Document:

Exhibit 10.6

 

 

TURNKEY DRILLING CONTRACT

 

 

THIS AGREEMENT is made and entered into
as of the 22nd day of October, 2012 by and between the parties herein designated as "Partnership" and "Contractor."

 

	 	Partnership:	2012 Bayou City Year End Program, L.P. 
	 	Address:	632 Adams Street, Suite 710
	 	 	Bowling Green, Kentucky 42101
	 	 	 
	 	Contractor:	Bayou City Exploration, Inc.
	 	Address:	632 Adams Street, Suite 710
	 	 	Bowling Green, Kentucky 42101

 

IN CONSIDERATION of
the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to
furnish the equipment, labor and services to drill, test, and complete its working interest portion, as per Exhibit “1”,
of the well to be drilled on the Partnership Prospect in Galveston County, Texas in search of oil and/or gas.

 

As a Management Fee
for the supervision and management of the affairs of the Partnership during the work over, drilling and testing periods of Initial
Operations, the Managing General Partner will receive an amount equal to the excess, if any, of the Turnkey Drilling Price over
the actual cost of such operations. Likewise, during the completion period of Initial Operations, if completion is attempted on
the Prospect Well, the Managing General Partner will receive an amount equal to the excess, if any, of the Turnkey Completion Price
over the actual costs of such operations. The Managing General Partner intends to enter into one or more Operating Agreements (the
“Operating Agreements”) with third party operators which will perform certain services with respect to the work over,
drilling, testing and, if applicable, completion of the Prospect Well. We cannot accurately predict the actual amount constituting
compensation to be paid to any third party operator for its services under the Operating Agreements and therefore, it also cannot
accurately predict the excess amount, if any, of the Turnkey Drilling Price over the actual cost of such operations that the Managing
General Partner will receive. Costs to be expended under the Operating Agreements are a direct result of the work over, drilling,
testing and completion risks encountered. During work over, drilling, testing and completion operations, a variety of conditions
may be encountered, such as loss of circulation, blowouts, detachment and/or loss of drilling equipment, necessity for the purchase
and installation of down-hole equipment to keep the wellbore intact, and repair of inadequate cement to hold production casing
in place. As such costs are unpredictable with any degree of certainty, in the event of totally uneventful operations, compensation
payable pursuant to the Operating Agreements could equal or exceed the actual work over, drilling, testing and completion costs.
Likewise, in the event that a series of major difficulties are encountered, these costs could equal or exceed the amount of Initial
Capital, and Bayou City Exploration, Inc. would be responsible for such excess costs. Bayou City Exploration, Inc. may use any
funds it receives from management fees and/or profits, if any, for any purpose, including payment of General and Administrative
Expenses of Bayou City Exploration, Inc. such as employee salaries and office expenses.

 

 

		1.	LOCATION OF PARTNERSHIP WELL(S):

 

See Exhibit "1" attached hereto
and made a part hereof.

 

 

    	1

    	 

    

 

 

		2.	TERMINATION DATE:

 

Contractor agrees to use its best efforts
to complete operations for the acquisition, drilling and testing of the Partnership Well by June 30, 2013, and Contractor and the
Partnership agree that time is of the essence under this Agreement.

 

 

		3.	BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR:

 

Contractor shall be paid at the following
rate for the work performed hereunder:

 

Turnkey Drilling Price
($459,091) and Completion Price in the event that completion is attempted ($146,217) = Total $605,308.

 

 

		4.	DEPTH:

 

Subject to the right of the Partnership
to direct the stoppage of work at any time (as provided in paragraph 7), the Partnership Well shall be drilled to the depth as
specified in Exhibit “1” or to the depth at which the production casing (production string) is set, whichever depth
is first reached, which depth is hereinafter referred to as the “Contract Depth.”

 

 

		5.	TIME OF PAYMENT:

 

5.1 Basis: Payment by the Partnership
to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor.
Neither commencement nor completion of Contractor’s performance shall be a condition precedent to this obligation to pay.

 

5.2 Attorneys’ Fees: If this
Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due
hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the
amount due reasonable attorneys' fees and costs.

 

 

		6.	COMPLETION PROGRAM:

 

The Contractor, in its capacity as Managing
General Partner of the Partnership (the “Managing General Partner”), along with other participating Partnership Well
working interest owners, shall determine whether Contractor shall set a production string on the Prospect Well.  In the event
the Managing General Partner directs that drilling operations cease and to abandon the Partnership Well, Contractor shall plug
the Partnership Well, remove all drilling apparatus from the well site and the obligations of the parties hereunder shall cease. 
In the event the Managing General Partner directs Contractor to set a production string on the Prospect Well and makes timely payment
to the Contractor of the Completion Price, Contractor shall commence the operations necessary to attempt to complete the Prospect
Well for commercial production, including the setting of a production string and the acquisition, delivery and installation of
a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Partnership Well.

 

 

		7.	STOPPAGE OF WORK BY THE PARTNERSHIP:

 

Notwithstanding the provisions of paragraph
3 with respect to the depth to be drilled, the Managing General Partner shall have the right to direct the stoppage of the work
to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made
no default hereunder.  If the Partnership exercises its right to discontinue drilling the well(s), the Partnership will not
receive a refund for any unused portion of the Drilling Price allocable to the discontinued well(s).

 

    	2

    	 

    

 

 

		8.	REPORTS TO BE FURNISHED BY CONTRACTOR:

 

8.1 Contractor shall keep and furnish
to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or
other form acceptable to the Partnership.  A legible copy of said form signed by Contractor’s representative shall be
furnished by Contractor to the Partnership.

 

8.2 Delivery tickets, if requested
by the Partnership, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling
report.  The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and
such tickets shall be properly certified by Contractor.

 

 

		9.	RESPONSIBILITY FOR A SOUND LOCATION:

 

Contractor shall prepare a sound location,
adequate in size and capable of properly supporting the drilling rig.  Contractor shall be responsible for a conductor pipe
program adequate to prevent soil and subsoil washout.  In the event subsurface conditions cause a cratering or shifting of
the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be
responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or
demobilization if applicable.

 

 

		10.	RESPONSIBILITY FOR ROAD AND LOCATIONS:

 

Contractor agrees at all times to maintain
roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site
in an ordinarily equipped highway type vehicle.

 

 

		11.	PAYMENT OF CLAIMS:

 

Contractor agrees to pay all claims for
labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed
upon the lease, the Partnership Well or other property of the Partnership or the land upon which said Partnership Well is located.

 

 

		12.	RESPONSIBILITY FOR LOSS OR DAMAGE:

 

12.1 Contractor’s Surface Equipment:
Contractor shall assume liability at all times for damage to or destruction of Contractor’s surface equipment, including
but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage
or destruction occurs.

 

12.2 Contractor’s In-Hole Equipment
Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor’s in-hole equipment, including
but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor
for any such loss.

 

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12.3 Partnership’s Equipment:
The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing,
tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage.

 

12.4 Fire or Blow-Out: Should a fire
or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is
engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire
or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided,
Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of
the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first
hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost
of preparing a new drill site for the new hole and the road thereto.  In such case, Contractor shall not be entitled to any
payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole.

 

 

		13.	NO WAIVER EXCEPT IN WRITING:

 

It is fully understood and agreed that
none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and
then only by the persons executing this Agreement, or other duly authorized agent or representative of the party.

 

 

		14.	FORCE MAJEURE:

 

If either party hereto is rendered unable,
wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out
its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full
particulars.  Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be
suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence
to remove the force majeure as quickly as possible.  This paragraph shall not relieve either party hereto for its obligations
to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure"
as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade,
public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint.

 

 

		15.	INFORMATION CONFIDENTIAL:

 

Upon written request by the Partnership,
information obtained by Contractor in the conduct of drilling operation on the Partnership Well, including, but not limited to
depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged
by Contractor or its employees, to any person, firm or any corporation other than the Partnership’s designated representative.

 

 

		16.	NOTICES AND PLACE OF PAYMENT:

 

All notices to be given with respect to
this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses
hereinabove shown.  All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise
specified herein.

 

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	 	BAYOU CITY EXPLORATION, INC.	 
	 	 	 	 
	 	 	 	 
	 	By: 	/s/ Stephen C. Larkin	 
	 	 	Stephen C. Larkin, President, CEO & CFO	 
	 	 	 	 
	 	 	 	 

 

	 	
        2012
        Bayou City Year End Program, L.P., 

        A KENTUCKY LIMITED PARTNERSHIP
	 
	 	 	 	 
	 	By: 	/s/ Stephen C. Larkin	 
	 	 	Stephen C. Larkin, President, CEO & CFO	 
	 	 	 	 
	 	 	 	 

 

 

 

 

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EXHIBIT "1" TO EXHIBIT "C"

 

October 22, 2012

 

The primary investment
objective of the Partnership is, assuming all Units are sold, the acquisition of up to 2.5% Working Interest, which is approximately
2.0% of the Net Revenue Interest in one well to be drilled on the Galveston Bay Prospect (the “Galveston Bay Prospect Well”).
The Galveston Bay Prospect will consist of oil and gas leases in Galveston County, Texas and will be drilled to a depth sufficient
to test the Frio Ban Field #2 formation. In addition to the drilling program described above, the 2012 Bayou City Year End Program,
L.P. includes a $300,000 investment in the Opportunity Fund VII, LLC. The “Opportunity Fund” will remain open through
December 31, 2012 and will be offered through participation in each drilling program. As each drilling program is sold out and
completed, our partners benefit from the growth of the Fund in asset numbers and total value. The net effect is that partners will
progress from owning a large percentage of a small number of assets to owning a small percentage of a large number of assets. Each
addition to the Fund spreads the risk over a larger asset base throughout the Fund subscription period. The primary objective of
the Opportunity Fund is to mitigate the risk associated with oil and gas investment. The Fund is a joint venture with Home Servicing,
LLC of Baton Rouge, Louisiana and seeks to provide our partners with aggressive returns via investment in mortgage notes and land
contracts purchased at significant discounts to existing balances. Greater details regarding this concept and the parties involved
can be found herein.

