Document:

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                                                                   EXHIBIT 10.17

                       REDUCING REVOLVING CREDIT AGREEMENT

                        REDUCING REVOLVING LINE OF CREDIT

                             OF UP TO $90,000,000.00

                                       AND

                            REDUCING BRIDGE FINANCING

                                OF $25,000,000.00

                                      AMONG

                               BANK ONE, TEXAS, NA

                         As Agent, LC Issuer and a Bank,

                                 OTHER FINANCIAL

                             INSTITUTIONS AND BANKS,

                                    As Banks,

                              ENERGY PARTNERS, LTD.

                                   As Borrower

                                       AND

                         BANC ONE CAPITAL MARKETS, INC.

                     As Lead Arranger and Sole Book Manager

                                 March 30, 2000

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                                TABLE OF CONTENTS

<TABLE>
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ARTICLE I   DEFINITIONS..............................................................................1

ARTICLE II  THE LOANS AND LETTERS OF CREDIT ........................................................20

    2.01  The Commitment ...........................................................................20

    2.02  Notice and Manner of Borrowing ...........................................................20

    2.03  Payment Procedure ........................................................................21

    2.04  Payments of Interest under the Notes .....................................................21

    2.05  General Provisions Relating to Interest ..................................................22

    2.06  Borrowing Base Determination..............................................................23

    2.07  Mandatory Prepayment Due to a Loan Excess ................................................25

    2.08  Other Mandatory Prepayments ..............................................................25

    2.09  Prepayment and Conversion ................................................................26

    2.10  Increased Cost of Loans ..................................................................26

    2.11  Change of Law.............................................................................28

    2.12  Mitigation: Mandatory Assignment .........................................................28

    2.13  Pro Rata Treatment and Payments ..........................................................29

    2.14  Sharing of Payments and Setoffs ..........................................................29

    2.15  Advances to Satisfy Obligations of the Borrower ..........................................29

    2.16  Assignment of Production .................................................................29

    2.17  Commitment Fee ...........................................................................30

    2.18  Addition/Deletion of Borrowing Base Oil & Gas Properties .................................30

    2.19  Adjustment to Aggregate Commitment Amount ................................................30

    2.20  Facility LCs .............................................................................31

          (A)  Issuance ............................................................................31

          (B)  Participations ......................................................................31

          (C)  Notice ..............................................................................31

          (D)  LC Fees .............................................................................32

          (E)  Administration; Reimbursement by Banks ..............................................32

          (F)  Reimbursement by Borrower ...........................................................32

          (G)  Obligations Absolute ................................................................33
</TABLE>

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<TABLE>
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          (H)  Actions of LC Issuer ................................................................33

          (I)  Indemnification .....................................................................34

          (J)  Banks' Indemnification ..............................................................34

          (K)  Rights as a Bank ....................................................................34

ARTICLE III CONDITIONS .............................................................................35

    3.01  General Conditions to Initial Disbursements ..............................................35

    3.02  General Conditions to all Disbursements ..................................................36

    3.03  Deliveries at the Closing ................................................................36

    3.04  Documents Required for Subsequent Disbursements ..........................................37

ARTICLE IV  REPRESENTATIONS AND WARRANTIES .........................................................38

    4.01  Existence ................................................................................38

    4.02  Due Authorization ........................................................................38

    4.03  Valid and Binding Obligations ............................................................39

    4.04  Scope and Accuracy of Financial Statements ...............................................39

    4.05  Title to Borrowing Base Oil and Gas Properties ...........................................39

    4.06  Oil and Gas Leases .......................................................................39

    4.07  Interest in the Borrowing Base Oil and Gas Properties ....................................39

    4.08  Oil and Gas Contracts ....................................................................40

    4.09  Producing Wells ..........................................................................40

    4.10  Purchasers of Production .................................................................40

    4.11  Authorizations and Consents ..............................................................40

    4.12  Environmental Laws .......................................................................40

    4.13  Compliance with Laws, Rules, Regulations and Orders ......................................41

    4.14  Liabilities, Litigation and Restrictions .................................................41

    4.15  Existing Indebtedness ....................................................................42

    4.16  Material Commitments .....................................................................42

    4.17  Margin Stock .............................................................................42

    4.18  Proper Filing of Tax Returns and Payment of Taxes Due ....................................42

    4.19  ERISA ....................................................................................42

    4.20  Investment Company Act Compliance ........................................................43

    4.21  Public Utility Holding Company Act Compliance ............................................43

    4.22  Insurance ................................................................................43

    4.23  Material Misstatements and Omissions .....................................................43
</TABLE>

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<TABLE>
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ARTICLE V   AFFIRMATIVE COVENANTS ..................................................................43

