Document:

exv10w9

 

Exhibit 10.9

STONE ENERGY CORPORATION

AMENDMENT NO. 1 TO THE FOURTH AMENDED

AND RESTATED CREDIT AGREEMENT

     This Amendment No. 1 dated as of October 31, 2003 (the “Agreement”) is
among Stone Energy Corporation, a Delaware corporation (“Borrower”), the banks
party to the Credit Agreement described below (“Banks”) and Bank of America,
N.A., as Administrative Agent for the Banks (“Administrative Agent”).

INTRODUCTION

     A. Borrower, Administrative Agent, and the Banks are parties to the Fourth
Amended and Restated Credit Agreement dated as of December 20, 2001 (the
“Credit Agreement”).

     B. Borrower has requested that the Banks (i) increase the Borrowing Base
under the Credit Agreement, (ii) extend the maturity of the Credit Agreement,
and (iii) amend certain negative covenants in the Credit Agreement.

     C. In addition, the Banks and Borrower have agreed to amend Exhibit B to
the Credit Agreement.

     THEREFORE, Borrower, Administrative Agent and the Banks hereby agree as
follows:

     Section 1. Definitions; References. Unless otherwise defined in this
Agreement, each term used in this Agreement which is defined in the Credit
Agreement has the meaning assigned to such term in the Credit Agreement.

     Section 2. Borrowing Base Increase. In accordance with Section 2.2(b) of
the Credit Agreement, the Banks hereby increase the Borrowing Base under the
Credit Agreement to $350,000,000, effective November 1, 2003.

     Section 3. Amendment. Effective as of the date specified in Section 6 of
this Agreement, the Credit Agreement is amended as follows:

          (a) The definition of “EBITDA” in Section 1.1 of the Credit Agreement is
hereby amended to read in its entirety as follows:

     “EBITDA” means, with respect to any Person and for any
period of its determination, the consolidated Net Income,
excluding extraordinary items and non-cash accretion expense
(in accordance with SFAS No. 143), of such Person for such
period, plus the consolidated interest expense, income taxes,
depreciation, depletion, and amortization of such Person for
such period.

          (b) The definition of “Maturity Date” in Section 1.1 of the Credit
Agreement is hereby amended to read in its entirety as follows:

     “Maturity Date” means the earlier of (a) June 20, 2005
and (b) the earlier termination in whole of the Commitments
pursuant to Section 2.1(b) or Article VII.

          (c) In Section 6.1(j) of the Credit Agreement, the reference to the dollar
amount “$5,000,000” is hereby amended to read “$10,000,000”.

          (d) In Section 6.4(b) of the Credit Agreement, the reference to the dollar
amount “$5,000,000” is hereby amended to read “$15,000,000”.

          (e) Exhibit B to the Credit Agreement is hereby deleted and replaced in
full by Exhibit B to this Agreement.

 

 

     Section 4. Amendment Fees. The Borrower promises to pay to
Administrative Agent, for the benefit of each Bank, an amendment fee in an
amount equal to 0.125% of such Bank’s Commitment.

     Section 5. Representations and Warranties.

          (a) the representations and warranties set forth in the Credit Agreement
and in the other Credit Documents are true and correct in all material respects
as of the date of this Agreement;

          (b) (i) the execution, delivery, and performance of this Agreement are
within the corporate power and authority of the Borrower and have been duly
authorized by appropriate proceedings and (ii) this Agreement constitutes a
legal, valid, and binding obligation of the Borrower, enforceable in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of creditors
generally and general principles of equity; and

          (c) as of the effectiveness of this Agreement, no Default or Event of
Default has occurred and is continuing.

     Section 6. Effectiveness. This Agreement, including the amendments
contained in Section 3 of this Agreement, shall become effective upon the
occurrence of all of the following: (i) the Majority Banks’ and the Borrower’s
duly and validly executing originals of this Agreement, (ii) the
representations and warranties in this Agreement being true and correct in all
material respects, and (iii) the payment in full by the Borrower of the fees
specified in Section 4 of this Agreement.

     Section 7. Choice of Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.

     Section 8. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original.<PAGE>

                                                                   EXHIBIT 10.23

                           PURCHASE AND SALE AGREEMENT
                                   (RED RIVER)

         This Purchase and Sale Agreement (this "Agreement") is entered into
this 8th day of October, 2003, by and among EL PASO PRODUCTION COMPANY and EL
PASO PRODUCTION GOM INC., jointly and severally (collectively "El Paso") and
RAMSHORN INVESTMENTS, INC. ("Ramshorn").

         WHEREAS, Ramshorn desires to purchase an overriding royalty interest in
the Subject Leases INSOFAR and ONLY INSOFAR as the Subject Leases cover the
Subject Wells drilled and completed thereon and the Oil and Gas produced
therefrom, all as set forth herein; and

         WHEREAS, El Paso desires to drill and complete the Subject Wells;

         NOW THEREFORE, in consideration of the terms and provisions of this
Agreement, the adequacy of which is hereby acknowledged, El Paso and Ramshorn
agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         1.1 Capitalized Terms. As herein used the following words, terms or
phrases have the following meanings:

         "Act" is defined in Section 5.1.

         "AFE" means an authority for expenditure, which is a good faith
estimate prepared by El Paso of the costs of an operation, which may include a
ten percent (10%) contingency amount. An AFE to drill a new well has an
estimated cost to drill and plug and abandon a well if it is a dry hole and the
cost to complete the well.

         "Affiliate" means with respect to any Person ("first Person") any
Person (i) which controls either directly or indirectly such first Person, or
(ii) which is controlled directly or indirectly by such first Person, or (iii)
is directly or indirectly controlled by a Person which directly or indirectly
controls such first Person. "Control" in the case of a Person which is a
corporation means the right to exercise 50% or more of the voting rights in the
appointment of the board of directors, or other body performing similar
functions, of such Person.

         "After Payout Overriding Royalty Interest" is defined in Section
2.5(b).

         "Agents" is defined in Section 6.5.

         "Agreed Rate" means a rate equal to the rate of interest per annum
publicly announced from time to time by JPMorgan Chase Bank as its prime rate in
effect at its principal office in New York, New York on the first day of the
month in which a payment delinquency under Section 3.3 occurs, plus 1.00%.

         "Agreement" is defined in the preamble hereto.

<PAGE>

         "Alternate Well" is defined in Section 2.9.

         "Approved Independent Engineer" means Huddleston & Co. Inc. or another
independent petroleum engineer of recognized national standing selected by El
Paso and acceptable to Ramshorn, in its reasonable discretion.

         "Business Day" means any day of the year that is not a Saturday, Sunday
or other day in which commercial banks are authorized or required to remain
closed in Houston, Texas or New York, New York.

         "Cash Method of Accounting" means a method of accounting in which (i)
the Gross Proceeds for a month shall be the net amount recognized and recorded
during such month in El Paso's ledgers for sales of Oil and Gas produced from
the relevant wells and (ii) the Production Costs for a month shall be the net
amount paid or charged to the relevant wells by El Paso and recorded during such
month in El Paso's ledgers. Accordingly, by way of example only, sales of
January production of Oil and Gas will normally be used to determine Gross
Proceeds for the month of March.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Dry Well" means a Subject Well that has been drilled and then plugged
and abandoned as a dry hole.

         "El Paso" is defined in the preamble hereto.

         "Encumbrance" means any (i) mortgage, lien, security interest, pledge,
encumbrance or claim or (ii) royalty, overriding royalty, production payment,
net profits interest or like burden on, or prepaid or forward Sales Contract
covering, the Oil and Gas produced from any Subject Well.

         "Excess Production Costs" means, for any month, the amount of
Production Costs (plus any Excess Production Costs carried forward from a prior
month) in excess of Gross Proceeds for such month.

         "Gross Proceeds" means, for any month, the amount received on the Cash
Method of Accounting by El Paso, without duplication, from the Sale of Oil and
Gas produced from Subject Wells, subject to the following:

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

                  (b) There shall be excluded any amount for Oil and Gas
attributable to non-consent operations conducted with respect to any Subject
Well as to which El Paso shall be a non-consenting party and which is dedicated
to the recoupment or reimbursement of costs and

                                       2
<PAGE>

expenses of the consenting party or parties by the terms of the relevant
operating agreement, unit agreement, contract for development or other agreement
providing for such non-consent operations. Similar amounts received by El Paso
from non-consenting third parties shall be included in Gross Proceeds.

                  (c) If for any reason any purchaser or any other third party
withholds payment for any sales volume or El Paso's proportionate share thereof
of any Oil and Gas produced from a Subject Well, then amounts withheld by the
purchaser or any such third party shall not be considered to be received by El
Paso or part of the Gross Proceeds until actually collected by El Paso or El
Paso receives the production therefrom, but any interest, penalty or other
amount paid to El Paso in respect thereof shall be included in Gross Proceeds.

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

                  (e) There shall be excluded from Gross Proceeds any valid and
existing royalties, overriding royalties, production payments, and like burdens
on the Oil and Gas produced from the Subject Wells of record on or before
September 1, 2003; provided, however, if El Paso acquires an additional interest
in a Subject Lease after such date, then all royalties, production payments, and
like burdens on such interest existing at the date of acquisition shall also be
excluded from Gross Proceeds.

