this agreement. Any excess of funds advanced remaining when the
operation is completed and all costs have been paid shall be promptly returned to the advancing
party.

     5. Costs and Attorneys’ Fees: In the event any party is required to bring legal
proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such
action shall be entitled to recover all court costs, costs of collection, and a reasonable
attorney’s fee, which the lien provided for herein shall also secure.

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-Operators of the anticipated completion of a shut-in well, or the
shutting in or return to production of a producing well, at least five (5) days (excluding
Saturday, Sunday, and legal holidays) prior to taking such action, or at the earliest opportunity
permitted by circumstances, but assumes no liability for failure to do so. In the event of failure
by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators
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.

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 Non-Operator. If the assessed valuation of any Lease
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 Lease, 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 prescribed 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 Gas produced under the terms of this agreement.

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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, such party shall give written notice of the proposed surrender to all parties, and the
parties to whom such notice is delivered shall have thirty (30) days after delivery of the notice
within which to notify the party proposing the surrender whether they elect to consent thereto.
Failure of a party to whom such notice is delivered to reply within said 30-day period shall
constitute a consent to the surrender of the Leases described in the notice. If all 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,
such lease to be on the form attached hereto as Exhibit “B.” 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 well’s salvable materials and equipment
attributable to the assigned or leased acreage. The value of all salvable materials and equipment
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 and restoring the surface. If such
value is less than such costs, then the party assignor or lessor shall pay to the party assignee or
lessee the amount of such deficit. 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. If the interest of the parties to whom the assignment is
to be made varies according to depth, then the interest assigned shall similarly reflect such
variances.

     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 but shall be deemed subject to an Operating Agreement in the form of
this agreement.

B Renewal or Extension of Leases:

     If any party secures a renewal or replacement of an Oil and Gas Lease or Interest subject to
this agreement, then all other parties shall be notified promptly upon such acquisition or, in the
case of a replacement Lease taken before expiration of an existing Lease, promptly upon expiration
of the existing Lease. The parties notified shall have the right for a period of thirty (30) days
following delivery of such notice in which to elect to participate in the ownership of the renewal
or replacement Lease, insofar as such Lease affects lands within the Contract Area, by paying to
the party who acquired it their 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. Each party who participates in the purchase of a renewal
or replacement Lease shall be given an assignment of its proportionate interest therein by the
acquiring party.

     If some, but less than all, of the parties elect to participate in the purchase of a renewal
or replacement Lease, it shall be owned by the parties who elect to participate therein, in a ratio
based upon the relationship of

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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 or replacement Lease. The acquisition of a renewal or replacement Lease by any or all
of the parties hereto shall not cause a readjustment of the interests of the parties stated in
Exhibit “A,” but any renewal or replacement Lease in which less than all parties elect to
participate shall not be subject to this agreement but shall be deemed subject to a separate
Operating Agreement in the form of this agreement.

     If the interests of the parties in the Contract Area vary according to depth, then their right
to participate proportionately in renewal or replacement Leases and their right to receive an
assignment of interest shall also reflect such depth variances.

     The provisions of this Article shall apply to renewal or replacement 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 or replacement Lease taken before the expiration of its predecessor
Lease, or taken or contracted for or becoming effective within six (6) months after the expiration
of the existing Lease, shall be subject to this provision so long as this agreement is in effect at
the time of such acquisition or at the time the renewal or replacement Lease becomes effective; 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 or replacement 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 earn acreage outside the Contract Area which are in support of well drilled inside the
Contract Area.

     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 Assignment; Maintenance of Uniform Interest:

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

     1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells,
equipment and production; or

     2. an equal undivided percent of the party’s present interest in all Oil and Gas Leases, Oil
and Gas Interests, wells, equipment and production in the Contract Area.

     Every 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, and any

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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 disposition for any purpose hereunder until thirty
(30) days after they have received a copy of the instrument of 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
by Article VII.B. shall continue to burden the interest transferred to secure payment of any such
obligations.