 

 

 

 

    	6Exhibit 10.7

 

 

 

 

 

 

 

 

 

 

 

 

 

LIMITED PARTNERSHIP

 

AGREEMENT

 

OF

 

2013
Bayou City Seabreeze Offset Drilling Program, L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

    	 

    	 

    

 

TABLE OF CONTENTS

  

	Section	Page
	 	 
	1.  The Partnership	1
	1.1  Definitions	1
	1.2  Organization	4
	1.3  Partnership Name	4
	1.4  Character of Business	4
	1.5  Principal Place of Business	4
	1.6  Term of Partnership	4
	1.7  Filings	6
	1.8  Independent Activities	6
	 	 
	2.  Capitalization	6
	2.1  Capital Contributions of the Managing General Partner and Initial Limited Partner	6
	2.2  Capital Contributions of the Partners	7
	2.3  Additional Capital Contributions	7
	2.4  No Interest on Capital Contributions, No Withdrawals	7
	 	 
	3.  Capital Accounts and Allocations	7
	3.1  Capital Accounts	7
	3.2  Allocation of Profits and Losses and Costs and Expenses	9
	3.3  Depletion	10
	3.4  Apportionment Among Partners	11
	 	 
	4.  Distributions	11
	4.1  Time of Distribution	11
	4.2  Distributions	11
	4.3  Capital Account Deficits	11
	 	 
	5.  Activities	11
	5.1  Management	11
	5.2  Conduct of Operations	12
	5.3  Acquisition and Sale of Leases	12
	5.4  Title to Leases	13
	5.5  Release, Abandonment, and Sale or Exchange of Properties	13
	5.6  Certain Transactions With Managing General Partner or Affiliates	13
	 	 
	6.  Managing General Partner	13
	6.1  Managing General Partner	13
	6.2  Authority of Managing General Partner	13
	6.3  Certain Restrictions on Managing General Partner's Power and Authority	14
	6.4  Indemnification of Managing General Partner	15
	6.5  Withdrawal	16
	6.6  Tax Matters Partner	16

 

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TABLE OF CONTENTS

 

	Section	Page
	 	 
	7.  Partners	16
	7.1  Management	16
	7.2  Assignment of Units	16
	7.3  Prohibited Transfers	17
	7.4  Withdrawal by Partners	18
	7.5  Calling of Meetings	18
	7.6  Voting Rights	18
	7.7  Voting by Proxy	18
	7.8  Conversion of Additional General Partner Units to Limited Partner Interests 	18
	7.9  Liability of Partners	18
	 	 
	8.  Books and Records	19
	8.1  Books and Records	19
	8.2  Reports	19
	8.3  Bank Accounts	19
	8.4  Federal Income Tax Elections	19
	 	 
	9.  Dissolution; Winding-Up	20
	9.1  Dissolution	20
	9.2  Liquidation	20
	9.3  Winding-Up	20
	 	 
	10.  Power of Attorney	21
	10.1  Managing General Partner as Attorney-in-Fact	21
	10.2  Nature as Special Power	22
	 	 
	11.  Miscellaneous Provisions	22
	11.1  Liability of Parties	22
	11.2  Notices	22
	11.3  Paragraph Headings, Section References	22
	11.4  Severability	23
	11.5  Sole Agreement	23
	11.6  Applicable Law	23
	11.7  Execution in Counterparts	23
	11.8  Waiver of Action for Partition	23
	11.9  Amendments	23
	11.10  Substitution of Signature Pages	24
	11.11  Incorporation by Reference	24

 

    	iii

    	 

    

 

LIMITED PARTNERSHIP AGREEMENT

OF

2013
Bayou City Seabreeze Offset Drilling Program, L.P. 

 

This
Limited Partnership Agreement (this “Agreement”) is entered into and effective as of the 8th
day of March 2013, by and between (i) Bayou City Exploration, Inc., a Nevada
corporation, as the Managing General Partner and (ii) the Persons whose names are set forth on Exhibit A attached hereto, as Additional
General Partners or as Limited Partners.

 

Recitals:

 

A.The Managing
General Partner and the Initial Limited Partner formed a Kentucky limited partnership named 2013 Bayou City Seabreeze Offset Drilling
Program, L.P. (“Partnership”) pursuant to the provisions of the Kentucky Revised Uniform Limited Partnership Act.

 

B.On the
date hereof, the Additional General Partners and Limited Partners have been admitted to the Partnership.

 

C.The parties
desire to enter into this Agreement to set forth their mutual understandings.

 

Agreement:

 

Now,
Therefore, the parties hereby agree as follows:

 

1.
The Partnership. 

 

1.1
Definitions. Capitalized words and phrases used in this Agreement shall have the
following meanings:

 

(a) “Act”
shall mean the Kentucky Revised Uniform Limited Partnership Act, as amended from time to time (or any corresponding provisions
of succeeding law).

 

(b) “Additional
General Partner” shall mean a Partner who purchases Units as an additional general partner, and such Additional General Partner’s
transferees and assigns who are admitted as a Substitute Partner. The term “Additional General Partners” shall not
include such Partner who converts such Partner’s interest in the Partnership into a Limited Partner interest pursuant to
Section 7.8.

 

(c) “Affiliate”
of a specified Person shall mean (a) any Person directly or indirectly owing, controlling, or holding with power to vote 10% or
more of the outstanding voting securities of such specified Person; (b) any Person 10% or more of whose outstanding voting securities
are directly or indirectly owned, controlled, or held with power to vote, by such specified Person; (c) any Person directly or
indirectly controlling, controlled by, or under common control with, such specified Person; (d) any officer, director, trustee
or partner of such specified Person, and (e) if such specified Person is an officer, director, trustee or partner, any Person for
which such Person acts in any such capacity.

 

(d) “Agreement”
shall mean this Limited Partnership Agreement, as amended from time to time.

 

(e) “Capital
Account” shall mean, with respect to any Partner, the capital account maintained for such Partner pursuant to Section 3.1.

 

(f) “Capital
Contribution” shall mean the total contributions made by a Partner to the capital of the Partnership pursuant to Section
2.

 

    	1

    	 

    

 

(g) “Code”
shall mean the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law).

 

(h) “Depreciation”
shall mean, for each fiscal year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from
its adjusted basis for Federal income tax purposes, Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the Federal income tax depreciation, amortization, or other cost recovery deduction for such year or other
period bears to such beginning adjusted tax basis; provided, however, that if the Federal income tax depreciation, amortization,
or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Managing General Partner.

 

(i) “Distributable
Cash” shall mean for any period the excess, if any, of (A) the sum of (i) all gross receipts from any sources (including
loan proceeds) for such period, other than from Capital Contributions, plus (ii) any funds released by the Managing General Partner
from previously established reserves (referred to in (B)(ii) below), over (B) the sum of (i) all cash expenditures of the Partnership
for such period not funded by Capital Contributions or paid out of previously established reserves (referred to in (B)(ii) below),
plus (ii) a reasonable reserve for future expenditures as determined by the Managing General Partner.

 

(j) “General
Partners” shall mean the Additional General Partners and the Managing General Partner.

 

(k) “Gross
Asset Value” shall mean, with respect to any asset, the asset’s adjusted basis for Federal income tax purposes, except
as follows:

 

(1)
The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value
of such asset, as determined by the contributing Partner and the Partnership;

 

(2)
The Gross Asset Value of all Partnership assets shall be adjusted to equal their respective gross fair market values, as
determined by the Managing General Partner, as of the following times: (a) the acquisition of an additional interest in the Partnership
by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (b) the distribution by the Partnership
of property in consideration for an interest in the Partnership; and (c) the liquidation of the Partnership within the meaning
of Treas. Reg. Section 1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to clauses (a) and (b) above shall
be made only if the Managing General Partner reasonably determines that such adjustments are necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;

 

(3)
The Gross Asset Value of any Partnership asset distributed to any Partner shall be the gross fair market value of such
asset on the date of distribution; and

 

(4)
The Gross Asset Value of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or 743(b), but only to the extent that such adjustments are taken into account
in determining Capital Accounts pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(m) and Section 3.2(g); provided, however, that
Gross Asset Value shall not be adjusted pursuant to this Section 1.1(k)(4) to the extent the Managing General Partner determines
that an adjustment pursuant to Section 1.1(k)(2) is necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this Section 1.1(k)(4).

 

If the Gross Asset
Value of an asset has been determined or adjusted pursuant to Sections 1.1(k)(1), 1.1(k)(2), or 1.1(k)(4), such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits
and Losses.

 

(l) “Initial
Limited Partner” shall mean Stephen C. Larkin or any successor to the Initial Limited Partner’s interest in the Partnership.

 

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(m)
“Lease” shall mean full or partial interests in: (i) undeveloped oil and gas leases; (ii) oil and gas mineral rights;
(iii) licenses; (iv) concessions; (v) contracts; (vi) fee rights; or (vii) other rights authorizing the owner thereof to drill
for, reduce to possession, and produce oil and gas.

 

(n)
“Limited Partner” shall mean a Partner who purchases Units as a Limited Partner, such Limited Partner’s transferee
or assignee who is admitted as a Substitute Partner, and an Additional General Partner who converts their interest to a Limited
Partner interest pursuant to the provisions of this Agreement.

 

(o)
[Intentionally omitted]

 

(p)
“Managing General Partner” shall mean Bayou City Exploration, Inc. or its successor, in its capacity as the Managing
General Partner.

 

(q)
“Nonrecourse Liability” shall have the meaning set forth in Treas. Reg. Sections 1.704-2(b)(3) and 1.752-1(a)(2).

 

(r)
“Oil and Gas Interest” shall mean any oil or gas royalty or lease, or fractional interest therein, or certificate of
interest or participation or investment contract relative to such royalties, leases, or fractional interests, or any other interest
or right which permits the exploration of, drilling for, or production of oil and gas or other related hydrocarbons or the receipt
of such production or the proceeds thereof.

 

(s)
“Operating Costs” shall mean expenditures made and costs incurred in producing and marketing oil or gas from the completed
wells, including, in addition to labor, fuel, repairs, hauling, materials, supplies, utility charges, and other costs incident
to or therefrom, ad valorem and severance taxes, insurance and casualty loss expense, and compensation to well operators or others
for services rendered in conducting such operations.

 

(t)
“Organization and Offering Fee” shall mean the fee to which the Managing General Partner is entitled pursuant to Section
6.7.

 

(u)
“Participant List” shall mean an alphabetical list of the names, addresses and business telephone numbers of the Partners,
along with the number of Units held by each of them.

 

(v)
“Partner Minimum Gain” shall mean partner nonrecourse debt minimum gain within the meaning of Treas. Reg. Section 1.704-2(i)(3).

 

(w)
“Partner Nonrecourse Debt” shall have the meaning set forth in Treas. Reg. Section 1.704-2(b)(4).

 

(x)
“Partner Nonrecourse Deductions” shall have the meaning set forth in Treas. Reg. Section 1.704-2(i)(2).

 

(y)
“Partners” shall mean the Managing General Partner, the Initial Limited Partner, and the Partners.

 

(z)
“Partner” shall mean any Person other than the Managing General Partner and Initial Limited Partner (i) whose name
is set forth on Exhibit A attached hereto as an Additional General Partner or as a Limited Partner, or who has been admitted as
an additional or Substitute Partner pursuant to the terms of this Agreement, and (ii) who is the owner of one or more Units.

 

(aa)
“Partnership” shall mean the 2013 Bayou City Seabreeze Offset Drilling Program, L.P. formed by the Partners pursuant
to the Act and governed by this Agreement.

 

(bb)
“Partnership Minimum Gain” shall have the meaning set forth in Treas. Reg. Section 1.704-2(b)(2).