                  (f) Subject to (b) above, there shall be excluded from Gross
Proceeds any revenues received by El Paso that are attributable to the net
revenue interests of other working interest owners of the Oil and Gas produced
from any Subject Well.

                  (g) There shall be excluded from Gross Proceeds any amounts
received by El Paso from a purchaser of Oil and Gas as advance payments and
payments pursuant to take-or-pay and similar provisions of Sales Contracts until
such Oil and Gas is actually produced and delivered to such purchaser. When such
Oil and Gas is produced, then the market value of such Oil and Gas at the time
of such production shall be included in Gross Proceeds.

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

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

                                       3
<PAGE>

                  (j) To the extent allocable to a Subject Well, any amounts
paid in good faith by El Paso as a prudent owner or operator, whether as refund,
interest or penalty, to a purchaser because the amount initially received by El
Paso as the sales price attributable to Oil and Gas produced was more or
allegedly more than permitted by the terms of any applicable contract, statute,
regulation, order, decree or other obligation shall be deducted from Gross
Proceeds.

                  (k) Insurance proceeds received by El Paso relating to any
Subject Well shall be included in Gross Proceeds if such proceeds relate to
equipment or other property, the costs which were included in Investment Costs
or Production Costs.

                  (l) Proceeds of the sale of any equipment or other property
shall be included in Gross Proceeds if the original cost thereof was included as
an Investment Cost or a Production Cost.

                  (m) Net damages, after deducting court costs, expert fees,
attorney fees and other litigation costs, collected by El Paso and attributable
to a Subject Well in any litigation covering damage to reserves or reservoir
formations shall be included in Gross Proceeds.

                  (n) Proceeds of the sale of Permitted Third Party Net Profits
Interests shall not be included in Gross Proceeds.

         "Investment Costs" means the actual costs incurred on a Subject Well of
drilling, completing, equipping (including but not limited to flow lines, tanks,
and related equipment) to the point of product sales, and plugging and
abandoning (if a Subject Well was a dry hole) and the cost of recompleting to
another zone, deepening, side-tracking, or plugging and abandoning a well and
any other costs considered to be capital costs (and not expenses) under U.S.
generally accepted accounting principles, whether such costs were incurred
before or after the date of this Agreement.

         "Investment Invoice" is defined in Section 2.3.

         "Investment Percentage" is defined in Section 2.1.

         "Net Overriding Royalty Interest" is defined in Section 2.1.

         "Net Profits" means, for the Subject Wells for any month, the excess of
aggregate Gross Proceeds for such month over the sum of (i) aggregate Production
Costs for such month and (ii) aggregate Excess Production Costs as of the end of
the immediately preceding month, all on the Cash Method of Accounting.

         "Net Profits Account" is defined in Section 3.4.

         "Oil and Gas" means oil, gas, other liquid and gaseous hydrocarbons.

         "Overproduced Party" means a party to a gas balancing arrangement who,
as a result of producing, in addition to its own share of production, that
portion of another party's share of production which such other party is unable
or unwilling to market or otherwise to dispose of, is

                                       4
<PAGE>

in a position of net overproduction with respect to such other party or parties
to such gas balancing arrangement.

         "Payout Account" is defined in Section 2.4.

         "Payout Date" means the first day after the Project Completion Date on
which the balance in the Payout Account is equal to or less than zero.

         "Permitted Encumbrances" means any or all of the following:

                  (a) Encumbrances that arise under operating agreements to
secure payment of amounts not yet delinquent and are of a type and nature
customary in the oil and gas industry;

                  (b) Encumbrances that arise as a result of pooling and
unitization agreements, designations, declarations, orders or laws;

                  (c) Encumbrances securing payments to mechanics and
materialmen and Encumbrances securing payment of taxes or assessments that are,
in either case, not yet delinquent or, if delinquent, are being contested in
good faith in the normal course of business;

                  (d) consents to assignment by governmental authorities that
are customarily obtained after the consummation of transactions of the nature
contemplated by this Agreement;

                  (e) conventional rights of reassignment obligating El Paso to
reassign its interest in any portion of the Subject Leases to a third party in
the event El Paso intends to release or abandon such interest prior to the
expiration of the primary term or other termination of such interest;

                  (f) easements, rights-of-way, servitudes, permits, surface
leases, surface use restrictions and other surface uses and impediments on, over
or in respect of any of the Subject Leases that are not such as to interfere
materially with the operation, value or use of the Subject Leases, taken as a
whole;

                  (g) calls on or preferential rights to purchase production at
not less than market prices prevailing in the field, held by parties other than
El Paso or Affiliates of El Paso;

                  (h) such Encumbrances as Ramshorn has expressly waived in
writing;

                  (i) royalties, overriding royalties, production payments, and
like burdens on the Oil and Gas produced from any Subject Well existing of
record as of September 1, 2003;

                  (j) rights reserved to or vested in any municipality or
governmental, tribal, statutory or public authority to control or regulate any
of the Subject Leases in any manner, and all applicable laws, rules and orders
of any municipality or governmental or tribal, statutory or public authority;

                  (k) the terms and conditions of the Subject Leases;

                                       5
<PAGE>

                  (l) division orders and Sales Contracts terminable without
penalty upon no more than ninety (90) days' notice to the purchaser;

                  (m) preferential rights and required third party consents to
assignment and similar agreements with respect to which waivers or consents are
obtained from the appropriate parties, or the appropriate time period for
asserting any such right has expired without an exercise of the right;

                  (n) Permitted Third Party Net Profits Interests; and

                  (o) all other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects and irregularities affecting the
Subject Leases that individually or in the aggregate are not such as to
materially interfere with the operation, value or use of any of the Subject
Wells and do not prevent Ramshorn from receiving its proportionate share of the
Net Profits before the Payout Date and after the Payout Date, the proceeds of
its After Payout Overriding Royalty Interest.

         "Permitted Third Party Net Profits Interests" means net profits
interests or net overriding royalty interests sold by El Paso to non-Affiliates
conveying an interest in Net Profits attributable to some or all of the Subject
Wells; provided, however, the total interest in Net Profits represented by all
Permitted Third Party Net Profits Interests and the Net Overriding Royalty
Interest shall not exceed seventy percent (70%); and provided further, however,
that the agreements, conveyances or other instruments creating, granting or
evidencing any such interests do not create or result in, or purport to create
or result in any priority over, or any rights whatsoever senior to, the rights
and interests of Ramshorn hereunder or under any conveyance or other instrument
executed by El Paso pursuant hereto.

         "Person" means any individual, corporation, partnership, trust, estate
or other entity or organization.

         "Present Value" means, for purposes of any purchase by El Paso from
Ramshorn pursuant to Section 5.3(a), the present value of the Net Overriding
Royalty Interest in the applicable Subject Well applying a ten percent (10%)
discount rate to the undiscounted future pre-tax net cash flows accruing to such
interest, minus all projected undiscounted future Investment Costs associated
therewith, as shown on the most current Reserve Report, from the effective date
of such purchase to the projected Payout Date and in the case of the After
Payout Overriding Royalty Interest into which such interest shall convert at the
Payout Date, the undiscounted future pre-tax net cash flows accruing to such
interest, as shown on the most current Reserve Report, from the projected Payout
Date to ultimate depletion of the Subject Well(s) burdened thereby.

         "Production Costs" for a month means, to the extent such costs are
allocable to El Paso's working interest in the Subject Wells and have been paid
by El Paso or charged by El Paso to such wells during such month under the Cash
Method of Accounting, without duplication:

                  (a) The sum of:

                                       6
<PAGE>

                  (i) costs of labor charged to the Subject Wells including
         salaries and wages, employee benefits, and miscellaneous employee costs
         provided for:

                           (1) field employees directly engaged in the operation
                  of any such well;

                           (2) first level supervisors engaged in the
                  supervision of the operation of any such well;

                           (3) technical employees employed on any such well if
                  such charges are not included in the per-well overhead rates
                  referred to below in subparagraph (iii) of this paragraph (a)
                  and not otherwise charged; and

                           (4) employees of shore bases or other facilities
                  serving any such well if such charges are not included in the
                  per-well overhead rates referred to below in subparagraph
                  (iii) of this paragraph (a) and not otherwise charged.