     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

     If, for federal income tax purposes, this agreement and the operations hereunder are regarded
as a partnership, and if the parties have not otherwise agreed to form a tax partnership pursuant
to Exhibit “G” or other agreement between them, each party thereby 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 amended (“Code”), 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 Treasury Regulation §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 Code, 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.

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 twenty-five thousand Dollars ($25,000.00)
and if the payment is in complete settlement of such claim or suit. If the amount required for
settlement exceeds the above amount, the

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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.

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 indemnify or make money payments or
furnish security, 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 suspended during, but
no longer than, the continuance of the force majeure. 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 or other act of nature, 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.

     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.

ARTICLE XII.

NOTICES

     All notices authorized or required between the parties by any of the provisions of this
agreement, unless otherwise specifically provided, shall be in writing and delivered in person or
by United States mail, courier service, telegram, telex, telecopier or any other form of facsimile,
postage or charges prepaid, and addressed to such parties at the addresses listed on Exhibit “A.”
All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter
by written notice. The originating notice given under any provision hereof shall be deemed
delivered only when received by the party to whom such notice is directed, and the time for such
party to deliver any notice in response thereto shall run from the date the originating notice is
received. “Receipt” for purposes of this agreement with respect to written notice delivered
hereunder shall be actual delivery of the notice to the address of the party to be notified
specified in accordance with this agreement, or to the telecopy, facsimile or telex machine of such
party. The second or any responsive notice shall be deemed delivered when deposited in the United
States mail or at the office of the courier or telegraph service, or upon transmittal by telex,
telecopy or facsimile, or when personally delivered to the party to be notified, provided, that
when response is required within 24 or 48 hours, such response shall be given orally or by
telephone, telex, telecopy or other facsimile within such period. 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. If a party is not available to receive notice orally or by telephone when a party
attempts to deliver a notice required to be delivered within 24 or 48 hours, the notice may be
delivered in writing by any other method specified herein and shall be deemed delivered in the same
manner provided above for any responsive notice.

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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.

	 	þ	 	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.
	 
	 	o	 	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 the Completion of a well as a well capable
of production of Oil and/or Gas in paying quantities, this
agreement shall continue in force so long as any such well is
capable of production, and for an additional period of ___days
thereafter; provided, however, if, prior to the expiration of such
additional period, one or more of the parties hereto are engaged
in drilling, Reworking, Deepening, Sidetracking, Plugging Back,
testing or attempting to Complete or Re-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 capable of producing Oil and/or Gas from the
Contract Area, this agreement shall terminate unless drilling,
Deepening, Sidetracking, Completing, Re-completing, Plugging Back
or Reworking operations are commenced within ___days from the
date of abandonment of said well. “Abandonment” for such purposes
shall mean either (i) a decision by all parties not to conduct any
further operations on the well or (ii) the elapse of 180 days from
the conduct of any operations on the well, whichever first occurs.

     The termination of this agreement shall not relieve any party hereto from any expense,
liability or other obligation or any remedy therefor which has accrued or attached prior to the
date of such termination.

     Upon termination of this agreement and the satisfaction of all obligations hereunder, in the
event a memorandum of this Operating Agreement has been filed of record, Operator is authorized to
file of record in all necessary recording offices a notice of termination, and each party hereto
agrees to execute such a notice of termination as to Operator’s interest, upon request of Operator,
if Operator has satisfied all its financial obligations.

ARTICLE XIV.

COMPLIANCE WITH LAWS AND REGULATIONS

A Laws, Regulations and Orders:

     This agreement shall be subject to the applicable 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, nonperformance, 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. If the Contract Area is in two or more states, the law of the state of Texas shall
govern.

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

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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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 the 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 Federal Energy Regulatory Commission or predecessor or
successor agencies to the extent such interpretation or application was made in good faith and does
not constitute gross negligence. Each Non-Operator further agrees to reimburse Operator for such
Non-Operator’s share of production or any refund, fine, levy or other governmental sanction that
Operator may be required to 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.

ARTICLE XV.