 

    	3

    	 

    

 

(cc)
“Partnership Property” shall mean the acquisition of up to 4.16666667% of the working
interest which is approximately 3.0416666691% of the net revenue interest in the Seabreeze #2 Well and 3.33333333% of the working
interest which is approximately 2.43333333% of the net revenue interest in the Seabreeze #3 Well. The Prospect will consist
of oil and gas leases in Chambers County, Texas and the Prospect Wells will be drilled to a depth sufficient to test the Seabreeze
A-1 Sand formation.

 

(dd)
“Partnership Wells” shall mean the Partnership well sites on the Partnership Property which consists of oil and gas
leases in Chambers County, Texas.

 

(ee) “Permitted
Transfer” shall mean any transfer of Units satisfying the provisions of Section 7.2.

 

(ff)
“Person” shall mean any individual, partnership, corporation, limited liability company, trust, or other entity.

 

(gg)
“Placement Memorandum” shall mean that Private Placement Memorandum pursuant to which the Units are being offered and
sold.

 

(hh)
“Profits” and “Losses” shall mean, for each fiscal year or other period, an amount equal to the Partnership=s
taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:

 

(1)
Any income of the Partnership that is exempt from Federal income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this Section 1.1(hh) shall be added to such taxable income or loss;

 

(2)
Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant
to this Section 1.1(hh) shall be subtracted from such taxable income or loss;

 

(3)
In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to Sections 1.1(k)(2) or 1.1(k)(4), the
amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purpose of computing
Profits or Losses;

 

(4)
Gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for
Federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of notwithstanding
that the adjusted tax basis of such property differs from its Gross Asset Value;

 

(5)
In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such fiscal year or other period, computed in accordance with
Section 1.1(h); and

 

(6)
Notwithstanding any other provisions of this Section 1.1(hh), any items which are specially allocated pursuant to this
Agreement shall not be taken into account in computing Profits or Losses.

 

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(ii)
“Prospect” shall mean a contiguous Oil and Gas Interest, upon which drilling operations may be conducted. In general,
a Prospect is an area in which the Partnership owns or intends to own one or more Oil and Gas Interests which is geographically
defined on the basis of geological and geophysical data by the Managing General Partner and which is reasonably anticipated by
the Managing General Partner to contain at least one reservoir. An area covering lands which are believed by the Managing General
Partner to contain subsurface structural or stratigraphic conditions making it susceptible to the accumulations of hydrocarbons
in commercially productive quantities at one or more horizons. The area, which may be different for different horizons, shall be
designated by the Managing General Partner in writing prior to the conduct of operations and shall be enlarged or contracted from
time to time on the basis of subsequently acquired information to define the anticipated limits of the associated hydrocarbon reserves
and to include all acreage encompassed therein. A “prospect” with respect to a particular horizon may be limited to
the minimum area permitted by state law or local practice, whichever is applicable, to protect against drainage from adjacent wells
if the well to be drilled by the Partnership is to a horizon containing proved reserves.

 

(jj)
“Subscription Agreement” shall mean the agreement attached to the Placement Memorandum as Exhibit D, pursuant to which
an investor subscribes to Units in the Partnership.

 

(kk)
“Substitute Partner” shall mean any Person admitted to the Partnership as a Partner pursuant to Section 7.2(c).

 

(ll)
“TMP” shall mean the tax matters partner of the Partnership for purposes of Code Sections 6621 through 6233.

 

(mm)
“Unit” shall mean an interest of a Partner in the Partnership, each Unit representing a commitment to make a Capital
Contribution of up to $50,500 to the Partnership.

 

(nn)
“Working Interest” shall mean an interest in an oil and gas leasehold which is subject to some portion of the costs
of development, operation, or maintenance.

 

1.2
Organization. The Managing General Partner and the Initial Limited Partner formed
the Partnership pursuant to the provisions of the Act. The Partners hereby agree to continue the Partnership as a limited partnership
pursuant to the provisions of the Act and upon the terms and conditions set forth in this Agreement.

 

1.3
Partnership Name. The name of the Partnership shall be the “2013 Bayou City
Seabreeze Offset Drilling Program, L.P.” and all business of the Partnership shall be conducted in such name. The Managing
General Partner may change the name of the Partnership upon ten days notice to the Partners.

 

1.4
Character of Business. The principal business of the Partnership shall be to acquire
leases, drill sites, and other interests in oil and/or gas properties and to drill for oil, gas, hydrocarbons, and other minerals
located in, on, or under such properties, to produce and sell oil, gas, hydrocarbons, and other minerals from such properties,
and to invest and generally engage in any and all phases of the oil and gas business. Such business purpose shall include, without
limitation, the purchase, sale, acquisition, disposition, exploration, development, operation, and production of oil and gas properties
of any character. Without limiting the foregoing, Partnership activities may be undertaken as principal, agent, general partner,
syndicate member, partner, participant, or otherwise. The Opportunity Fund has been established to purchase performing loans at
significant discounts. The fund is intended to generate cash flow from the loans held and to reinvest that cash flow for compounding
returns.

 

1.5
Principal Place of Business. The principal place of business of the Partnership
shall be at 632 Adams Street, Suite 710, Bowling Green, Kentucky 42101. The Managing General Partner may change the principal place
of business of the Partnership to any other place within the Commonwealth of Kentucky upon ten days notice to the Partners.

 

1.6
Term of Partnership. The Partnership commenced upon the filing of its Certificate
of Limited Partnership, and shall continue until terminated as provided in Section 9.1.

 

    	5

    	 

    

 

1.7
Filings. 

 

(a) A
Certificate of Limited Partnership has been filed with the State of Kentucky in accordance with the provisions of the Act. The
Managing General Partner shall take any and all other actions reasonably necessary to perfect and maintain the status of the Partnership
as a limited partnership under the laws of the State of Kentucky. The Managing General Partner shall cause amendments to the Certificate
of Limited Partnership to be filed whenever required by the Act.

 

(b) The
Managing General Partner shall execute and cause to be filed all such documents and shall take any and all other actions as may
be reasonably necessary to perfect and maintain the status of the Partnership as a limited partnership qualified to do business
in any other states or jurisdictions in which the Partnership engages in business.

 

(c) Upon
the dissolution of the Partnership, the Managing General Partner shall promptly execute and cause to be filed a Certificate of
Cancellation in accordance with the Act and all such other documents as may be necessary for the Partnership to withdraw from any
other states or jurisdictions in which the Partnership has qualified to do business.

 

1.8
Independent Activities. Each General Partner and each Limited Partner may, notwithstanding
this Agreement, engage in whatever activities they choose, whether the same are competitive with the Partnership or otherwise,
without having or incurring any obligation to offer any interest in such activities to the Partnership or any Partner. Except as
otherwise provided herein, however, the Managing General Partner and its Affiliates may pursue business opportunities that are
consistent with the Partnership’s investment objectives for their own account only after they have determined that such opportunity
either cannot be pursued by the Partnership because of insufficient funds or because it is not appropriate for the Partnership
under the existing circumstances. Neither this Agreement, nor any activity undertaken pursuant hereto, shall prevent the Managing
General Partner from engaging in such activities, or require the Managing General Partner to permit the Partnership or any Partner
to participate in any such activities, and as a material part of the consideration for the execution of this Agreement by the Managing
General Partner and the admission of each Partner, each Partner hereby waives, relinquishes, and renounces any such right or claim
of participation. Notwithstanding the foregoing, the Managing General Partner still has a fiduciary obligation to the Partners.

 

2.
Capitalization. 

 

2.1
Capital Contributions of the Managing General Partner and Initial Limited Partner. 

 

(a) The
Managing General Partner shall make a Capital Contribution in cash to the Partnership of an amount equal to 10% of the aggregate
Capital Contributions of the Partners. In consideration of making such Capital Contribution, becoming the Managing General Partner,
subjecting its assets to the liabilities of the Partnership, and undertaking other obligations as herein set forth, the Managing
General Partner shall receive the interest in the Partnership provided herein.

 

(b) On
or before the date hereof, the Initial Limited Partner shall contribute $100 in cash to the capital of the Partnership. Upon the
earlier to occur of (i) the conversion of an Additional General Partner’s interest into a Limited Partner interest, or (ii)
the admission of another Limited Partner to the Partnership, the Partnership shall redeem in full, without interest or deduction,
the Initial Limited Partner’s Capital Contribution, and the Initial Limited Partner shall cease to be a Partner.

 

    	6

    	 

    

 

2.2
Capital Contributions of the Partners. 

 

(a) The
interests of the Partners (other than the Managing General Partner) have been divided into 20 units (“Units”) for which
each such Partner shall commit to contribute Fifty Thousand Five Hundred Dollars ($50,500). Upon execution of this Agreement, each
initial Partner (whose names and addresses and number of Units for which the Partner has subscribed are set forth in Exhibit A)
shall contribute to the capital of the Partnership the sum of $28,000 for each Unit purchased. In the event that the Managing General
Partner determines, in its sole discretion, that completion of the Prospect Wells (as defined in the Placement Memorandum) is advisable,
each initial Partner shall contribute to the capital of the Partnership the additional sum of $12,375 for the Seabreeze #2 Well
and $10,125 for the Seabreeze #3 Well for each full Unit purchased. Payment of any such additional Capital Contribution shall be
due within seven days of the mailing of the notice by the Managing General Partner. If any Partner shall fail to pay the additional
Capital Contribution required to be made by such Partner within seven days after the date due, such Partner shall be in default,
and, in addition to all rights and remedies available to the Partnership at law, in equity or otherwise, the Managing General Partner
shall have the right to set off against any distributions otherwise due to such Partner an amount equal to 300% of the amount which
the Partner failed to contribute.

 

(b) Except
as provided in Section 4.3, any proceeds of the offering of Units for sale pursuant to the Placement Memorandum not used, committed
for use, or reserved as operating capital in the Partnership’s operations within one year after the closing of such offering
shall be distributed pro rata to the Partners as a return of capital.

 

(c) Until
proceeds from the offering of Units are invested in the Partnership’s operations, such proceeds may be temporarily invested
in income producing short-term, highly liquid investments where there is appropriate safety of principal, such as U.S. Treasury
obligations, certificate of deposits or money market accounts. Any such income shall be allocated pro rata to the Partners providing
such Capital Contributions.

 

2.3
Additional Capital Contributions. After all Capital Contributions made pursuant
to Sections 2.1 and 2.2 have been expended, if the Managing General Partner determines that additional capital is required for
the Partnership’s business, the Managing General Partner shall give notice thereof to each of the Partners, and each of the
Partners shall be obligated to make an additional Capital Contribution pro rata in accordance with the Capital Contributions previously
made by each of them. Payment of any such additional Capital Contribution shall be due within seven days of the mailing of the
notice by the Managing General Partner. If any Partner shall fail to pay an additional Capital Contribution required to be made
by such Partner or that portion of the amount required to be contributed by the Partners pursuant to Sections 2.1 and 2.2 within
seven days after the date due, such Partner shall be in default, and, in addition to all rights and remedies available to the Partnership
at law, in equity or otherwise, the Managing General Partner shall have the right to set off against any distributions otherwise
due to such Partner an amount equal to 300% of the amount which the Partner failed to contribute.