                  (ii) other direct costs allocated to the Subject Wells not
reimbursed by applicable insurance including:

                           (1) contract and professional services;

                           (2) materials, supplies, fuel, water, and treating
                  chemicals;

                           (3) salt water disposal;

                           (4) well and leasehold equipment repairs and
                  maintenance, including workovers;

                           (5) transportation including boats, aircraft, and
                  other vehicles;

                           (6) costs paid by El Paso, as the operator, for
                  dehydration, compression, separating, treating, storing,
                  gathering, and gas transportation of Oil and Gas to the point
                  of product sales;

                           (7) safety and environmental costs, including spill
                  cleanup, except for such costs attributable to El Paso's gross
                  negligence or willful misconduct;

                           (8) the costs of secondary recovery, pressure
                  maintenance, repressuring, recycling, and other operations
                  used to enhance production of Oil and Gas to the point of
                  product sales;

                           (9) to the extent directly allocable to a Subject
                  Well, (i) insurance including workman's compensation, general
                  liability, and (ii) the costs of certificates of
                  responsibility, performance bonds or letters of credit;

                                       7
<PAGE>

                           (10) other miscellaneous costs of operating,
                  producing, and maintaining a Subject Well for services or
                  supplies furnished by or on behalf of El Paso, as the
                  operator, which is of direct benefit to such well and incurred
                  in the necessary and proper conduct of operations thereon, and
                  which normally would be chargeable by an operator to the
                  "joint account" under a customary joint operating agreement
                  for similar wells; and

                           (11) costs incurred for claims, demands or litigation
                  relating to property damage, including environmental damages,
                  spills, clean-up and remediation, personal injury or death, or
                  claims, demands or litigation brought by third parties,
                  including governmental or regulatory authorities except for
                  such costs attributable to El Paso's gross negligence or
                  willful misconduct.

                  (iii) per well overhead in accordance with the provisions of
         the joint operating agreement accounting procedure covering a Subject
         Well or if none exists for a Subject Well, Section III of the
         accounting procedures attached hereto as Schedule I (Onshore) or
         Schedule II (Offshore), as applicable.

                  (iv) an amount equal to all general property (ad valorem),
         production, severance, sales, gathering, energy, BTU and similar state,
         federal, or other taxes (except income taxes) assessed or levied on or
         in connection with the Subject Wells, the Net Overriding Royalty
         Interest, or the production therefrom or equipment thereon or
         associated therewith, and which taxes (as adjusted or finally
         determined) are deducted or excluded from proceeds from the sale of Oil
         and Gas received by El Paso or paid by El Paso and attributable to both
         El Paso's and Ramshorn's share in the Oil and Gas; provided however,
         that if Ramshorn bears any such taxes individually, such taxes will not
         be considered to constitute Production Costs.

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

                  (c) Production Costs for the Subject Wells shall not include:

                  (i) general and administrative costs that are not covered by
         the joint operating agreement accounting procedure covering a Subject
         Well or if none exists for a Subject Well, Section III of the
         accounting procedures attached hereto as Schedule I (Onshore) or
         Schedule II (Offshore), as applicable;

                  (ii) depreciation, depletion, or amortization; or

                  (iii) any payments to holders of Permitted Third Party Net
         Profits Interests.

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

                                       8
<PAGE>

                  (e) Production Costs shall include costs incurred after the
expiration of the Project Term with respect to operations on Subject Wells
notwithstanding that such costs may be properly characterized as capital costs
under U.S. generally accepted accounting principles.

         "Project Completion Date" is defined in Section 2.7.

         "Project Term" is defined in Section 8.2. Where the context requires,
references herein to the "Project Term" shall be deemed to be references to the
"Revised Project Term" as defined in Section 8.3.

         "Reserve Report" means any reserve report described in Section 6.6.

         "Sale" means and includes sales, assignments, transfers, exchanges and
other dispositions for value.

         "Sales Contract(s)" means all contracts and agreements for the offer or
sale of, or commitment to offer or sell, or right of first refusal to purchase,
Oil and Gas after production.

         "Subject Lease" or "Subject Leases" means the oil, gas and mineral
leases described in Exhibit "B" attached hereto as such Exhibit may be amended
from time to time as provided herein, including extensions and renewals of any
such lease obtained within six (6) months of the expiration thereof.

         "Subject Well" or "Subject Wells" means the oil and gas wells described
in Exhibit "A" attached hereto as such Exhibit may be amended from time to time
as provided herein.

         "Substitute Well" is defined in Section 2.8.

         "Underproduced Party" means a party to a gas balancing arrangement who,
as a result of its inability or unwillingness to market or otherwise dispose of
a portion of its share of production and another party's producing such share of
production, is in a position of net underproduction with respect to such other
party or parties to such gas balancing arrangement.

         "Well Cost Adjustment" means the difference, if any, between the
completed well cost as reflected in an AFE for a Subject Well and the actual
Investment Costs of such Subject Well (including costs which were not
contemplated in the AFE such as capital costs that are incurred after a well has
produced) as determined from time to time when the actual costs are determined;
provided, however, for purposes of determining any Well Cost Adjustment, no
Investment Cost incurred by El Paso after expiration of the Project Term will be
considered or included, and any such cost (regardless of its proper
characterization under U.S. generally accepted accounting principles) will be
considered and included as a Production Cost. The Well Cost Adjustment shall be
a positive number if the actual Investment Costs are higher than the AFE costs
and a negative number if the actual Investment Costs are lower than the AFE
costs.

                                       9
<PAGE>

                                   ARTICLE II
                                PURCHASE AND SALE

         2.1 Acquired Assets. Subject to the terms and conditions of this
Agreement, El Paso agrees to sell, convey and deliver to Ramshorn and Ramshorn
agrees to purchase and acquire from El Paso, subject to an after payout
conversion as provided for in Section 2.5(b), an overriding royalty interest in
the Subject Leases INSOFAR and ONLY INSOFAR as the Subject Leases cover the
Subject Wells and the Oil and Gas produced therefrom equal to the amount of the
Investment Percentage multiplied by the Net Profits from all the Subject Wells
(the "Net Overriding Royalty Interest"). The "Investment Percentage" shall be
twenty percent (20%), subject to adjustment as provided in Section 8.3.

         2.2 Purchase Price. The purchase price for the Net Overriding Royalty
Interest is the Investment Percentage of the amount of El Paso's proportionate
share (based upon El Paso's working interest in each Subject Well) of the total
Investment Costs of the Subject Wells commenced during the Project Term, and
which were incurred on or before the Project Completion Date.

         2.3 Payment of Purchase Price.

                  (a) By the last Business Day of each month, El Paso shall
invoice Ramshorn (an "Investment Invoice") for an amount equal to the Investment
Percentage of the sum of (i) the total of the estimated "Drill" costs as shown
in the AFE for each Subject Well commenced in the prior month multiplied by El
Paso's working interest in each such Subject Well, (ii) the total of the
estimated "Complete" and "Facilities" costs for each Subject Well on which El
Paso intends to commence completion operations in the following month or for
which completion operations have commenced plus (iii) any Investment Costs for
any operations on a Subject Well not contemplated in the AFE for drilling and
completing such Subject Well, but reasonably and directly related to, or
required in furtherance of, the specific drilling operation described in such
AFE, multiplied by El Paso's working interest in each such Subject Well, plus or
minus (iv) any Well Cost Adjustment on any Subject Well that had been determined
in the prior month multiplied by El Paso's working interest in such Subject
Well. The Investment Invoice shall not include any amount for the estimated
completed well costs as shown in the AFE for drilling and completing a Subject
Well commenced after the expiration of the Project Term or Investment Costs
incurred after the Project Completion Date.

                  (b) If an Investment Invoice is for a negative amount, then
the Payout Account shall be reduced by an amount equal to such amount multiplied
by one hundred seventeen and a half percent (117.5%) and El Paso shall pay to
Ramshorn the amount of such Investment Invoice with El Paso's next payment of
the Net Overriding Royalty Interest as provided in Section 3.2.

         2.4 Payout Account. The amount of all payments by Ramshorn for
Investment Invoices plus an additional 17.5% shall be credited to Ramshorn in an
account for all Subject Wells maintained by El Paso (the "Payout Account"),
which will be used to determine when all of the Net Overriding Royalty Interest
purchased by Ramshorn shall be suspended pursuant to Section 2.7 or converted
pursuant to Section 2.7(c). For example, if an AFE for drilling a

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<PAGE>

Subject Well is for $1,000,000 and El Paso's working interest is 100%, then El
Paso shall invoice Ramshorn for $200,000 and, upon payment of the invoice,
$235,000 shall be credited to the Payout Account. If an AFE for drilling a
Subject Well is for $1,000,000 and El Paso's working interest is 50%, then El
Paso shall invoice Ramshorn for $100,000 and, upon payment of the invoice,
$117,500 shall be credited to the Payout Account.

         2.5 Conveyance of Net Overriding Royalty Interest; Conversion.

                  (a) Within five (5) days after El Paso receives payment from
Ramshorn for an Investment Invoice, El Paso shall execute and deliver to
Ramshorn a recordable assignment substantially in the form attached hereto as
Exhibit "D-1" (for recordation in Texas) or "D-2" (for recordation in Louisiana)
of the Net Overriding Royalty Interest in the Subject Leases INSOFAR and ONLY
INSOFAR as the Subject Leases cover the Subject Wells whose drilling and
completion AFE was covered by such Investment Invoice and the Oil and Gas
produced therefrom. Each such assignment shall identify each Subject Well
covered thereby by name, location and API number.