MISCELLANEOUS

A Execution:

     This agreement shall be binding upon each Non-Operator when this agreement or a counterpart
thereof has been executed by such Non-Operator and Operator notwithstanding that this agreement is
not then or thereafter executed by all of the parties to which it is tendered or which are listed
on Exhibit “A” as owning an interest in the Contract Area or which own, in fact, an interest in the
Contract Area. Operator may, however, by written notice to all Non-Operators who have become bound
by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well
but in no event later than five days prior to the date specified in Article VI.A. for commencement
of the Initial Well, terminate this agreement if Operator in its sole discretion determines that
there is insufficient participation to justify commencement of drilling operations. In the event
of such a termination by Operator, all further obligations of the parties hereunder shall cease as
of such termination. In the event any Non-Operator has advanced or prepaid any share of drilling
or other costs hereunder, all sums so advanced shall be returned to such Non-Operator without
interest. In the event Operator proceeds with drilling operations for the Initial Well without the
execution hereof by all persons listed on Exhibit “A” as having a current working interest in such
well, Operator shall indemnify Non-Operators with respect to all costs incurred for the Initial
Well which would have been charged to such person under this agreement if such person had executed
the same and Operator shall receive all revenues which would have been received by such person
under this agreement if such person had executed the same.

B Successors and Assigns:

     This agreement shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, devisees, legal representatives, successors and assigns, and the terms
hereof shall be deemed to run with the Leases or Interests included within the Contract Area.

C Counterparts:

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

D Severability:

     For the purposes of assuming or rejecting this agreement as an executory contract pursuant to
federal bankruptcy laws, this agreement shall not be severable, but rather must be assumed or
rejected in its entirety, and the failure of any party to this agreement to comply with all of its
financial obligations provided herein shall be a material default.

27

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

ARTICLE XVI.

OTHER PROVISIONS

A. Termination of Agreement

                          may terminate this agreement upon the giving of sixty (60) days notice to EnerVest
Operating LLC.

28

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

IN WITNESS WHEREOF, this agreement shall be effective as of the ___day of                      2006.

	 	 	 	 	 	 	 	 	 
	ATTEST OR WITNESS:

	 	 	 	 	 	OPERATOR	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	EnerVest Operating LLC,
as contract operator for
                        
	 
	 	 	 	 	 	 	 	 
	 

	 	   By	 	 	 	 	 	 
	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Date	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Tax ID or S.S. No.	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 

	 	 

	 	 	 	 	 
	 	 	NON-OPERATORS
	 
	 	 	 	 
	 

	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Title	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Date	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Tax ID or S.S. No.	 	 	 	 
	 

	 	 	 	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Title	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Date	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Tax ID or S.S. No.	 	 	 	 
	 

	 	 	 	 	 	 	 

	 	 

29

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Title	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Date	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Tax ID or S.S. No. 	 	 	 	 
	 

	 	 	 	 	 	 	 

	 	 

30

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

ACKNOWLEDGMENTS

     Note: The following forms of acknowledgment are the short forms approved by the Uniform Law on
Notarial Acts. The validity and effect of these forms in any state will depend upon the statutes
of that state.

Individual acknowledgment:

	 	 	 	 	 
	State of 

	 	 	§
	 
	 	§
	 

	 	 	 	§
	 

	 	 	 	§
	County of
	 	 	§
	  

	                    	 	 

     This instrument was acknowledged before me on                                          by
                    .

	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Seal, if any)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Title (and Rank)	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	My commission expires:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 

	 	 	 	 

Acknowledgment in representative capacity:

	 	 	 	 	 
	State of 

	 	 	§
	 
	 	§
	 

	 	 	 	§
	 

	 	 	 	§
	County of 

	 	 	§
	  

	                    	 	 

     This instrument was acknowledged before me on                      by
                                         as                                         
 of
                                                                                .

	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Seal, if any)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Title (and Rank)	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	My commission expires:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 

	 	 	 	 

31

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

A.A.P.L.
FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

EXHIBIT “     “

Attached to and made a part of                                                              .

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                                         
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.

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.

32

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

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 I. 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.

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
	 
	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 employees
directly employed on 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 of 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 II. 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 II. 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 II.
	 
	 	D.	 	Personal Expenses of those employees whose
salaries and wages are chargeable to the Joint
Account under Paragraph 3A of this Section II.