 

2.4
No Interest on Capital Contributions, No Withdrawals. No interest shall be paid
on any Capital Contributions and, except as otherwise provided herein, no Partner, other than the Initial Limited Partner as authorized
herein, may withdraw the Partner’s Capital Contribution.

 

3.
Capital Accounts and Allocations. 

 

3.1
Capital Accounts. 

 

(a) 
A separate Capital Account shall be established and maintained for each Partner on the books and records of the Partnership. A
Partner shall have a single Capital Account even though the Partner may be both a General Partner and a Limited Partner. Capital
Accounts shall be maintained in accordance with Treas. Reg. Section 1.704-1(b) and any inconsistency between the provisions of
this Section 3.1 and such regulation shall be resolved in favor of such regulation. In the event the Managing General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts are computed in order to comply with such regulation,
the Managing General Partner may make such modification provided that it is not likely to have a material effect on the amounts
distributable to any Partner pursuant to Section 9.3 upon the dissolution of the Partnership. The Managing General Partner also
shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership=s balance sheet, as computed for book purposes, in accordance
with Treas. Reg. Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Treas. Reg. Section 1.704-1(b).

 

    	7

    	 

    

 

(b) Each
Partner’s Capital Account shall be credited with (i) the amount of money contributed by such Partner to the Partnership;
(ii) the amount of any Partnership liabilities that are assumed by such Partner (within the meaning of Treas. Reg. Section 1.704-1(b)(2)(iv)(c));
(iii) the Gross Asset Value of property contributed by such Partner to the Partnership (net of liabilities secured by such contributed
property that the Partnership is considered to assume or take subject to under Code Section 752); and (iv) allocations to such
Partner of Profits (or items thereof), including income and gain exempt from tax and income and gain described in Treas. Reg. Section
1.704-1(b)(2)(iv)(g) (relating to adjustments to reflect book value).

 

(c) Each
Partner’s Capital Account shall be debited with (i) the amount of money distributed to such Partner by the Partnership; (ii)
the amount of such Partner’s individual liabilities that are assumed by the Partnership (other than liabilities described
in Treas. Reg. Section 1.704-1(b)(2)(iv)(b)(2) that are assumed by the Partnership); (iii) the Gross Asset Value of property distributed
to such Partner by the Partnership (net of liabilities secured by such distributed property that such Partner is considered to
assume or take subject to under Code Section 752); (iv) allocations to such Partner of expenditures of the Partnership not deductible
in computing Partnership taxable income and not properly chargeable to capital account (as described in Code Section 705(a)(2)(B)),
and (v) allocations to such Partner of Losses (or item thereof), including Losses and deductions described in Treas. Reg. Section
1.704-1(b)(2)(iv)(g) (relating to adjustments to reflect book value), but excluding items described in (iv) above and excluding
Losses or deductions described in Treas. Reg. Section 1.704-1(b)(4)(iii) (relating to excess percentage depletion).

 

(d) Solely
for purposes of maintaining the Capital Accounts:

 

(1)
Each year the Partnership shall compute (in accordance with Treas. Reg. Section 1.704-1(b)(2)(iv)(k)) a simulated depletion
allowance for each Oil and Gas Interest using that method, as between the cost depletion method and the percentage depletion method
(without regard to the limitations of Code Section 613A(c)(3) which theoretically could apply to any Partner), which results in
the greatest simulated depletion allowance. The simulated depletion allowance with respect to each Oil and Gas Interest shall reduce
the Partners’ Capital Accounts in the same proportion as the Partners were allocated adjusted basis with respect to such
Oil and Gas Interest under Section 3.3(a). In no event shall the Partnership’s aggregate simulated depletion allowance with
respect to an Oil and Gas Interest exceed the Partnership’s adjusted basis in the Oil and Gas Interest (maintained solely
for Capital Account purposes).

 

(2)
Upon the taxable disposition of an Oil and Gas Interest by the Partnership, the Partnership shall determine the simulated
(hypothetical) gain or loss with respect to such Oil and Gas Interest (solely for Capital Account purposes) by subtracting the
Partnership’s simulated adjusted basis for the Oil and Gas Interest sold (maintained solely for Capital Account purposes)
from the amount realized by the Partnership upon such disposition. Simulated adjusted basis shall be determined by reducing the
adjusted basis by the aggregate simulated depletion charged to the Capital Accounts of all Partners in accordance with Section
3.1(d)(1). The Capital Accounts of the Partners shall be adjusted upward by the amount of any simulated gain on such disposition
in proportion to such Partners= allocable share of the portion of total amount realized from the disposition of such Oil and Gas
Interest that exceeds the Partnership’s simulated adjusted basis in such Oil and Gas Interest. The Capital Accounts of the
Partners shall be adjusted downward by the amount of any simulated loss in proportion to such Partners’ allocable shares
of the total amount realized from the disposition of such Oil and Gas Interest that represents recovery of the Partnership’s
simulated adjusted basis in such Oil and Gas Interest.

 

    	8

    	 

    

 

(e) Except
as otherwise provided in this Agreement, neither a Partner nor the Initial Limited Partner shall be obligated to the Partnership
or to any other Partner to restore any negative balance in their Capital Accounts. Upon liquidation of the Partnership, or the
liquidation of the interest of the Managing General Partner (in each case determined as provided in Treas. Reg. Section 1.704-1(b)(2)(ii)(g),
if the Managing General Partner has a deficit balance in its Capital Account after crediting all Profit upon the sale of the Partnership’s
assets which have been sold, and after making all allocations provided for herein, then the Managing General Partner shall be obligated
to contribute to the Partnership, on or before the later to occur of (i) the close of the Partnership=s taxable year, or (ii) 90
days following such liquidation, an amount equal to such deficit balance for distribution in accordance with the terms of this
Agreement.

 

3.2
Allocation of Profits and Losses and Costs and Expenses. 

 

(a) Except
as provided in this Section 3.2 or in Section 3.3, the following shall apply:

 

(1)
Profits and Losses of the Partnership (computed without regard to the items referred to in Sections 3.2(a)(2) and 3.2(a)(3))
shall be allocated 90% to the Partners and 10% to the Managing General Partner.

 

(2)
Costs and expenses shall be allocated as follows:

 

(i)                 
Organizational and syndication costs and expenses shall be allocated 100% to the Partners and 0% to the Managing General
Partner;

 

(ii)               
Tangible drilling, intangible drilling and development costs and expenses shall be allocated 90% to the Partners and 10%
to the Managing General Partner; and

 

(iii)             
Operating Costs shall be allocated 90% to the Partners and 10% to the Managing General Partner.

 

(3)
All items of revenue or income attributable to the Partnership shall be allocated 90% to the Partners and 10% to the Managing
General Partner.

 

(b) Notwithstanding
anything to the contrary in Section 3.3.2(a), no Partner shall be allocated any item to the extent that such allocation would create
or increase a deficit in such Partner’s Capital Account. For purposes of this Section 3.2(b), in determining whether an allocation
would create or increase a deficit in an Partner’s Capital Account, such Capital Account shall be reduced for those items
described in Treas. Reg. Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6) and shall be increased by any amounts which such Partner
is obligated to restore in accordance with Treas. Reg. Section 1.704-1(b)(2)(ii)(c), or is deemed obligated to restore pursuant
to Treas. Reg. Sections 1.704-2(g)(1) and 1.704-2(i)(5). Any item, the allocation of which to any Partner is prohibited by this
Section 3.2(b), shall be reallocated to those Partners not having a deficit in their Capital Accounts (as adjusted as provided
in this Section 3.2(b)) in the proportion that the positive balance of each such Partner’s adjusted Capital Account bears
to the aggregate balance of all such Partners’ adjusted Capital Accounts, with any remaining losses or deductions being allocated
to the Managing General Partner. Notwithstanding the provisions of Section 3.2(a), to the extent items are allocated to the Partners
by virtue of the preceding provisions of this Section 3.2(b), the Profits thereafter recognized shall be allocated to such Partners
(in proportion to the items previously allocated to them pursuant to this Section 3.2(b)) until such time as the Profits allocated
to them pursuant to this sentence equals the items allocated to them pursuant to the preceding provisions of this Section 3.2(b).

 

(c) In
the event any Partner unexpectedly receives any adjustments, allocations, or distributions described in Treas. Reg. Section 1.704-1(b)(2)(ii)(d)(4),
(5), or (6), items of Partnership income and gain shall be specifically allocated to such Partner in an amount and manner sufficient
to eliminate (to the extent required by the regulations) the deficit balance in such Partner’s Capital Account (as adjusted
in accordance with the provisions of Section 3.2(b)) as quickly as possible; provided, however, that an allocation pursuant to
this Section 3.2(c) shall be made if and only to the extent that such Partner would have a deficit Capital Account (as adjusted
in Section 3.2(b)) after all other allocations provided for in Section 3 have been tentatively made as if this Section 3.2(c) were
not in this Agreement. It is the intention of the Partners that the provisions of this Section 3.2(c) constitute a “qualified
income offset” within the meaning of Treas. Reg. Section 1.704-1(b)(2)(ii)(d), and such provisions shall be so construed.

 

    	9

    	 

    

 

(d) Notwithstanding
any other provision of this Section 3.2, if there is a net decrease in Partnership Minimum Gain during any taxable year, all Partners
shall be allocated items of Partnership income and gain for that year equal to that Partner’s share (within the meaning of
Treas. Reg. Section 1.704-2(g)(2)) of the net decrease in Partnership Minimum Gain. Notwithstanding the preceding sentence, no
such chargeback shall be made to the extent one or more of the exceptions and/or waivers provided for in Treas. Reg. Section 1.704-2(f)
applies. This Section 3.2(d) is intended to comply with the minimum gain chargeback requirement of Treas. Reg. Section 1.704-2(f)
and shall be interpreted consistently therewith.

 

(e) Notwithstanding
any other provision of this Section 3.2, other than Section 3.2(d), if there is a net decrease in Partner Minimum Gain attributable
to Partner Nonrecourse Debt during any Partnership fiscal year, rules

similar to those contained in Section 3.2(d)
shall apply in a manner consistent with Treas. Reg. Section 1.704-2(i)(4). This Section 3.2(e) is intended to comply with the minimum
gain chargeback requirement of Treas. Reg. Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

 

(f) Any
Partner Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Partner who bears the economic
risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance
with Treas. Reg. Section 1.704-2(i)(1).

 

(g) To
the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Sections 734(b) or 743(b) is required,
pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or
loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted pursuant to such regulation.