                  (b) The Net Overriding Royalty Interest shall automatically
convert on the Payout Date into a perpetual overriding royalty interest in the
Subject Leases INSOFAR and ONLY INSOFAR as the Subject Leases cover the Subject
Wells that were covered by the Net Overriding Royalty Interest and the Oil and
Gas produced therefrom equal to the Investment Percentage (at the time of
conversion) times two percent (2%) of 8/8ths (the "After Payout Overriding
Royalty Interest"). The After Payout Overriding Royalty Interest shall be
proportionately reduced on a lease-by-lease basis, as follows:

                  (i) If El Paso owns less than the entire oil and gas leasehold
         estate created by any Subject Lease, the After Payout Overriding
         Royalty Interest shall be paid in the proportion which the fractional
         part of such leasehold estate owned by El Paso bears to the entire oil
         and gas leasehold estate created by such Subject Lease;

                  (ii) If any Subject Lease covers less than the entire oil and
         gas estate, the After Payout Overriding Royalty Interest shall be paid
         in the proportion which the fractional part of the oil and gas estate
         covered by the Subject Lease bears to the entire oil and gas estate;
         and

                  (iii) If any Subject Lease, or any part thereof, is pooled or
         unitized in a unit, the After Payout Overriding Royalty Interest shall
         be paid in the proportion that the acreage covered by the Subject Lease
         included in such unit bears to all the acreage included in such unit.

                  (c) After the Payout Date and within thirty (30) days from a
request by El Paso, Ramshorn shall execute and deliver to El Paso a Notice of
Conversion and Reconveyance of Overriding Royalty Interest in the form attached
hereto as Exhibit "E-1" (for recordation in Texas) and "E-2" (for recordation in
Louisiana) and return any data or materials acquired by Ramshorn pursuant to
this Agreement.

                  (d) If all of the Subject Wells are not commenced prior to the
end of the Project Term, El Paso shall continue to assign Ramshorn its Net
Overriding Royalty Interest in

                                       11
<PAGE>

each such Subject Well until the Payout Date. After the Payout Date, El Paso
shall not be obligated to assign Ramshorn any additional Net Overriding Royalty
Interests in Subject Leases or Subject Wells even as to Subject Wells commenced
prior to the Payout Date, but after the Project Term.

                  (e) If a Subject Well is plugged and abandoned, then at El
Paso's request Ramshorn shall execute and deliver to El Paso a Partial
Reconveyance and Termination of Overriding Royalty Interest in the form attached
hereto as Exhibit "F-1" (for recordation in Texas) or "F-2" (for recordation in
Louisiana) but limited to the Net Overriding Royalty Interest in such Subject
Well.

                  (f) Ramshorn shall not have the right or option to take in
kind any Oil or Gas attributable to the Net Overriding Royalty Interest or the
After Payout Overriding Royalty Interest.

         2.6 Memorandum of Purchase and Sale Agreement. El Paso shall
contemporaneously with the execution of this Agreement execute and file of
record, in each county in Texas wherein any lands covered by any Subject Lease
are located, a Memorandum of Purchase and Sale Agreement in the form attached
hereto as Exhibit "C." In lieu thereof, in each parish in Louisiana wherein any
lands covered by any Subject Lease are located, El Paso will file of record a
fully executed and properly witnessed original counterpart of a Declaration and
Agreement, in the form attached hereto as Exhibit "H.".

         2.7 Suspension of the Net Overriding Royalty Interest. Until the date
all of the Subject Wells commenced before the end of the Project Term have been
drilled, completed, and equipped or determined to be a Dry Well (the "Project
Completion Date"), Ramshorn's right to receive payment from the Net Overriding
Royalty Interest for all of the Subject Wells shall be suspended from time to
time whenever the amount in the Payout Account is equal to or less than zero.
Any Net Profits during such suspensions shall not be carried forward and El Paso
shall be entitled to keep such Net Profits. During such suspension of the Net
Overriding Royalty Interest, the Net Profits for the Subject Wells shall be
deemed to be zero. Such suspension(s) shall automatically cease when the amount
in the Payout Account is again greater than zero.

         2.8 Substitute Wells. In the event granite, salt, saltwater flow,
heaving shale or other conditions, including either the loss of the hole or
mechanical difficulties, are encountered in the drilling or completing of a
Subject Well drilled pursuant to the terms of this Agreement which would render
further operations impracticable in the opinion of El Paso, El Paso has the
right but not the obligation under this Agreement to commence the actual
drilling of a "Substitute Well", at a legal location to the same target
objective as the Subject Well after the plugging and abandoning of the Subject
Well during the period this Agreement is in place. Such Substitute Well shall
become a Subject Well and any reference to the Subject Wells shall include such
Substitute Well.

         2.9 Alternate Wells.

                  (a) If El Paso elects not to drill a Subject Well because (i)
of title, permitting, or logistical problems, or (ii) the results from drilling
prior wells or the acquisition, evaluation, of

                                       12
<PAGE>

additional geological, geophysical or other information eliminated such Subject
Well as a well El Paso desires to drill because such results were negative, then
El Paso may replace such Subject Well with an alternate well or wells
("Alternate Well(s)") described on Exhibit "A" attached hereto and made part
hereof. Such Alternate Well(s) shall become Subject Well(s) and any reference to
Subject Well(s) shall include such Alternate Well(s).

                  (b) In addition, if El Paso proposes to sell or otherwise
transfer a Subject Lease or Leases to a non-Affiliate in a bona fide, arm's
length transaction prior to the submission to Ramshorn of an Investment Invoice
related to the associated Subject Well(s) contemplated therefor, then El Paso
may replace such Subject Well with an Alternate Well. Such Alternate Well(s)
shall become Subject Well(s) and any reference to Subject Well(s) shall include
such Alternate Well(s).

                  (c) The Subject Wells and Alternate Wells are grouped in two
categories as shown on Exhibit "A." El Paso may replace Category 1 and 2 Subject
Wells with Category 1 Alternate Wells. El Paso may replace Category 2 Subject
Wells with Category 2 Alternate Wells. El Paso may replace Category 1 Subject
Wells with Category 2 Alternate Wells only with the consent of Ramshorn. El Paso
shall provide Ramshorn notice of any substitution pursuant to Section 2.7(a) in
the applicable Investment Invoice and notice of any substitution pursuant to
Section 2.7(b) not later than thirty (30) days prior to the proposed sale. Any
substitution of Alternate Well(s) for Subject Well(s) pursuant to Section 2.9(b)
shall be permitted only if the estimated ultimate reserves and total estimated
drilling and completion costs for the proposed Alternate Well(s) are
approximately equal to that of the Subject Well(s) for which El Paso has elected
to make a substitution under Section 2.9(b).

         2.10 Information About the Subject Wells. El Paso disclaims all
liability and responsibility for any representation, warranty (other than the
representations and warranties specifically set forth in this Agreement),
statements or communications (orally or in writing) to Ramshorn, including any
information contained in any opinion, information or advice that may have been
or in the future may be provided to Ramshorn by any employee, officer, director,
agent, consultant, engineer or engineering firm, trustee, representative,
partner, member, beneficiary, stockholder or contractor of El Paso wherever and
however made, including those made in any data room or internet site and any
supplements or amendments thereto or during any negotiations with respect to
this Agreement or any confidentiality agreement previously executed by El Paso
and Ramshorn with respect to the Subject Wells. EL PASO MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS TO (i) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO
RAMSHORN IN CONNECTION WITH THE SUBJECT WELLS, INCLUDING WITHOUT LIMITATION
SEISMIC DATA AND EL PASO'S INTERPRETATION AND OTHER ANALYSIS THEREOF; (ii) THE
PRESENCE, QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO
THE SUBJECT WELLS; (iii) THE ABILITY OF THE SUBJECT WELLS TO PRODUCE
HYDROCARBONS, INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND
RECOMPLETION OPPORTUNITIES; (iv) ALLOWABLES OR OTHER REGULATORY MATTERS; (v) THE
PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO
BE DERIVED FROM THE SUBJECT WELLS; AND (vi) ANY PROJECTIONS. ANY DATA,

                                       13
<PAGE>

INFORMATION OR OTHER RECORDS FURNISHED BY EL PASO ARE PROVIDED TO RAMSHORN AS A
CONVENIENCE AND RAMSHORN'S RELIANCE ON OR USE OF THE SAME IS AT RAMSHORN'S SOLE
RISK.

         2.11 Independent Investigation. Ramshorn has made its own independent
investigation, analysis and evaluation of the transactions contemplated by this
Agreement (including Ramshorn's own estimate and appraisal of the extent and
value of the Oil and Gas reserves attributable to the Subject Wells and the
costs to explore for and develop the reserves if found). Prior to execution of
this Agreement, Ramshorn has had access to all information necessary to perform
its investigation and not relied on any representations by El Paso (other than
the representations specifically set forth in this Agreement). El Paso has
provided Ramshorn and its experts the opportunity to review El Paso's data on
the Subject Wells and Ramshorn has reviewed such data that it deems necessary.
Ramshorn understands and acknowledges that El Paso is not guaranteeing the
actual costs of vendors supplying services to the Subject Wells.

         2.12 Waiver of Deceptive Trade Practices Acts. RAMSHORN WAIVES ITS
RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES ACT SECTION 17.41 et seq., TEXAS
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS, AND UNDER
SIMILAR STATUTES ADOPTED IN OTHER STATES, TO THE EXTENT THEY HAVE APPLICABILITY
TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. AFTER CONSULTATION WITH AN
ATTORNEY OF ITS SELECTION, RAMSHORN CONSENTS TO THIS WAIVER.