33

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	4.	 	Employee Benefits
	 
	 	 	Operator’s 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 Operator’s
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.
	 
	 	B.	 	If surplus Material is moved to
Operator’s 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 ___percent ( ___%) per annum. Such
rates shall not exceed average commercial rates
currently prevailing in the immediate area of the
Joint Property.
	 
	 	 	 	See Attached Addenda
	 
	 	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.

34

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	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 judgements 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 staff 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 I,
Paragraph 3.
	 
	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 party’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 II.
	 
	15.	 	Other Expenditures
	 
	 	 	Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, 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:

	 	 	 	See Attached Addenda
	 
	 	(	 	 ) Fixed Rate Basis, Paragraph 1A, or
	 
	 	(	 	 ) Percentage Basis, Paragraph lB

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

35

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	 	 	 	under Paragraph 3A, Section II. 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.
	 
	 	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:

	 	 	 	See Attached Addenda
	 
	 	(	 	 ) shall be covered by the overhead rates,
	 
	 	(	 	 ) or 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:

	 	 	 	See Attached Addenda
	 
	 	(	 	 ) shall be covered by the overhead rates, or
	 
	 	(	 	 ) 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:
	 
	 	 	 	See Attached Addenda
	 
	 	 	 	Drilling Well Rate $___
	 
	 	 	 	    (Prorated for less than a full month)
	 
	 	 	 	Producing Well Rate $___
	 
	 	(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.
	 
	 	(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. The adjustment shall be
computed by

36

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

multiplying the rate currently in use by the percentage increase or decrease in the
average weekly earnings of Crude Petroleum and Gas Production Workers for the last calendar year
compared to the calendar year preceding as shown by the index of average weekly earnings of
Crude Petroleum and Gas Production Workers as published by the United States Department of
Labor, Bureau of Labor Statistics, or the equivalent Canadian, index as published by Statistics
Canada, as applicable. The adjusted rates shall be the rates currently in use, plus or minus the
computed adjustment.

	 	B.	 	Overhead — Percentage Basis

	 	(1)	 	Operator shall charge the Joint Account at the following rates:

	 	 	 	See Attached Addenda
	 
	 	(a)	 	Development
	 
	 	 	 	___Percent ( ___%) of the cost of development
of the Joint Property exclusive of costs
provided under Paragraph 10 of Section II and
all salvage credits.
	 
	 	(b)	 	Operating
	 
	 	 	 	___Percent ( ___%) of the cost of operating the
Joint Property exclusive of costs provided
under Paragraphs 2 and 10 of Section II, all
salvage credits, the value of injected
substances purchased for secondary recovery and
all taxes and assessments which are levied,
assessed and paid upon the mineral interest in
and to the Joint Property.

	 	(2)	 	Application of Overhead — Percentage Basis shall be as follows:

For the purpose of determining charges on a percentage basis under
Paragraph lB of this Section III, development shall include all costs in
connection with drilling, redrilling, deepening, or any remedial
operations on any or all wells involving the use of drilling rig and crew
capable of drilling to the producing interval on the Joint Property; also,
preliminary expenditures necessary in preparation for drilling and
expenditures incurred in abandoning when the well is not completed as a
producer, and original cost of construction or installation of fixed
assets, the expansion of fixed assets and any other project clearly
discernible as a fixed asset, except Major Construction as defined in
Paragraph 2 of this Section III. All other costs shall be considered as
operating.

	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 either negotiate a rate prior to the beginning of construction, or shall charge the Joint
	 
	 	 	Account for overhead based on the following rates for any Major Construction project in excess of $ ___:

	 	 	 	See Attached Addenda
	 
	 	A.	 	___% of first $100,000 or total cost if less, plus
	 
	 	B.	 	___% of costs in excess of $100,000 but less than $1,000,000, plus
	 
	 	C.	 	___% of costs in excess of $1,000,000.

	 	 	Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts of a single project shall not be treated separately and the cost
of drilling and workover wells and artificial lift equipment shall be excluded.
	 