 

(h) Notwithstanding
anything in this Section 3.2, if as a result of the regulatory allocations provided for in Sections 3.2(c) through 3.2(f) the Managing
General Partner determines that the Capital Accounts of the Partners do not reflect the economic agreement among the parties, the
Managing General Partner, in its discretion, may adjust the allocations provided for in Section 3.2(a) so that the Capital Accounts
of the Partners will be equal to the amount they would have been equal to had such regulatory allocations not been a part of this
Agreement.

 

(i) The
Partners are aware of the income tax consequences of the allocations made by this Section 3.2 and hereby agree to be bound by the
provisions of this Section 3.2 in reporting their shares of Partnership income and loss for income tax purposes.

 

(j) For
purposes of Code Section 752 and the regulations thereunder, the excess nonrecourse liabilities of the Partnership (within the
meaning of Treas. Reg. Section 1.752-3(a)(3)), if any, shall be allocated 90% to the Partners and 10% to the Managing General Partner.

 

3.3
Depletion. 

 

(a) The
depletion deduction with respect to each Oil and Gas Interest of the Partnership shall be computed separately by each Partner in
accordance with Code Section 613A(c)(7)(D) for Federal income tax purposes. For purposes of such computation, the adjusted basis
of each Oil and Gas Interest shall be allocated in accordance with the Partners’ interests in the capital of the Partnership.

 

    	10

    	 

    

 

(b) Upon
the taxable disposition of an Oil or Gas Interest by the Partnership, the amount realized therefrom shall be allocated among the
Partners (for purposes of calculating their individual gain or loss on such disposition for Federal income tax purposes) as follows:

 

(1)
The portion of the total amount realized upon the taxable disposition of such property that represents recovery of its
simulated adjusted tax basis therein (as calculated pursuant to Section 3.1(d)) shall be allocated to the Partners in the same
proportion as the aggregate adjusted basis of such property was allocated to such Partners (or their predecessors in interest)
pursuant to Section 3.3(a); and

 

(2)
The portion of the total amount realized upon the taxable disposition of such property that represents the excess over
the simulated adjusted tax basis therein shall be allocated in accordance with the provisions of Section 3.1(d) as if such gain
constituted an item of Profit.

 

3.4
Apportionment Among Partners. 

 

(a) Except
as otherwise provided in this Agreement, all allocations and distributions to the Partners shall be apportioned among them pro
rata based upon the number of Units held by each of the Partners.

 

(b) For
purposes of Section 3.4(a), a Partner’s pro rata share in Units shall be calculated as of the end of the taxable year for
which such allocation has been made; provided, however, that if a transferee of a Unit is admitted as a Partner during the course
of the taxable year, the apportionment of allocations and distributions between the transferor and transferee of such Unit shall
be made in the manner provided in Section 3.4(c).

 

(c) If,
during any taxable year of the Partnership, there is a change in any Partner’s interest in the Partnership, each Partner’s
allocation of any item of income, gain, loss, deduction, or credit of the Partnership for such taxable year shall be determined
by taking into account the varying interests of the Partners pursuant to such method as is permitted by Code Section 706(d) and
the regulations thereunder.

 

4.
Distributions. 

 

4.1
Time of Distribution. The Managing General Partner shall distribute the Partnership’s
Distributable Cash at such time as it shall determine, but such distributions shall be made not less frequently than quarterly.

 

4.2
Distributions. Except as provided in Section 4.3, all distributions (other than
those made in connection with the liquidation of the Partnership, which distributions shall be made in accordance with Section
9.3) shall be made 90% to the Partners (and proportionally among them based upon their ownership of Units) and 10% to the Managing
General Partner. In no event shall funds be advanced or borrowed for purposes of distributions if the amount of such distributions
would exceed the Partnership’s accrued and received revenues for the previous four quarters, less paid and accrued operating
costs with respect to such revenues. The determination of such revenues and costs shall be made in accordance with generally accepted
accounting principles, consistently applied.

 

4.3
Capital Account Deficits. No distributions shall be made to any Partner to the
extent such distribution would create or increase a deficit in such Partner’s Capital Account (as adjusted in Section 3.2(b)).
If a distribution is not made to a Partner by reason of the preceding sentence, then the amount which would have been distributed
to such Partner shall be distributed to the other Partners in the proportion that the positive Capital Account balance of each
Partner bears to the aggregate positive Capital Account balances of all of the Partners. Any such amount remaining after reduction
of all Capital Accounts to zero shall be distributed to the Managing General Partner.

 

5.
Activities. 

 

5.1
Management. The Managing General Partner shall conduct, direct, and exercise full
and exclusive control over all activities of the Partnership. Partners shall have no power over the conduct of the affairs of the
Partnership or otherwise commit or bind the Partnership in any manner. The Managing General Partner shall manage the affairs of
the Partnership in a prudent and businesslike fashion and shall use its best efforts to carry out the purposes and character of
the business of the Partnership.

 

    	11

    	 

    

 

5.2
Conduct of Operations. 

 

(a) The
Partners agree to participate in the Partnership’s program of operations as established by the Managing General Partner;
provided, however, that no well drilled to the point of setting casing need be completed if, in the Managing General Partner’s
opinion, such well is unlikely to be productive of oil or gas in quantities sufficient to justify the expenditures required for
well completion. The Partnership may participate with others in the drilling of wells and it may enter into partnerships or other
such arrangements.

 

(b) The
Partnership shall not participate in any joint operations on any co-owned Lease unless there has been acquired or reserved on behalf
of the Partnership the right to take in kind or separately dispose of its proportionate share of the oil and gas produced from
such Lease, exclusive of production which may be used in development and production operations on the Lease and production unavoidably
lost, and, if the Managing General Partner is the operator of such Lease, the Managing General Partner shall enter into written
agreements with every other person or entity owning any working or operating interest reserving to such person or entity a similar
right to take in-kind so as not to result in the Partnership being treated as a member of an association taxable as a corporation
for Federal income tax purposes.

 

(c) The
relationship of the Partnership and the Managing General Partner (or an Affiliate retaining or acquiring an interest) as
co-owners in Leases, except to the extent superseded by an operating agreement consistent with the provisions of Section
5.2(c), and except to the extent inconsistent with this Agreement, shall be governed by the AAPL Form 610 Model Operating
Agreement-1989, with a provision reserving the right to take production in-kind, naming the Partnership as a non-operator,
and with the accounting procedure to govern as the accounting procedures under such operating agreements.

 

(d) The
Managing General Partner is not expected to act as the operator of the Partnership Wells, and the Managing General Partner may
designate such other persons as it deems appropriate to conduct the actual drilling and producing operations of the Partnership.

 

(e) The
Partnership shall enter into a Turnkey Drilling Contract with the Managing General Partner or its Affiliates as described in the
Placement Memorandum.

 

(f) The
funds of the Partnership shall not be commingled with the funds of any other Person.

 

(g)The
Managing General Partner shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership,
whether or not in the Managing General Partner’s possession or control, and shall not employ or permit another to employ
such funds or assets in any manner except for the exclusive benefit of the Partnership.

 

5.3
Acquisition and Sale of Leases. 

 

(a) To
the extent the Partnership does not acquire a full interest in a Lease from the Managing General Partner or its Affiliate,
the remainder of the interest in such Lease may be held by the Managing General Partner or such Affiliate, as applicable,
which may retain and exploit it for its own account or sell or otherwise dispose of all or a part of such remaining interest.
Profits from such exploitation and/or disposition shall be for the benefit of the Managing General Partner or its Affiliate
to the exclusion of the Partnership. Any Leases acquired by the Partnership from the Managing General Partner or its
Affiliate shall be acquired at the fair market value of such property.

 

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(b) The
Partnership shall acquire only Leases reasonably expected to meet the stated purposes of the Partnership. No Leases shall be acquired
for the purpose of a subsequent sale or farmout unless the acquisition is made after a well has been drilled to a depth sufficient
to indicate that such an acquisition would be in the Partnership’s best interest.

 

5.4
Title to Leases. 

 

(a) Record
title to each Lease acquired by the Partnership may be temporarily held in the name of the Managing General Partner, or in the
name of any nominee designated by the Managing General Partner, as agent for the Partnership until a productive well is completed
on a Lease. Thereafter, the producing well (a/k/a the wellbore) shall be assigned to and placed in the name of the partnership.

 

(b) The
Managing General Partner shall take the necessary steps in its best judgment to render title to the Leases to be assigned to the
Partnership acceptable for the purposes of the Partnership. No operation shall be commenced on any Prospect acquired by the Partnership
unless the Managing General Partner is satisfied that the undertaking of such operation would be in the best interest of Partners
and the Partnership. The Managing General Partner shall be free, however, to use its own best judgment in waiving title requirements
and shall not be liable to the Partnership or Partners for any mistakes of judgment unless such mistakes were made in a manner
not in accordance with general industry standards in the geographic area. Neither the Managing General Partner nor its Affiliates
shall be deemed to be making any warranties or representations, express or implied, as to the validity or merchantability of the
title to any Lease assigned to the Partnership or the extent of the interest covered thereby.

 

5.5
Release, Abandonment, and Sale or Exchange of Properties. Except as provided elsewhere
in Section 5 and in Section 6.3, the Managing General Partner shall have full power to dispose of the production and other assets
of the Partnership, including the power to determine which Leases shall be released or permitted to terminate, those wells to be
abandoned, whether any Lease or well shall be sold or exchanged, and the terms therefor.

 

5.6
Certain Transactions With Managing General Partner or Affiliates. Any services,
equipment, or supplies which the Managing General Partner or an Affiliate furnishes to the Partnership which is not specifically
referred to herein shall be furnished at a competitive rate which could be obtained in the geographical area of operations. Any
such services for which the Managing General Partner or an Affiliate is to receive compensation shall be embodied in a written
contract which precisely describes the services to be rendered and all compensation to be paid.

 

6.
Managing General Partner. 

 

6.1
Managing General Partner. The Managing General Partner shall have the sole and
exclusive right and power to manage and control the affairs of and to operate the Partnership, to do all things necessary to carry
on the business of the Partnership for the purposes described in Section 1.4 and to conduct the activities of the Partnership as
set forth in Section 5. No financial institution or any other person, firm, or corporation dealing with the Managing General Partner
shall be required to ascertain whether the Managing General Partner is acting in accordance with this Agreement, but such financial
institution or such other person, firm, or corporation shall be protected in relying solely upon the deed, transfer, or assurance
of, and the execution of such instrument or instruments by, the Managing General Partner. The Managing General Partner shall devote
so much of its time to the business of the Partnership as in its judgment the conduct of the Partnership’s business shall
reasonably require and shall not be obligated to do or perform any act or thing in connection with the business of the Partnership
not expressly set forth herein. The Managing General Partner may engage in business ventures of any nature and description independently
or with others and neither the Partnership nor any of the Partners shall have any rights in and to such independent ventures or
the income or profits derived therefrom.