         2.13 Net Revenue Interest. El Paso represents and warrants that its
average aggregate ratio of net revenue interest to working interest for the
Subject Wells is not less than seventy percent (70%). Upon conversion of the Net
Overriding Royalty Interest as provided in Section 2.5(b), Ramshorn waives all
remedies for any breach of the foregoing representation.

         2.14 Encumbrances. El Paso represents and warrants that at the time any
Investment Invoice is submitted to Ramshorn for payment, and at the time the
related Assignment of Overriding Royalty Interest is filed of record in the
appropriate jurisdiction, the Subject Leases to which such invoice relates (to
the extent such leases contribute acreage for the Subject Well(s) to be drilled
thereon) shall be free and clear of any Encumbrances except Permitted
Encumbrances.

         2.15 Additional El Paso Representations and Warranties. El Paso hereby
represents and warrants to Ramshorn that:

                  (a) Each of El Paso Production and El Paso GOM is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction or incorporation, duly qualified and in good standing
as a foreign corporation in Texas and Louisiana and has all corporate power and
all material governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted.

                  (b) The execution, delivery and performance by each of El Paso
Production and El Paso GOM of this Agreement and the performance by each of El
Paso Production and El

                                       14
<PAGE>

Paso GOM of its obligations hereunder are within its corporate powers and have
been duly authorized by all necessary corporate action on the part of each of El
Paso Production and El Paso GOM. This Agreement constitutes a valid and binding
agreement of each of El Paso Production and El Paso GOM enforceable in
accordance with its terms, except as (i) the enforceability hereby may be
limited by bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.

                  (c) The execution, delivery and performance by El Paso of
their obligations hereunder do not and will not (i) contravene or conflict with
the certificate of incorporation or bylaws of either of El Paso Production or El
Paso GOM, (ii) contravene or conflict with or constitute or default (without
regard to any requirement of notice or the lapse of time or both) any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to either of El Paso Production or El Paso GOM, or any indenture,
mortgage, lien, lease, agreement or instrument to which either of El Paso
Production or El Paso GOM is a party or by which either of them or any of their
respective assets or properties is bound.

         2.16 Ramshorn Representations and Warranties. Ramshorn hereby
represents and warrants to El Paso that:

                  (a) Ramshorn is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate power and all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted.

                  (b) The execution, delivery and performance by Ramshorn of
this Agreement and the performance by Ramshorn of its obligations hereunder are
within its corporate powers and have been duly authorized by all necessary
corporate action on the part of Ramshorn. This Agreement constitutes a valid and
binding agreement of Ramshorn enforceable in accordance with its terms, except
as (i) the enforceability hereby may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.

                  (c) The execution, delivery and performance by Ramshorn of its
obligations hereunder do not and will not (i) contravene or conflict with the
certificate of incorporation or bylaws of Ramshorn, (ii) contravene or conflict
with or constitute or default (without regard to any requirement of notice or
the lapse of time or both) any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Ramshorn, or any
indenture, mortgage, lien, lease, agreement or instrument to which Ramshorn is a
party or by which it or any of its assets or properties is bound.

                                   ARTICLE III
                                    PAYMENTS

         3.1 Payments by Ramshorn. Ramshorn shall pay each Investment Invoice by
wire transfer to El Paso's account on or before fifth (5th) Business Day of the
month following the month in which Ramshorn receives such Investment Invoice.

                                       15
<PAGE>

         3.2 Payments by El Paso.

                  (a) The Net Overriding Royalty Interest for the Subject Wells
shall be calculated collectively using the Cash Method of Accounting. For each
month, the Net Overriding Royalty Interest for the Subject Wells shall be paid
to Ramshorn on the seventh (7th) Business Day of the month following such month.
For example, the Net Overriding Royalty Interest for the month of January (which
normally includes revenues for the sale of Oil and Gas produced in November)
will be paid on or before the seventh (7th) Business Day of February. Each such
payment made shall reduce the Payout Account balance pro tanto.

                  (b) The After Payout Overriding Royalty Interest shall be
calculated in the same manner and paid at the same time that El Paso pays the
lessors under the Subject Leases.

                  (c) Pending payment over of the Net Profits accruing to the
Net Overriding Royalty Interest and, if applicable, the proceeds accruing to the
After Payout Overriding Royalty Interest, the same shall be held by El Paso for
the benefit of Ramshorn.

         3.3 Interest on Past Due Payments. Any undisputed amount not paid by El
Paso or Ramshorn when due shall bear, and the owing party will pay, interest at
the Agreed Rate or the maximum contract rate permitted by the applicable usury
laws in the state in which the Subject Wells are located, whichever is less,
plus attorney's fees, court costs, and other costs in connection with the
collection of unpaid amounts.

         3.4 Net Profits Account.

                  (a) A single account (the "Net Profits Account") shall be
maintained by El Paso for the Subject Wells. The Net Profits Account shall be
credited with the aggregate Gross Proceeds received by El Paso, and shall be
charged with the aggregate Production Costs (or as the case may be, Excess
Production Costs) with respect to the Subject Wells, in each case using the Cash
Method of Accounting.

                  (b) On or before the date of payment as set forth in Section
3.2 hereof, El Paso shall furnish to Ramshorn a detailed statement clearly
reflecting the credits and debits to on a per well basis, and the balance of,
the Net Profits Account and the Payout Account as of the close of business on
the last Business Day of the preceding calendar month. Any Excess Production
Costs reflected by any such statement shall be carried forward to the next and
succeeding month or months until the Excess Production Costs shall have been
liquidated. In the event that Net Profits exist in the Net Profits Account at
the end of any month, payment to Ramshorn of the amount of Net Profits pursuant
to Section 3.2 shall be accomplished by wire transfer to Ramshorn's account,
pursuant to instructions given by Ramshorn to El Paso. Following any such
payment, the balances of the Net Profits Account and the Payout Account shall be
reduced by the amount of such payment.

                                   ARTICLE IV
                             POOLING AND UNITIZATION

         4.1 Pooling. Prior to the Payout Date, El Paso shall have the right and
power to pool and unitize any of the Subject Leases and to alter, change or
amend or terminate any pooling or

                                       16
<PAGE>

unitization agreements heretofore or hereafter entered into, as to all or any
part of the land covered hereby, and as to Oil, Gas or both, upon such terms and
provisions as El Paso shall, in conformance with prudent industry practices and
the relevant Subject Leases, determine. If and whenever through the exercise of
such right and power, or pursuant to any law now in effect or hereafter enacted
or any rule, regulation or order of any governmental body or official, any of
the Subject Leases are pooled or unitized in any manner, the Net Overriding
Royalty Interest insofar as it affects such Subject Leases shall also be pooled
and unitized and in any such event such Net Overriding Royalty Interest in such
Subject Leases shall apply to and affect only the production from the relevant
Subject Well (and not any other wells within such unit except as set forth in
Section 4.2) which accrues to such Subject Leases under and by virtue of the
pooling and unitization. In such event, Ramshorn's Investment Percentage shall
not change; however, Ramshorn's Net Profits from the Subject Wells may increase
or decrease due to an increase or decrease in El Paso's net revenue interest in
the unitized Subject Well.

         4.2 Adjustment to Net Overriding Royalty Interest. If such pooling or
unitization occurs before the Payout Date and after El Paso had invoiced
Ramshorn for the pooled or unitized Subject Well, then any amounts paid or
received by El Paso for a capital cost adjustment as a result of such pooling or
unitization shall be included as an increase or decrease, respectively, in the
Investment Costs of such well and reflected in a Well Cost Adjustment. If there
are other wells in such pooled acreage or unit in which El Paso acquires an
interest as the result of such pooling or unitization and such capital cost
adjustment, then El Paso shall assign a Net Overriding Royalty Interest in such
wells to Ramshorn. Ramshorn shall not have any interest in any subsequent well
drilled in such pooled acreage or unit unless such well is a Subject Well.

                                    ARTICLE V
                                   ASSIGNMENTS

         5.1 Restriction on Ramshorn's Assignment. The sale of the Net
Overriding Royalty Interest has not been registered under the Securities Act of
1933, as amended (the "Act") and the Net Overriding Royalty Interest may not be
sold or transferred in the absence of an effective registration statement under
the Act or the availability of an exemption from registration thereunder,
including the exemption for any transfers to "qualified institutional buyers" as
defined in and in accordance with Rule 144A as promulgated under the Act.
Ramshorn may transfer or assign any portion of its rights and obligations
hereunder, the Net Overriding Royalty Interest and/or the After Payout
Overriding Royalty Interest to any Affiliate of Ramshorn. Prior to the
expiration of the Project Term, Ramshorn may transfer or assign any portion of
its rights and obligations hereunder and the Net Overriding Royalty Interest to
any such "qualified institutional buyer"; provided, however, such assignment or
transfer must be approved by El Paso, which approval shall not unreasonably be
withheld. After the expiration of the Project Term, Ramshorn may transfer any of
the Net Overriding Royalty Interest or the After Payout Overriding Royalty
Interest and its rights hereunder without restriction, subject to compliance
with any applicable securities laws or regulations; provided, however, if the
Net Overriding Royalty Interest or the After Payout Overriding Royalty Interest
is divided among and owned by four (4) or more co-owners, El Paso, at its
discretion, may require such co-owners to appoint Ramshorn as agent, with full
authority to enter into and execute division orders or other agreements for
disposition of the co-owners' respective shares of Oil and Gas produced from the

                                       17
<PAGE>

Subject Wells, and to receive payment of the proceeds from the sale thereof; and
provided further, however, in the case of assignments or transfers after the
expiration of the Project Term but before the Payout Date, each assignee or
transferee must acknowledge in writing that it and the Net Overriding Royalty
Interest are subject to this Agreement.