	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 either negotiate a rate prior to charging the Joint Account or shall charge the
Joint Account for overhead based on the following rates:

	 	A.	 	___% of total costs through $100,000; plus

37

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	 	 	 	See Attached Addenda
	 
	 	B.	 	___% of total costs in excess of $100,000 but less than $1,000,000; plus
	 
	 	 	 	See Attached Addenda
	 
	 	C.	 	___% of total costs in excess of $1,000,000.
	 
	 	 	 	See Attached Addenda

	 	 	Expenditures subject to the overheads above will not be reduced by insurance recoveries, and no other overhead provisions of this
Section III shall apply.
	 
	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.

	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% 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. Freight
charges for tubing
will be calculated
from Lorain, Ohio
and casing from
Youngstown, Ohio.
	 
	 	(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.(1)(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.

38

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	 	(d)	 	Macaroni tubing (size less than 2% 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.(1)(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 20 percent, plus transportation costs based on
freight rates as set forth under provisions of tubular goods pricing in Para-graph
A.(1)(a) as provided above. Freight charges shall be calculated from Lorain, Ohio.
	 
	 	(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.(1) 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.

39

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	 	(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.

	 	(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
($0.25) 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 1,1985
by the same percentage increase or decrease used
to adjust overhead rates in Section III,
Paragraph 1.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.

V. INVENTORIES

The Operator shall maintain detailed records of Controllable Material.

1. Periodic Inventories, Notice and Representation

40

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

	 	 	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.

41

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT— 1989

Addendum – 1

This Addendum is attached to and made a part of that certain 1984 COPAS Onshore Model Accounting
Procedure which is Exhibit C to that certain Operating Agreement dated ___, 2006,
by and between                      and EnerVest Operating, L.L.C. (the contract operator).

With respect to Direct Charges pursuant to Section II.8.A and Overhead pursuant to Section III.1.i,
III.1.ii, III.1.iii, III.1.A(1) and III.3-A-C, the following elections are hereby made for the
following region:

                    , LP – States of Ohio, West Virginia, Pennsylvania and New York

	 	 	 	 	 	 	 
	II.8.A

	 	 	10 	%	 	 
	 
	 	 	 	 	 	 
	III.1.i

	 	 	x	 	 	Fixed Rate Basis
	 

	 	 	___	 	 	Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.ii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.iii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.A(1)	 	Drilling Well Rate: $10,000
	 	 	Producing Well Rate: $0
	 
	 	 	 	 	 	 
	III.1.B(1)(a)

	 	 	N/A	%	 	Note: Utilizing Fixed Rate not Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.B(1)(b)

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.2-A

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-B

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-C

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.3-A

	 	 	N/A	%	 	Note: Covered by WI ownership well insurance.
	 
	 	 	 	 	 	 
	III.3-B

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.3-C

	 	 	N/A	%	 	 

42

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT — 1989

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT— 1989

Addendum – 1

This Addendum is attached to and made a part of that certain 1984 COPAS Onshore Model Accounting
Procedure which is Exhibit C to that certain Operating Agreement dated October 1, 2005, by
and between Belden and Blake Corporation and EnerVest Operating, L.L.C. (the contract operator).

With respect to Direct Charges pursuant to Section II.8.A and Overhead pursuant to Section III.1.i,
III.1.ii, III.1.iii, III.1.A(1) and III.3-A-C, the following elections are hereby made for the
following region:

                    , LP  — State of Louisiana, Monroe Field

	 	 	 	 	 	 	 
	II.8.A

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.1.i

	 	 	x	 	 	Fixed Rate Basis
	 

	 	 	___	 	 	Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.ii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.iii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.A(1)	 	Drilling Well Rate: $7,390
	 	 	Producing Well Rate: $0
	 
	 	 	 	 	 	 
	III.1.B(1)(a)

	 	 	N/A	%	 	Note: Utilizing Fixed Rate not Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.B(1)(b)

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.2-A

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-B

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-C

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.3-A

	 	 	N/A	%	 	Note: Covered by WI ownership well insurance.
	 
	 	 	 	 	 	 
	III.3-B

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.3-C

	 	 	N/A	%	 	 

43

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