 

6.2
Authority of Managing General Partner. The Managing General Partner is specifically
authorized and empowered, on behalf of the Partnership, and by consent of the Partners herein given, to do any act, execute any
document or enter into any contract or any agreement of any nature necessary or desirable, in the opinion of the Managing General
Partner, in pursuance of the purposes of the Partnership. Without limiting the generality of the foregoing, in addition to any
and all other powers conferred upon the Managing General Partner pursuant to this Agreement and the Act, and except as otherwise
prohibited by law or hereunder, the Managing General Partner shall have the power and authority to:

 

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(a) Acquire
Leases and other Oil and Gas Interests in furtherance of the Partnership’s business;

 

(b) Enter
into and execute pooling agreements, farm out agreements, operating agreements, unitization agreements, dry and bottom hole and
acreage contribution letters, construction contracts, and any and all documents or instruments customarily employed in the oil
and gas industry in connection with the acquisition, sale, exploration, development, or operation of Oil and Gas Interests, and
all other instruments deemed by the Managing General Partner to be necessary or appropriate to the proper operation of Oil or Gas
Interests or to effectively and properly perform its duties or exercise its powers hereunder;

 

(c) Make
expenditures and incur any obligations it deems necessary to implement the purposes of the Partnership, employ and retain such
personnel as it deems desirable for the conduct of the Partnership’s activities, including employees, consultants, and attorneys
and exercise on behalf of the Partnership, in such manner as the Managing General Partner, in its sole judgment, deems best, all
rights, elections, and obligations granted to or imposed upon the Partnership;

 

(d) Manage,
operate, and develop any Partnership property, and enter into operating agreements and other agreements with respect to properties
acquired by the Partnership, including an operating agreement and turnkey drilling contract with the Managing General Partner as
described in the Placement Memorandum, which agreements may contain such terms, provisions, and conditions as are usual and customary
within the industry and as the Managing General Partner shall approve;

 

(e) Compromise,
sue, or defend any and all claims in favor of or against the Partnership;

 

(f) Subject
to the provisions of Section 8.4, make or revoke any election permitted the Partnership by any taxing authority;

 

(g) Perform
any and all acts it deems necessary or appropriate for the protection and preservation of Partnership assets;

 

(h) Buy,
sell, or lease property or assets on behalf of the Partnership;

 

(i) Enter
into agreements to hire services of any kind or nature;

 

(j) Assign
interests in properties to the Partnership;

 

(k) Enter
into soliciting dealer agreements and perform all of the Partnership’s obligations thereunder, to issue and sell Units pursuant
to the terms and conditions of this Agreement, the Subscription Agreements, and the Placement Memorandum, to accept and execute
on behalf of the Partnership Subscription Agreements, and to admit Partners and Substitute Partners; and

 

(l) Perform
any and all acts, and execute any and all documents, it deems necessary or appropriate to carry out the purposes of the Partnership.

 

6.3
Certain Restrictions on Managing General Partner’s Power and Authority. Notwithstanding
any other provisions of this Agreement to the contrary, neither the Managing General Partner nor any of its Affiliates shall have
the power or authority to, and shall not, do, perform, or authorize any of the following:

 

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(a) Without
having first received the prior consent of the holders of a majority of the then outstanding Units entitled to vote,

 

(1)
sell all, or substantially all, of the assets of the Partnership (except upon liquidation of the Partnership pursuant to
Section 9), unless cash funds of the Partnership are insufficient to pay the obligations and other liabilities of the Partnership;

 

(2)
dispose of the goodwill of the Partnership; or

 

(3)
do any other act which would make it impossible to carry on the ordinary business of the Partnership;

 

(b) Bind
or obligate the Partnership with respect to any matter outside the scope of the Partnership business;

 

(c) Use
the Partnership name, credit, or property for other than Partnership purposes;

 

(d) Utilize
Partnership funds to invest in the securities of another Person except in the following instances:

 

(1)
investments in Working Interests or undivided Lease interests made in the ordinary course of the Partnership’s business;

 

(2)
temporary investments made in compliance with Section 2.2(c);

 

(3)
investments which are a necessary and incidental part of a property acquisition transaction; and

 

(4)
investments in entities established solely to limit the Partnership’s liabilities associated with the ownership or
operation of property or equipment; provided, however, that in such instances duplicative fees and expenses shall be prohibited.

 

(e) Sell,
transfer, or assign its interest (except for a collateral assignment which may be granted to a bank or other financial institution)
in the Partnership, or any part thereof, or otherwise withdraw as Managing General Partner without written notice to the Partners.

 

6.4
Indemnification of Managing General Partner. The Managing General Partner shall
have no liability to the Partnership or to any Partner for any loss suffered by the Partnership which arises out of any action
or inaction of the Managing General Partner if the Managing General Partner, in good faith, determined that such course of conduct
was in the best interest of the Partnership, that the Managing General Partner was acting on behalf of or performing services for
the Partnership, and that such course of conduct did not constitute gross negligence or willful misconduct of the Managing General
Partner. The Managing General Partner shall be indemnified by the Partnership against any losses, judgments, liabilities, expenses,
and amounts paid in settlement of any claims sustained by it in connection with the Partnership, provided that the Managing General
Partner has determined, in good faith, that the course of conduct which caused the loss or liability was in the best interest of
the Partnership, that the Managing General Partner was acting on behalf of or performing services for the Partnership, and that
the same were not the result of gross negligence or willful misconduct on the part of the Managing General Partner. Indemnification
of the Managing General Partner is recoverable only from the tangible net assets of the Partnership and the insurance and indemnification
of the Partnership’s subcontractors, and is not recoverable from the Partners.

 

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6.5
Withdrawal. 

 

(a) Notwithstanding
the limitations contained in Section 6.3(e), the Managing General Partner shall have the right, by giving written notice to the
Partners, to substitute in its stead as Managing General Partner any successor entity or any entity controlled by the Managing
General Partner, and the Partners, by execution of this Agreement, hereby expressly consent to such a transfer unless it would
adversely affect the status of the Partnership as a partnership for Federal income tax purposes.

 

(b) The
Managing General Partner may voluntarily withdraw from the Partnership after written notice to the Partners.

 

(c) In
the event a Managing General Partner withdraws and the Partners elect to continue the Partnership, the withdrawing Managing General
Partner’s interest in the assets of the Partnership shall be determined by independent appraisal by a qualified independent
petroleum engineering consultant who shall be selected by mutual agreement of the Managing General Partner and the successor Managing
General Partner. Such appraisal will take into account an appropriate discount to reflect the risk of recovery of oil and gas reserves.
The withdrawn Managing General Partner shall be paid for its interest within ten days of the determination of the value of such
interest.

 

6.6
Tax Matters Partner. The Managing General Partner shall serve as the Tax Matters
Partner for purposes of Code Sections 6221 through 6233. The Partnership may engage its accountants and/or attorneys to assist
the Tax Matters Partner in discharging its duties hereunder.

 

6.7 Organization
and Offering Fee. The Partnership shall pay the Managing General Partner an Organization and Offering Fee of $94,267.

 

7.
Partners. 

 

7.1
Management. No Partner shall take part in the control or management of the business
or transact any business for the Partnership, and no Partner shall have the power to sign for or bind the Partnership, all of such
authority having been given to the Managing General Partner in Section 6. Any action or conduct of Partners on behalf of the Partnership
is hereby expressly prohibited. Any Partner who violates the provisions of this Section 7.1 shall be liable to the remaining Partners,
the Managing General Partner, and the Partnership for any damages, costs, or expenses any of them may incur as a result of such
violation. Partners shall have the right to vote only with respect to those matters specifically provided for in these Sections.

 

7.2
Assignment of Units. 

 

(a) A
Partner may transfer all or any portion of the Partner’s Units, subject to the following conditions:

 

(1)
No such assignment shall be made if, in the opinion of counsel to the Partnership, such assignment would cause the termination
of the Partnership for federal income tax purposes under Section 708 of the Code or might result in a change in the status
of the Partnership to a “publicly traded partnership” within the meaning of Section 7704 of the Code, or if in
the opinion of counsel to the Partnership such assignment may not be effected without registration under the Securities Act of
1933, as amended, or would result in the violation of any applicable state securities laws;

 

(2)
Except in the case of a transfer of Units at death, as a result of adjudication of incompetency or insanity, or involuntarily
by operation of law, the transferor and transferee shall execute and deliver to the Partnership such documents and instruments
of conveyance as may be necessary or appropriate in the opinion of counsel to the Partnership to effect such transfer;

 

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(3)
The transferor and transferee shall furnish the Partnership with the transferee’s taxpayer identification number
and sufficient information to determine the transferee’s initial tax basis in the Units transferred;

 

(4)
The Partnership is reimbursed by the transferor and/or transferee for all costs and expenses that it reasonably incurs
in connection with such transfer; and

 

(5)
If the transferor is an Additional General Partner, the Managing General Partner has consented to the transfer, which shall
be in the sole discretion of the Managing General Partner.

 

(b) A
Person who acquires one or more Units but who is not admitted as a Substitute Partner, shall only be entitled to allocations and
distributions with respect to such Units in accordance with this Agreement, but shall have no right to any information or accounting
of the affairs of the Partnership, shall not be entitled to inspect the books or records of the Partnership, and shall not have
any of the rights of an Additional General Partner or a Limited Partner under the Act or this Agreement.

 

(c) Subject
to the other provisions of Section 7, a transferee of Units may be admitted to the Partnership as a Substitute Partner only upon
satisfaction of the following conditions:

 

(1)
The Managing General Partner consents to such admission, which consent can be withheld in its absolute discretion;

 

(2)
The Units with respect to which the transferee is being admitted were acquired by means of a Permitted Transfer;

 

(3)
The transferee becomes a party to this Agreement as a Partner and executes such documents and instruments as the Managing
General Partner may reasonably request as may be necessary or appropriate to confirm such transferee as a Partner of the Partnership
and such transferee’s agreement to be bound by the terms and conditions hereof; and

 

(4)
If the transferee is not an individual of legal majority, the transferee provides the Partnership with evidence satisfactory
to counsel for the Partnership of the authority of the transferee to become a Partner and to be bound by the terms and conditions
of this Agreement.

 

(d) In
any calendar quarter in which a transfer of a Unit occurs, the Partnership shall recognize the assignment not later than the last
day of the calendar month following receipt of notice of assignment and required documentation.

 

(e) Each
Partner hereby covenants and agrees with the Partnership, for the benefit of the Partnership and all Partners, that (i) the Partner
is not currently making a market in Units and (ii) the Partner will not transfer any Unit on an established securities market or
a secondary market (or the substantial equivalent thereof) within the meaning of Code Section 7704(b) (and any regulations, proposed
regulations, revenue rulings, or other official pronouncements of the Internal Revenue Service that may be promulgated or published
thereunder). Each Partner further agrees that the Partner will not transfer any Unit to any Person unless such Person agrees to
be bound by the provisions of this Section 7.2 and to transfer such Units only to Persons who agree to be similarly bound.