         5.2 Assignments by El Paso. If El Paso assigns its interest in a
Subject Well before the Payout Date, then it shall notify the assignee of the
existence of this Agreement and secure a written acknowledgement that the
Subject Well being assigned is specifically subject to the rights of Ramshorn as
set forth herein. El Paso will then provide Ramshorn with a copy thereof.

         5.3 Purchase by El Paso.

                  (a) If El Paso intends to sell its entire interest in a
Subject Well for cash to a non-Affiliate in a bona fide, arm's-length
transaction prior to the date at which the cumulative amount of proceeds paid or
payable by the buyer(s) for all Subject Well(s) theretofore sold or proposed to
be sold equals or exceeds $10,000,000, then El Paso shall have the option to
purchase Ramshorn's Net Overriding Royalty Interest and After Payout Overriding
Royalty Interest in the affected Subject Well by paying to Ramshorn an amount in
cash equal to the Present Value of its Net Overriding Royalty Interest and After
Payout Overriding Royalty Interest.

                  (b) If El Paso intends to sell its entire interest in a
Subject Well in a transaction described in Section 5.3(a) after the date
referred to therein, then El Paso shall have the option to purchase Ramshorn's
Net Overriding Royalty Interest and After Payout Overriding Royalty Interest in
the affected Subject Well by paying Ramshorn an amount in cash equal to (i) the
Investment Percentage multiplied by (ii) the net sale proceeds attributable to
such well.

                  (c) Upon payment by El Paso to Ramshorn of the applicable
purchase price as specified in Section 5.3(a) or (b), Ramshorn shall execute and
deliver to El Paso a Partial Reconveyance and Termination of Overriding Royalty
Interest covering such interest substantially in the form attached hereto as
Exhibit "F-1" (for recordation in Texas) or "F-2" (for recordation in
Louisiana). The amount of such payment shall be deducted from the Payout
Account. If a Subject Well(s) is to be sold in a transaction that includes other
El Paso properties, the portion of the proceeds allocable to the Subject Well(s)
shall be determined by reference to the buyer's purchase price allocation, made
in good faith, or if no such allocation exists, the allocation shall be
determined by El Paso in the exercise of its good faith judgment. At least ten
(10) Business Days prior to the consummation of any transaction covered by this
Section 5.3, El Paso will provide Ramshorn with a written notice thereof and
detail with respect to the purchase price allocation (if applicable) sufficient,
in Ramshorn's judgment, to enable it to address the reasonableness of the
allocation. If Ramshorn disputes the allocation and the parties cannot resolve
the matter themselves, the dispute will be referred to Netherland, Sewell &
Associates, Inc. for determination of an allocation for purposes of this Section
5.3, whose decision will be final.

                  (d) El Paso's purchase option provided for in this Section 5.3
shall terminate at the Payout Date.

                                       18
<PAGE>

                                   ARTICLE VI
                               RECORDS AND REPORTS

         6.1 Books and Records. El Paso shall at all times maintain true and
correct books and records sufficient to determine the amounts payable to
Ramshorn hereunder, including, but not limited to, a Net Profits Account to
which Gross Proceeds, Production Costs and Excess Production Costs are credited
and charged, and a Payout Account.

         6.2 Audits. Ramshorn, upon notice in writing to El Paso, shall have the
right to audit El Paso's accounts and records relating to the Net Profits
Accounts, Payout Account and After Payout Overriding Royalty Interest for any
calendar year within the twenty-four (24) month period following the end of such
calendar year; provided, however, the making of an audit shall not extend the
time for the taking of written exception to and the adjustments of accounts as
provided for in Section 6.4 of this Agreement. El Paso shall bear no portion of
Ramshorn's audit cost incurred under this Section 6.2 unless agreed to by El
Paso. The audits shall not be conducted more than once each year without prior
approval of El Paso. Unless prohibited under confidentiality agreements, El
Paso, upon written request, shall furnish Ramshorn with any and all accounting
information pertaining to the Subject Wells in El Paso's possession. Ramshorn
shall reimburse El Paso, at its option, for all reasonable costs incurred to
furnish such information.

         6.3 Statement and Reports. Until the Payout Date, on or before the date
of payment as specified in Section 3.2 hereof, El Paso shall deliver to Ramshorn
a statement showing the computation of Net Profits attributable to the
immediately preceding month and the computation of Net Profits paid to Ramshorn
from the date hereof until the end of such month. Such report shall be in form
satisfactory to Ramshorn, and shall include, among other things reasonably
requested by Ramshorn, historical and forecast production volumes for the
Subject Wells, summary reports of drilling and completion activities on drilling
or completed Subject Wells during such month, anticipated spud dates for other
Subject Wells as at the end of such month and such other information as Ramshorn
may reasonably require. After the Payout Date, El Paso shall deliver to
Ramshorn, with each cash payment of After Payout Overriding Royalty Interest
proceeds, a statement in such detail as is required by applicable laws or
regulations governing payments of oil and gas royalties, and with such
additional detail as Ramshorn may reasonably specify reflecting the computation
of such payment. Upon Ramshorn's request, El Paso will provide Ramshorn with
copies of any drilling or division order title opinions obtained by El Paso
covering any Subject Wells and reasonable access to El Paso's land files related
to such wells.

         6.4 Ramshorn's Exceptions to Statements. If Ramshorn takes exception to
any item or items included in the monthly statements rendered by El Paso to the
computations of the pricing or volumes of any Oil and Gas and such exception is
made within two (2) years after such monthly payment date, Ramshorn shall notify
El Paso in writing, setting forth in such notice the specific charges complained
of and to which exception is taken or the specific credits which should have
been made and allowed; and with respect to such complaints and exceptions as are
justified, adjustment shall be made. Any exception not made within such two (2)
year period shall be deemed waived and not subject to further audit.

                                       19
<PAGE>

         6.5 Geological Data. Prior to the Payout Date, El Paso shall, subject
to their reasonable availability and the limitations of confidentiality
undertakings with co-owners or other third parties, at Ramshorn's cost and
expense furnish Ramshorn and its duly authorized agents and representatives,
including its advisers and consultants (herein collectively referred to as its
"Agents"), copies of all electric and other logs of the Subject Wells. Prior to
the Payout Date, Ramshorn and its Agents shall also have access to all records
regarding all cores, cuttings, and other geological, well and production data
secured from operations on the Subject Wells. Ramshorn shall not have access to
any seismic data in El Paso's possession. After the Payout Date, Ramshorn and
its representatives shall have access to all records regarding production data,
future capital investment plans, marketing arrangements, processing arrangements
and any other data necessary, as determined by Ramshorn in its reasonable
discretion, to evaluate Ramshorn's After Payout Overriding Royalty Interest. All
information furnished to Ramshorn pursuant to this Section 6.5 is confidential
and for the sole benefit of Ramshorn and shall not be shown or disclosed by
Ramshorn to any Person except as provided in the Confidentiality Agreement dated
April 23, 2003, by and between El Paso and Ramshorn Brothers, Inc.

         6.6 Reserve Reports. El Paso will furnish or cause to be furnished the
following reserve reports:

                  (a) Promptly after December 31 of each calendar year
(commencing with the calendar year 2003), and in any event not later than March
31 of the next succeeding calendar year, a reserve report covering the Subject
Wells in the form prepared by the Approved Independent Engineer for El Paso for
its oil and gas properties, as of December 31 of such calendar year;

                  (b) Promptly after March 31, June 30 and September 30 of each
calendar year (commencing with the calendar year 2004), and in any event not
later than May 15, August 15 and November 15, respectively, of such calendar
year, a reserve report covering the Subject Wells in the form prepared by El
Paso as of the end of such calendar quarter and, in the case of such reports
prepared after January 1, 2004, updating the current Reserve Report prepared by
the Approved Independent Engineer; and

                  (c) Each such report shall conform to the standards prescribed
by Rule 4-10 of Regulation S-X promulgated by the Securities and Exchange
Commission under the Act for financial accounting and reserve reporting purposes
applicable to registrants employing the full cost method of accounting.

         6.7 Reconciliation Report. At March 31, 2004, and if requested by
Ramshorn at September 30, 2004 and March 31, 2005, El Paso shall deliver to
Ramshorn a report reconciling on a per well basis all amounts reflected in
Investment Invoices submitted to Ramshorn prior to the date of such report (or
if applicable, since the date of the most recent such report) to actual
Investment Costs for each Subject Well covered by any such invoice. At
Ramshorn's request, the parties shall meet to review the report(s) and if the
applicable reconciliation reveals that estimated costs reflected in the
Investment Invoices covered by such reconciliation routinely and, in the
reasonable judgment of Ramshorn, materially exceeded the actual costs (it being
understood that the inclusion of a 10% contingency amount shall not be
considered for this purpose), the parties will negotiate in good faith with a
view toward adjusting El Paso's

                                       20
<PAGE>

invoicing practices. If the parties are unable to reach agreement, Ramshorn may
require that future Investment Invoices be submitted based upon the last
estimated costs of the drilling and completion of the Subject Wells furnished by
El Paso to Ramshorn prior to the execution of this Agreement.

                                   ARTICLE VII
                           OPERATION OF SUBJECT LEASES

         7.1 Prudent Operator Standard.

                  (a) El Paso will conduct and carry on or cause to be conducted
and carried on the exploration, development, maintenance and operation of the
Subject Wells with reasonable and prudent business judgment and in accordance
with sound oil and gas field practices. Without limitation of the foregoing,
prior to commencement of drilling operations on any Subject Well, El Paso will
obtain a drilling title opinion or, in the case of a drillsite which is held by
production, conduct such other title review and related due diligence as would
be consistent with sound oil and gas field practices for the location and nature
of such drillsite and related Subject Well.

                  (b) Nothing contained in this Agreement shall be deemed to
prevent or restrict El Paso from electing to participate or not to participate
in any operation which is to be conducted under the terms of any operating
agreement, unit operating agreement, contract for development or similar
instrument affecting or pertaining to the Subject Wells (or any operation
conduced on a Subject Well) or if El Paso elects not to participate (which
election shall be made without taking into consideration the Net Overriding
Royalty Interest) allowing consenting parties to conduct non-consent operations
thereon.

                  (c) Nothing contained in this Agreement shall be deemed to
prevent or restrict El Paso from drilling or participating in the drilling of
other oil and gas wells (which are not Subject Wells) on the Subject Leases and,
except as provided in Section 4.2, Ramshorn shall have no interest in such other
wells drilled on the Subject Leases or production therefrom.

                  (d) Any conveyance, assignment, or Encumbrance made by El Paso
or Ramshorn on the Subject Wells or Subject Leases insofar as the Subject Leases
cover the Subject Wells shall be made expressly subject to this Agreement and
Ramshorn's Net Overriding Royalty Interest or, if applicable, After Payout
Overriding Royalty Interest, and any Encumbrance made by El Paso (other than a
Permitted Third Party Net Profits Interest) or Ramshorn shall be made expressly
subordinate to the rights of the other party. Except for such expressly
subordinated conveyances, assignments and Encumbrances, and except for Permitted
Encumbrances, (i) prior to the recordation of an assignment to Ramshorn of the
Net Overriding Royalty Interest therein, El Paso at its own expense will keep
and maintain the Subject Wells and the Subject Leases insofar as the Subject
Leases cover and contribute to the Subject Wells free and clear of all
Encumbrances, except Permitted Encumbrances, arising by, through or under El
Paso or any Affiliate and (ii) after such recordation, El Paso at its own
expense will keep and maintain Ramshorn's Net Overriding Royalty Interest or, if
applicable, After Payout Overriding Royalty Interest free and clear of all
Encumbrances, except Permitted Encumbrances, arising by, through or under El
Paso or any Affiliate; provided, however, only for purposes of El Paso's

                                       21
<PAGE>

special warranty of title set forth in this sentence, Permitted Third Party Net
Profits Interests shall not be considered Permitted Encumbrances. Should an
adverse claim be made against, or a cloud develop upon the title to any part of
Ramshorn's Net Overriding Royalty Interest other than such as may arise by,
through or under El Paso or Ramshorn or a Permitted Encumbrance, unless
otherwise agreed by Ramshorn, El Paso will take all commercially reasonable
actions to defend such claim or to remove such cloud, the expenses of which
defense or removal shall be Production Costs hereunder.

                  (e) Oil and Gas from the Subject Wells shall be sold for
market value.

         7.2 Abandonment of Properties. Nothing herein contained shall obligate
El Paso to drill or complete any Subject Well, to continue to operate any
Subject Well, or to operate or maintain in force or attempt to maintain in force
any of the Subject Leases when, in El Paso's reasonable opinion, such well or
Subject Lease is not economical.

         7.3 Affiliated Transactions. El Paso may agree, contract or arrange
with itself or any of its Affiliates for the performance of services or the sale
or lease of equipment, and supplies used in connection with the Subject Leases,
and the payment of compensation therefor, as if such parties were independent
contractors; provided, however, that the terms of such agreement, contract or
arrangement are embodied in a written document setting forth the specific
arrangements; and provided further, however, that the compensation for such
services or sale or lease shall be (i) comparable to and competitive with that
of unrelated third parties rendering comparable services or selling or leasing
equipment or supplies in the same geographical area and (ii) paid only for
services, equipment or supplies reasonably necessary for the prudent operation
of, and actually furnished with respect to, such Subject Leases.

         7.4 Delay Rentals, Minimum Royalties, and Shut-in Gas Payments. El Paso
shall use its reasonable commercial efforts to pay or cause to be paid in a
proper and timely manner any delay rentals, minimum royalties, and shut-in gas
payments, if any, which may be necessary to maintain in force and effect the
Subject Leases, except any portion thereof which El Paso has determined to
abandon pursuant hereto. Notwithstanding anything to the contrary herein, El
Paso shall not be liable to Ramshorn for any failure to pay or the incorrect
payment of any delay rentals, minimum royalty, shut-in gas payments, or any
other contractual obligation, unless such failure shall be attributable to the
gross negligence or willful misconduct of El Paso.

         7.5 Accounting. El Paso shall account for revenues and costs associated
with the Subject Wells consistent with its normal business practices for other
wells in the region of the Subject Wells unless this Agreement requires a
different accounting.

                                  ARTICLE VIII
                              TERM AND TERMINATION

         8.1 Term. This Agreement shall terminate ninety (90) days after the
Payout Date; provided, however, any obligation to pay money under this Agreement
accruing to the Net Overriding Royalty Interest or After Payout Overriding
Royalty Interest or to convey or re-convey any interest in a Subject Lease or
Subject Well shall not terminate.

                                       22
<PAGE>

         8.2 Project Term. The "Project Term" shall refer to the period ending
on June 30, 2005.

         8.3 Early Termination of Project Term. Either party may notify the
other party in writing and terminate the Project Term effective thirty (30) days
after such notice is received by the other party. The shortened Project Term is
referred to hereinafter as the "Revised Project Term". This Agreement shall
continue to cover all Subject Wells that had been commenced prior to the
expiration of the Revised Project Term. In the event Ramshorn requests the early
termination of the Project Term, any Subject Wells that had not yet been
commenced on or before the expiration of the Revised Project Term shall be
automatically deleted from Exhibit "A" to this Agreement and shall no longer be
considered "Subject Wells." In the event El Paso requests the early termination
of the Project Term or if all of the Subject Wells have not been commenced by
the end of the original Project Term, then, in such event (i) Ramshorn shall,
until the Payout Date, receive its Net Overriding Royalty Interest in all of the
Subject Wells regardless of when such wells are commenced, even if following the
end of the Revised Project Term or original Project Term, as applicable, (ii)
the Investment Percentage shall be adjusted effective as of the first day of
each calendar quarter to be equal to the total purchase price paid by Ramshorn
under Section 2.2 divided by total Investment Costs of the Subject Wells which
are commenced prior to the Payout Date, and (iii) Ramshorn shall not be required
to pay any amounts under Section 2.2 or otherwise related to the Subject Wells
commenced after the end of the Revised Project Term or original Project Term, as
applicable. Whenever the Investment Percentage is adjusted, El Paso and Ramshorn
shall execute an Amendment to Assignment of Overriding Royalty Interest
substantially in the form attached hereto as Exhibit "G-1" (for recordation in
Texas) and "G-2" (for recordation in Louisiana).

         8.4 Deemed Early Termination by Ramshorn. In the event of any unexcused
failure, inability or refusal by Ramshorn to pay any undisputed portion of an
Investment Invoice within fifty-nine (59) days from the due date of such
invoice, then Ramshorn shall be deemed to have elected to terminate the Project
Term effective as of the first day of the month immediately preceding the month
in which such invoice was due; provided, however, if such payment default occurs
with respect to an Investment Invoice rendered at a time when any prior payment
default remains uncured, the period within which such default may be cured with
respect to such invoice shall be twenty-nine (29) days, in lieu of the
fifty-nine (59)-day period otherwise provided for above.

                                   ARTICLE IX
                                  MISCELLANEOUS

         9.1 Further Assurances. Should any additional instruments of assignment
and conveyance be required to describe more specifically any interests subject
hereto, El Paso and Ramshorn agree to execute and deliver the same. Also, if any
other or additional instruments are required in connection with the transfer of
any State or Federal lease interests in order to comply with applicable laws or
regulations, El Paso and Ramshorn will execute and deliver the same. Without
limitation of the foregoing, where Exhibit "A" indicates that a Subject Well is
a "drill to earn" prospect or proposed to be located on lands covered by leases
not yet assigned, or words to similar effect, promptly upon assignment to El
Paso of the affected leasehold interest(s), El Paso will prepare and the parties
will execute an amendment to the Memorandum of Purchase and

                                       23
<PAGE>

Sale Agreement, or Declaration and Agreement, as appropriate, to be filed in the
appropriate county or parish; provided, however, such amendments need be filed
no more often than once a month (but in any event, as to any particular Subject
Lease assigned to or acquired by El Paso after the date hereof, prior to the
submission to Ramshorn of an Investment Invoice related to the Subject Well
proposed to be drilled thereon); and provided further, however, if El Paso is
not entitled to receive an assignment until completion of a Subject Well because
such well is drilled under a farmout or similar "drill to earn" agreement, the
parenthetical in the foregoing proviso shall not be applicable.