 

7.3
Prohibited Transfers. 

 

(a) Any
purported Transfer of Units that is not a Permitted Transfer shall be null and void and of no effect whatever. If, however, the
Partnership is required by a court of competent jurisdiction to recognize a transfer that is not a Permitted Transfer (or if the
Managing General Partner, in its sole discretion, elects to recognize a transfer that is not a Permitted Transfer), the Partnership
shall have the right (without limiting any other legal or equitable rights of the Partnership) to withhold distributions to which
such transferee would otherwise be entitled and apply such distributions to satisfy the debts, obligations, or liabilities for
damages that the transferor or transferee of such Units may have to the Partnership.

 

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(b) In
the case of a transfer or attempted transfer of Units that is not a Permitted Transfer, the parties engaging or attempting to engage
in such transfer shall be liable to indemnify and hold harmless the Partnership and the other Partners from all cost, liability,
and damage that any of such indemnified Persons may incur (including, without limitation, incremental tax liability and lawyers
fees and expenses) as a result of such transfer or attempted transfer and efforts to enforce the indemnity granted hereby.

 

7.4
Withdrawal by Partners. A Partner may not withdraw from the Partnership, except
as otherwise provided in this Agreement.

 

7.5
Calling of Meetings. Partners owning 20% or more of the then outstanding Units
entitled to vote shall have the right to request that the Managing General Partner call a meeting of the Partners. The Managing
General Partner shall call such a meeting and shall deposit in the United States mails within 15 days after receipt of such request
written notice to all Partners of the meeting and the purpose of the meeting, which shall be held on a date not less than 30, nor
more than 60, days after the date of the mailing of such notice, at a reasonable time and place. Partners shall have the right
to submit proposals to the Managing General Partner for inclusion in the voting materials for the next meeting of Partners for
consideration and approval by the Partners. Partners shall have the right to vote in person or by proxy.

 

7.6
Voting Rights. Partners shall be entitled to all voting rights granted to them
under this Agreement and as specified by the Act. Each Unit is entitled to one vote on all matters; each fractional Unit is entitled
to that fraction of one vote equal to the fractional interest in the Unit. Except as otherwise provided herein, at any meeting
of Partners, a vote of a majority of Units represented at such meeting, in person or by proxy, with respect to matters considered
at the meeting at which a quorum is present shall be required for approval of any such matters.

 

7.7
Voting by Proxy. The Partners may vote either in person or by proxy.

 

7.8
Conversion of Additional General Partner Units to Limited Partner Interests. 

 

(a) Automatic
Conversion. After the Partnership Wells have been drilled and completed, the Managing General Partner shall file an amended certificate
of limited partnership with the Secretary of State of the state of Kentucky for the purpose of converting the Additional General
Partner Units to Limited Partners interests.

 

(b) Additional
General Partners Shall Have Contingent Liability. Upon conversion the Additional General Partners shall be Limited Partners entitled
to limited liability; however, they shall remain liable to the Partnership for any additional Capital Contribution required for
their proportionate share of any Partnership obligation or liability arising before the conversion of their Units as provided in
Section 3.05(b)(2).

 

(c) Conversion
Shall Not Affect Allocations. The conversion shall not affect the allocation to any Participant of any item of Partnership income,
gain, loss, deduction or credit or other item of special tax significance other than Partnership liabilities, if any. Further,
the conversion shall not affect any Participant’s interest in the Partnership’s oil and gas properties and unrealized
receivables.

 

7.9
Liability of Partners. Except as otherwise provided in this Agreement or the Act,
each Additional General Partner shall be jointly and severally liable for the debts and obligations of the Partnership. In addition,
each Additional General Partner shall be jointly and severally liable for any wrongful acts or omissions of the Managing General
Partner and/or the misapplication of money or property of a third party by the Managing General Partner acting within the scope
of its apparent authority to the extent such acts or omissions are chargeable to the Partnership.

 

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8.
Books and Records.

 

8.1
Books and Records. 

 

(a) For
accounting and income tax purposes, the Partnership shall operate on a calendar year.

 

(b) The
Managing General Partner shall keep just and true records and books of account with respect to the operations of the Partnership
and shall maintain and preserve during the term of the Partnership and for four years thereafter all such records, books of account,
and other relevant Partnership documents. The Managing General Partner shall maintain for at least six years all records necessary
to substantiate the fact that Units were sold only to purchasers for whom such Units were suitable. Such books shall be maintained
at the principal place of business of the Partnership and shall be kept on the accrual method of accounting.

 

(c) The
Managing General Partner shall keep or cause to be kept complete and accurate books and records with respect to the Partnership’s
business, which books and records shall at all times be kept at the principal office of the Partnership. Any records maintained
by the Partnership in the regular course of its business, including the names and addresses of Partners, books of account, and
records of Partnership proceedings, may be kept on any electronic information storage device; provided, however, that the records
so kept are convertible into clearly legible written form within a reasonable period of time. The books and records of the Partnership
shall be made available for review by any Partner or the Partner’s representative at any reasonable time.

 

(d) The
Participant List shall be maintained as a part of the books and records of the Partnership and shall be available for the inspection
by any Partner or such Partner’s designated agent at the principal office of the Partnership upon the request of any Partner
and shall be updated at least quarterly to reflect changes in the information contained therein.

 

8.2
Reports. The Managing General Partner shall deliver to each Partner the following
financial statements and reports at the times indicated below:

 

(a) By
March 15 of each year, a report containing such information as to enable each Partner to prepare and file such Partner’s
Federal income tax return.

 

(b) Such
other reports and financial statements as the Managing General Partner shall determine from time to time.

 

8.3
Bank Accounts. All funds of the Partnership shall be deposited in such separate
bank account or accounts, short term obligations of the U.S. Government or its agencies, or other interest-bearing investments
and money market or liquid asset mutual funds as shall be determined by the Managing General Partner. All withdrawals therefrom
shall be made upon checks signed by the Managing General Partner or any person authorized to do so by the Managing General Partner.

 

8.4
Federal Income Tax Elections. 

 

(a) Except
as otherwise provided in this Section 8.4, all elections required or permitted to be made by the Partnership under the Code shall
be made by the Managing General Partner in its sole discretion. Each Partner agrees to provide the Partnership with all information
necessary to give effect to any election to be made by the Partnership.

 

(b) The
Partnership shall elect to currently deduct intangible drilling and development costs as an expense for income tax purposes and
shall require any partnership, joint venture, or other arrangement in which it is a party to make such an election.

 

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9.
Dissolution; Winding-Up. 

 

9.1
Dissolution. 

 

(a) Except
as otherwise provided herein, the retirement, withdrawal, removal, death, insanity, incapacity, dissolution, or bankruptcy of any
Partner shall not dissolve the Partnership. The successor to the rights of such Partner shall have all the rights of an Partner
for the purpose of settling or administering the estate or affairs of such Partner; provided, however, that no successor shall
become a Substitute Partner except in accordance with Section 7; and provided further that upon the occurrence of any of the events
referred to in the first sentence of this Section 9.1(a) with respect to an Additional General Partner, the Partnership shall be
dissolved and wound up unless at that time there is at least one other Additional General Partner, in which event the business
of the Partnership shall continue to be carried on. Neither the expulsion of any Partner, nor the admission or substitution of
an Partner, shall work a dissolution of the Partnership. The estate of a deceased, insane, incompetent, or bankrupt Partner shall
be liable for all his liabilities as a Partner.

 

(b) Notwithstanding
anything in the Act to the contrary, the Partnership shall be dissolved upon, but not before, the earliest to occur of (i) the
written consent of the Managing General Partner and Partners owning a majority of the then outstanding Units to dissolve and wind
up the affairs of the Partnership; (ii) subject to the provisions of Section 9.1(c), the retirement, withdrawal, removal, death,
adjudication of insanity or incapacity, or bankruptcy (or, in the case of a corporate Managing General Partner, the withdrawal,
removal, filing of a certificate of dissolution, liquidation, or bankruptcy) of the Managing General Partner; (iii) the sale, forfeiture,
or abandonment of all, or substantially all, of the Partnership’s property and the sale and/or collection of any evidences
of indebtedness received in connection therewith; (iv) December 31, 2043 or (v) a dissolution event described in Section 9.1(a).

 

(c) In
the case of any event described in Section 9.1(b)(ii), if a successor Managing General Partner is selected by Partners owning a
majority of the then outstanding Units within 90 days after such event, and if such Partners agree within such 90 day period to
continue the business of the Partnership, then the Partnership shall not be dissolved.

 

(d) If,
notwithstanding the provisions of this Agreement, the retirement, withdrawal, removal, death, insanity, incapacity, dissolution,
liquidation, or bankruptcy of any Partner, or the assignment of a Partner’s interest in the Partnership, or the substitution
or admission of a new Partner, shall be deemed under the Act to cause a dissolution of the Partnership, then, except as provided
in Section 9.1(c), the remaining Partners may, in accordance with the Act, continue the Partnership business as a new partnership
and all such remaining Partners agree to be bound by the provisions of this Agreement.

 

9.2
Liquidation. Upon a dissolution of the Partnership, the Managing General Partner,
or in the event there is no Managing General Partner, any other Person selected by the Partners to act as the liquidator, shall
cause the affairs of the Partnership to be wound up and shall take account of the Partnership’s assets (including Capital
Contributions, if any, of the Managing General Partner pursuant to Section 3.1(e)) and, subject to the provisions of Section 9.3(b)
shall be liquidated as promptly as is consistent with obtaining the fair market value thereof (which dissolution and liquidation
may be accomplished over a period spanning one or more tax years in the sole discretion of the Managing General Partner or the
liquidator), and the proceeds therefrom, to the extent sufficient therefor, shall be applied and distributed in accordance with
Section 9.3.

 

9.3
Winding-Up. 

 

(a) Upon
the dissolution of the Partnership and winding up of its affairs, the assets of the Partnership shall be distributed as follows:

 

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(1)
all of the Partnership’s debts and liabilities to Persons other than to Partners shall be paid and discharged;

 

(2)
to the establishment of any cash reserves which the Managing General Partner or liquidator determines to create in their
sole discretion for unmatured and/or contingent liabilities or obligations of the Partnership; and

 

(3)
to the Partners, in accordance with their respective Capital Accounts; provided, however, that if the Managing General
Partner or liquidator establishes any reserves in accordance with the provisions of Section 9.3(a)(2), then the distributions pursuant
to this Section 9.3(a)(3) (including distribution of any released reserves) shall be pro rata in accordance with the balances of
the Partners’ Capital Accounts.

 

(b) Distributions
pursuant to Section 9.3 shall be made in cash or in kind to the Partners, at the election of the Managing General Partner. Notwithstanding
the provision of this Section 9.3(b), in no event shall the Partners reserve the right to take in kind and separately dispose of
their share of production.

 

(c) Any
in kind property distributions to the Partners shall be made to a liquidating trust or similar entity for the benefit of the
Partners, unless at the time of the distribution:

 

(1)
the Managing General Partner shall offer the individual Partners the election of receiving in kind property distributions
and the Partners accept such offer after being advised of the risks associated with such direct ownership; or

 

(2)
there are alternative arrangements in place which assure the Partners that they will not, at any time, be responsible for
the operation or disposition of Partnership properties.

 

10.
Power of Attorney. 

 

10.1
Managing General Partner as Attorney-in-Fact. Each Partner makes, constitutes,
and appoints the Managing General Partner their true and lawful attorney-in-fact, with full power of substitution, in the name,
place, and stead of the Partner, from time to time to make, execute, sign, acknowledge, and file:

 

(a) Any
notices or certificates as may be required under the Act and under the laws of any other state or jurisdiction in which the Partnership
shall engage, or seek to engage, to do business and to do such other acts as are required to constitute the Partnership as a limited
partnership under such laws.

 

(b) Any
amendment to the Agreement pursuant to and which complies with Section 11.9.

 

(c) Such
certificates, instruments, and documents as may be required by, or may be appropriate under the laws of any state or other jurisdiction
in which the Partnership is doing or intends to do business.

 

(d) Such
certificates, instruments, and documents as may be required by, or as may be appropriate for the Partner to comply with, the laws
of any state or other jurisdiction to reflect a change of name or address of the Partner.

 

(e) Such
certificates, instruments, and documents as may be required to be filed with the Department of Interior (including any bureau,
office or other unit thereof, whether in Washington, D.C. or in the field, or any officer or employee thereof), as well as with
any other federal or state agencies, departments, bureaus, offices, or authorities and pertaining to (i) any and all offers to
lease, Leases (including amendments, modifications, supplements, renewals, and exchanges thereof) of, or with respect to, any lands
under the jurisdiction of the United States or any state including, without limitation, lands within the public domain, and acquired
lands, and provides for the leasing thereof, (ii) all statements of interest and holdings on behalf of the Partnership or the Partner;
(iii) any other statements, notices, or communications required or permitted to be filed or which may hereafter be required or
permitted to be filed under any law, rule, or regulation of the United States, or any state relating to the leasing of lands for
oil or gas exploration or development, (iv) any request for approval of assignments or transfers of oil and gas Leases, any unitization
or pooling agreements and any other documents relating to lands under the jurisdiction of the United States or any state; and (v)
any other documents or instruments which said attorney-in-fact, in its sole discretion, shall determine should be filed.

 

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(f) Any
further document, including furnishing verified copies of this Agreement and/or excerpts therefrom, which said attorney-in-fact
shall consider necessary or convenient in connection with any of the foregoing, hereby giving said attorney-in-fact full power
and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the foregoing
as fully as the undersigned might and could do if personally present, and hereby ratifying and confirming all that said attorney-in-fact
shall lawfully do to cause to be done by virtue hereof.

 

10.2
Nature as Special Power. The foregoing grant of authority:

 

(a) is
a special power of attorney coupled with an interest, is irrevocable, and shall survive the death or incompetency of the Partner
granting it;

 

(b) shall
survive the delivery of any assignment by the Partner of the whole or any portion of the Partner’s Units; except that where
the assignee thereof has been approved by the Managing General Partner for admission to the Partnership as a Substitute Partner,
the power of attorney shall survive the delivery of such assignment for the sole purpose of enabling said attorney-in-fact to execute,
acknowledge, and file any instrument necessary to effect such substitution; and

 

(c) may
be exercised by said attorney-in-fact by a listing of all of the Partners executing any instrument with a single signature of said
attorney-in-fact.

 

11.
Miscellaneous Provisions. 

 

11.1
Liability of Parties. By entering into this Agreement, no party shall become liable
for any other party’s obligations relating to any activities beyond the scope of this Agreement, except as provided by the
Act. If any party suffers, or is held liable for, any loss or liability of the Partnership which is in excess of that agreed upon
herein, such party shall be indemnified by the other parties, to the extent of their respective interests in the Partnership, as
provided herein.

 

11.2
Notices. Any notice, payment, demand, or communication required or permitted to
be given by any provision of this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered
personally to the party or to an officer of the party to whom the same is directed or sent by registered or certified mail, postage
and charges prepaid, addressed as follows (or to such other address as the party shall have furnished in writing in accordance
with the provisions of this Section):

 

(a) If
to the Managing General Partner, 632 Adams Street, Suite 710, Bowling Green, Kentucky 42101.

 

(b) If
to a Partner, at such Partner’s address for purposes of notice which is set forth on Exhibit A attached hereto. Unless otherwise
expressly set forth in this Agreement to the contrary, any such notice shall be deemed to be given on the date on which the same
was deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and sent as aforesaid.

 

11.3
Paragraph Headings, Section References. The headings in the Agreement are inserted
for convenience and identification only and are in no way intended to describe, interpret, define, or limit the scope, extent,
or intent of this Agreement or any provision hereof. All references herein to Sections shall refer to Sections of this Agreement
unless the context clearly requires otherwise.

 

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11.4
Severability. Every portion of this Agreement is intended to be severable. If
any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement.

 

11.5
Sole Agreement. This Agreement constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof and no amendment, modification, or alteration of the terms hereof shall be binding
unless the same be in writing, dated subsequent to the date hereof and duly approved and executed by the Managing General Partner
and such percentage of Partners as provided in Section 11.9.

 

11.6
Applicable Law. This Agreement, shall be governed by, and construed in accordance
with, the laws of the State of Kentucky without regard to its conflict of law rules.

 

11.7 Execution
in Counterparts. This Agreement may be executed in any number of counterparts
with the same effect as if all parties hereto had all signed the same document. All counterparts shall be construed together and
shall constitute one agreement.

 

11.8
Waiver of Action for Partition. Each Partner irrevocably waives, during the term
of the Partnership, any right that such Partner may have to maintain any action for partition with respect to the Partnership and
the property of the Partnership.

 

11.9
Amendments. 

 

(a) Unless
otherwise specifically herein provided, this Agreement shall not be amended without the consent of Partners owning a majority of
the then outstanding Units entitled to vote.

 

(b) The
Managing General Partner may, without notice to, or consent of, any Partner, amend any provisions of this Agreement, or consent
to and execute any amendment to this Agreement, to reflect:

 

(1)
A change in the name or location of the principal place of business of the Partnership;

 

(2)
The admission of Substitute Partners or additional Partners in accordance with this Agreement;

 

(3)
A reduction in, return of, or withdrawal of, all or a portion of any Partner’s Capital Contribution;

 

(4)
A correction of any typographical error or omission;

 

(5)
A change which is necessary in order to qualify the Partnership as a limited partnership under the laws of any other state
or which is necessary or advisable, in the opinion of the Managing General Partner, to ensure that the Partnership will be treated
as a partnership and not as an association taxable as a corporation for Federal income tax purposes;

 

(6)
A change in the allocation provisions, in accordance with the provisions of Section 3.2(a), in a manner that, in the sole
opinion of the Managing General Partner (which opinion shall be determinative), would result in the most favorable aggregate consequences
to the Partners as nearly as possible consistent with the allocations contained herein, for such allocations to be recognized for
Federal income tax purposes due to developments in the Federal income tax laws or otherwise; or

 

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(7)
Any other amendment similar to the foregoing; provided however, that the Managing General Partner shall have no authority,
right, or power under this Section 11.9(b) to amend the voting rights of the Partners.

 

11.10
Substitution of Signature Pages. This Agreement has been executed in duplicate
by the Partners and one executed copy of the signature page is attached to the Partner’s copy of this Agreement. It is agreed
that the other executed copy of such signature page may be attached to an identical copy of this Agreement together with the signature
pages from counterpart Agreements which may be executed by other Partners.

 

11.11
Incorporation by Reference. Every exhibit, schedule, and other appendix attached
to this Agreement and referred to herein is hereby incorporated in this Agreement by reference.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    	24

    	 

    

 

2013
Bayou City Seabreeze Offset Drilling Program, L.P. 

PARTNERSHIP AGREEMENT SIGNATURE PAGE

 

		__________	Number of Units of Limited
Partnership interest

 

		__________	Number of Units of General
Partnership interest

 

		__________	Cash Payment - $50,500 per Unit to be paid as follows:

	 	 	 
	 	 	$28,000 payable upon subscription
for the drilling and testing of the Partnership Wells. (Payable to “AB & T, Escrow Agent for the 2013 Bayou City Seabreeze
Offset Drilling Program, L.P.”)

	 	 	 
	 	 	$12,375 payable when the
                                                                                    Managing General Partner decides to complete the Seabreeze #2

                                                                                    Well (Payable to “2013 Bayou City Seabreeze Offset
                                                                                    Drilling Program, L.P.”)

	 	 	 
	 	 	$10,125
payable when the Managing General Partner decides to complete the Seabreeze #3

                                                                                    Well (Payable to “2013 Bayou City Seabreeze
Offset Drilling Program, L.P.”)

 

REGISTRATION
INFORMATION

 

	 	 	 
	Print Name	 	Print
Name of Joint Owner (if applicable)

	 	 	 
	Social Security Number or Tax ID
Number	 	Social Security Number or Tax ID Number
	 	 	 
	Drivers License Number	 	Drivers License Number
	 	 	 	 	 
	X	 	X
	   Signature	 	  Signature of Joint Owner
	 	 	 	 	 
	Mailing Address:	 	SELLING BROKER/DEALER’S ACCEPTANCE
	 	 	 	 	 
	 	 	Broker/Dealer:	 
	 	 	 	 	 
	 	 	Date:	 	 
	 	 	 	 	 
	Home Ph #:	 	DEALER MANAGER’S ACCEPTANCE
	 	 	 	 	 
	Work Ph #:	 	Source Capital Group, Inc., as
Dealer Manager, herewith accepts the foregoing subscription.
	 	 	 	 	 
	Email:	 	 	 
	 	 	Source Capital Group, Inc.
	 	 	 	 	 
	 	 	Date:	 	 
	 	 	 	 	 

 

 

	Check One:	 	PARTNERSHIP’S ACCEPTANCE
	 	Individual	 	 	IRA	 	 	 
	 	J/T/W/R/O/S	 	 	Keogh	 	

Bayou
City Exploration, Inc., as Managing General
	 	Partnership	 	 	TIC	 	Partner, herewith accepts the foregoing
	 	Trust Created on _____	 	 	Corporation	 	 subscription in the 2013 Bayou City
	 	Limited Liability 	 	 	Community Property	 	Seabreeze Offset Drilling Program, L.P.

	 	Company	 	 		 	
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Stephen C. Larkin, President
	 	 	 	 	 	 	Date:	 
	 	 	 	 	 	 	 	 

  

    	25

    	 

    

 

EXHIBIT A

TO

AGREEMENT OF LIMITED PARTNERSHIP

OF

2013
Bayou City Seabreeze Offset Drilling Program, L.P.

 

 

	Names and Addresses of Investors	Nature of Interest	Number of Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    	26

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