         9.2 Notices. Except as otherwise expressly provided in this Agreement,
all notices, demands, requests or other communications required or permitted to
be given pursuant to this Agreement shall be in writing and may be given either
(i) in person, (ii) by United States mail, certified or registered, return
receipt requested, postage prepaid, (iii) by nationally recognized overnight
courier or (iv) by prepaid telegram, telex, cable, telecopy or similar means
(with signed confirming copy to follow by mail), as follows:

                  IF TO EL PASO:

                  Nine Greenway Plaza
                  Houston, Texas  77046
                  Attention:  J. T. Elzner
                  Telephone:  832.676.7817
                  Fax:  832.676.1353

                  IF TO RAMSHORN:

                  Ramshorn Investments, Inc.
                  515 W. Greens Road, Suite 1000
                  Houston, Texas 77067-4525
                  Phone:  281-874-0035
                  Fax:  281-775-8414
                  Attention:  Jordan "Digger" Smith
                  Telephone:  281-874-0035
                  Fax:  281-874-8414

                  WITH A COPY TO:

                  Law Dept of Nabors Corporate Services, Inc.
                  515 W. Greens Road, Suite 1200
                  Houston, Texas 77067-4525?
                  Phone number is 281-874-0035
                  Fax:  281-775-8431

         9.3 Binding Effect. This Agreement shall bind and inure to the benefit
of successors in interest and assigns of El Paso and Ramshorn.

                                       24
<PAGE>

         9.4 GOVERNING LAW. THE VALIDITY, EFFECT AND CONSTRUCTION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO ITS CONFLICTS OF LAWS PROVISIONS, EXCEPT WHERE THE LAWS OF ANOTHER
JURISDICTION ARE MANDATORILY APPLICABLE WITH RESPECT TO THE CONVEYANCE OF THE
NET OVERRIDING ROYALTY INTEREST.

         9.5 Headings. Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.

         9.6 Intention of the Parties.

                  (a) Nothing herein contained is intended to create, nor shall
the same be construed as creating (under state law or for tax purposes), any
mining partnership, commercial partnership or other partnership relation or
joint venture. If, however, the parties hereto are deemed to constitute a
partnership for federal or state income tax purposes, the parties elect to be
excluded from the application of Subchapter K, Chapter 1, Subtitle A of the Code
(or any similar state law) and agree not to take any position inconsistent with
such election.

                  (b) In addition, the parties hereto intend that the Net
Overriding Royalty Interest conveyed hereby by El Paso to Ramshorn shall at all
times be treated as a non-operating "economic interest" in the Oil and Gas
within the meaning of the Code (or any corresponding provisions of succeeding
law) and a non-operating mineral right for state law purposes. It is further
intended that the Assignment(s) of Overriding Royalty Interest contemplated
hereunder constitutes a present, absolute and indefeasible conveyance of a real
property interest (fee simple determinable) in Texas and other common law
jurisdictions and of an immovable property right in Louisiana. Nothing herein
shall suggest, nor shall anything herein be construed to suggest, that the
purchase and sale transactions contemplated herein constitute one or more
financing transactions. However, for the avoidance of doubt, Ramshorn shall be
entitled to file a copy of the Memorandum of Purchase and Sale Agreement as a
precautionary UCC non-standard financing statement to better evidence and
perfect its interest in the Net Profits, Net Overriding Royalty Interest, the
After Payout Overriding Royalty Interest, the Oil and Gas attributable thereto
and the proceeds thereof.

         9.7 Counterpart Execution. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original agreement for all
purposes hereunder.

         9.8 Validity and Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under the present or future laws
effective during the term of this Agreement, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part of this Agreement;
and the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement. In lieu of such illegal,
invalid or unenforceable provisions, there shall be added automatically as a
part of this Agreement a provision as similar in terms to such illegal, invalid
or unenforceable provision as may be possible and be legal, valid and
enforceable.

                                       25
<PAGE>

         9.9 Negotiated Instrument. This Agreement represents a negotiated
agreement and no portion shall be construed for or against either party by
virtue of its having been drafted by that party.

         9.10 Securities Act. Ramshorn (i) understands that the Net Overriding
Royalty Interest has not been, and will not be, registered under the Act, or
under any state securities laws, and is being offered and sold in reliance upon
certain federal and state exemptions, (ii) is acquiring the Net Overriding
Royalty Interest solely for Ramshorn's own account for investment purposes, and
not with a view to the public distribution thereof, (iii) is a sophisticated
investor with knowledge and experience in business and financial matters, (iv)
has received certain information concerning the Net Overriding Royalty Interest
and has had the opportunity to obtain additional information as desired to
evaluate the merits and the risks inherent in purchasing the Net Overriding
Royalty Interest, (v) is able to bear the economic risk and lack of liquidity
inherent in holding the Net Overriding Royalty Interest, and (vi) is an
"accredited investor" as defined in Regulation D promulgated under the Act.

         9.11 Amendments. Any amendment hereto shall become effective only upon
the express written consent of El Paso and Ramshorn, at which time it shall
become effective as to all parties hereto. No amendment, modification or
alteration of the terms hereof shall be binding unless the same is in writing
and is in accordance with this Section 9.11.

         9.12 Confidentiality. Notwithstanding anything herein to the contrary,
the parties (and each employee, representative or other agent of El Paso or
Ramshorn) may disclose to any and all Persons, without limitation of any kind,
the U.S. federal income tax treatment and tax structure of the transaction
contemplated herein and all materials of any kind (including opinions and other
tax analyses) that are provided to the parties relating to such tax treatment
and tax structure. For this purpose, "tax structure" is limited to facts
relevant to the U.S. federal income tax treatment of such transaction and does
not include information relating to the identity of the parties, their
respective Affiliates, agents or advisors.

         9.13 Benefits of Agreement Restricted to Parties. Nothing in this
Agreement expressed or implied is intended or shall be construed to give to any
Person other than El Paso and Ramshorn, and their respective successors and
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any covenant, condition or provision therein or herein
contained; and all such covenants, conditions and provisions are and shall be
held to be for the sole and exclusive benefit of El Paso and Ramshorn, and their
respective successors and assigns.

         9.14 Exhibits.

                  (a) The forms of instruments attached hereto as Exhibit "D-1"
through "G-2" are prepared for use in connection with Subject Wells drilled by
El Paso Production Company. With respect to Subject Wells drilled by El Paso
Production GOM Inc., such forms shall be identical in all respects except with
such changes thereto, mutatis mutandi, as are appropriate to reflect the
substitution of El Paso Production GOM Inc. for El Paso Production Company as
the El Paso party thereto.

                                       26
<PAGE>

                  (b) In order to satisfy the requirements of the Louisiana
public records doctrine and other related Louisiana laws, the parties have
contemporaneously executed a Declaration and Agreement in the form attached
hereto as Exhibit "H", which shall be recorded in each parish in Louisiana where
any lands covered by Subject Leases are located. As among the parties hereto,
such Declaration and Agreement shall be deemed a part of, and subsumed within
and under, this Agreement, it being the parties' express understanding and
intention that as among the parties, such Declaration and Agreement shall not
create, and shall not be construed to create, any additional rights or
obligations beyond those provided for or created herein or hereunder nor shall
such Declaration and Agreement limit, expand, alter or in any other way affect
any such rights or obligations; and the parties acknowledge and agree that as
among themselves, this Agreement alone shall govern the transactions
contemplated herein.

         9.15 Liability of Ramshorn. In no event shall Ramshorn be personally
liable or responsible in any way for payment of any part of the costs, expenses
or liabilities incurred in connection with the exploring, developing, operating
and maintaining of the Subject Leases or the Subject Wells, and El Paso agrees
to indemnify and hold Ramshorn harmless from and against all such costs,
expenses or liabilities; provided, however, all costs and expenses described in
this Section 9.15 shall, to the extent the same relate to the period prior to
the Payout Date, nevertheless be charged against the Net Profits Account to the
extent herein permitted.

Executed the date first written above.

                                              EL PASO PRODUCTION COMPANY

                                              By: /s/ John T. Elzner
                                                  ------------------------------
                                                  John T. Elzner, Senior Vice
                                                  President

                                              EL PASO PRODUCTION GOM INC.

                                              By: /s/ John T. Elzner
                                                  ------------------------------
                                                  John T. Elzner, Senior Vice
                                                  President

                                              RAMSHORN INVESTMENTS, INC.

                                              By: /s/ Jordan "Digger" Smith
                                                  ------------------------------
                                                  Jordan "Digger" Smith,
                                                  President

                                       27

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