    5.01 Use of Funds ..............................................................................43

    5.02 Maintenance and Access to Records .........................................................44

    5.03 Monthly and Annual Unaudited Financial Statements .........................................44

    5.04 Annual Audited Financial Statements .......................................................44

    5.05 Compliance Certificate ....................................................................44

    5.06 Statement of Material Adverse Change ......................................................44

    5.07 Title Defects .............................................................................44

    5.08 Additional Information ....................................................................45

    5.09 Compliance with Laws and Payment of Assessments and Charges ...............................45

    5.10 Maintenance of Existence and Good Standing ................................................45

    5.11 Further Assurances ........................................................................45

    5.12 Initial Expenses of the Bank ..............................................................45

    5.13 Subsequent Expenses of the Agent and the Arranger .........................................45

    5.14 Maintenance of Tangible Property ..........................................................46

    5.15 Maintenance of Insurance ..................................................................46

    5.16 Inspection of Tangible Assets/Right of Audit ..............................................46

    5.17 Payment of Note and Performance of Obligations ............................................46

    5.18 Borrowing Base ............................................................................46

    5.19 Compliance with Environmental Laws ........................................................46

    5.20 Hazardous Substances Indemnification ......................................................47

    5.21 Properties Not Operated by the Borrower ...................................................47

    5.22 Transactions with Affiliates ..............................................................48

    5.23 Leases ....................................................................................48

    5.24 Operation of Borrowing Base Oil and Gas Properties ........................................48

    5.25 Assignments ...............................................................................48

    5.26 Change of Purchasers of Production ........................................................48

    5.27 Payment of Taxes, Etc. ....................................................................48

    5.28 Notice of Litigation ......................................................................49

    5.29 Notice of Events of Default ...............................................................49

    5.30 Notice of Change of Principal Offices .....................................................49

    5.31 Employee Benefit Plans ....................................................................49

    5.32 Cash Flow Forecasts .......................................................................49
</TABLE>

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<TABLE>
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    5.33  Operating Accounts .......................................................................49

    5.34  P&A Expenses .............................................................................49

    5.35  Payment of Obligations ...................................................................49

    5.36  Completion of Anticipated Property Sale ..................................................50

    5.37  Required Hedge Agreement .................................................................50

ARTICLE VI  NEGATIVE COVENANTS .....................................................................50

    6.01  Other Indebtedness; Payments on Subordinated Debt ........................................50

    6.02  Loans or Advances ........................................................................50

    6.03  Mortgages or Pledges of Assets ...........................................................50

    6.04  Sales of Assets ..........................................................................50

    6.05  Dividends ................................................................................50

    6.06  Payment of Accounts Payable ..............................................................51

    6.07  Cancellation of Insurance ................................................................51

    6.08  Investments ..............................................................................51

    6.09  Changes in Structure or Business .........................................................51

    6.10  Limitation on Leases .....................................................................51

    6.11  Pooling or Unitization ...................................................................51

    6.12  Hedge Agreements .........................................................................51

    6.13  Capital Stock of Borrower ................................................................51

    6.14  Margin Stock .............................................................................52

    6.15  General and Administrative Expenses ......................................................52

    6.16  Minimum Tangible Net Worth ...............................................................52

    6.17  Current Ratio ............................................................................52

    6.18  Debt Service Coverage Ratio ..............................................................52

    6.19  Ratio of Credit Exposure to Present Value of Borrowing
               Base Oil and Gas Properties .........................................................52

ARTICLE VII EVENTS OF DEFAULT ......................................................................52

    7.01  Enumeration of Events of Default .........................................................52

    7.02  Rights Upon Unmatured Event of Default ...................................................54

    7.03  Rights Upon Default ......................................................................54

    7.04  Remedies .................................................................................55

    7.05  Right of Set-off .........................................................................56
</TABLE>

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<TABLE>
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ARTICLE VIII THE AGENT .............................................................................56

    8.01  Authorization and Action .................................................................56

    8.02  Agent's Reliance, Etc. ...................................................................56

    8.03  The Agent and Affiliates .................................................................57

    8.04  Bank Credit Decision .....................................................................57

    8.05  Agent's Indemnity ........................................................................57

    8.06  Successor Agent ..........................................................................58

    8.07  Notice of Default ........................................................................58

ARTICLE X   MISCELLANEOUS ..........................................................................59

    9.01  Security Interests in Deposits and Right of Offset or the Banker's Lien ..................59

    9.02  Survival of Representations, Warranties and Covenants ....................................59

    9.03  Notices and Other Communications .........................................................59

    9.04  Parties in Interest ......................................................................60

    9.05  Successors and Assigns; Participation; Purchasing Banks ..................................60

    9.06  Renewals and Extensions ..................................................................62

    9.07  No Waiver by the Agent, the Banks or the LC Issuer .......................................62

    9.08  Waiver, Release, and Indemnification by the Borrower .....................................63

    9.09  Governing Law ............................................................................63

    9.10  Incorporation of Exhibits and Schedules ..................................................63

    9.11  Survival Upon Unenforceability ...........................................................63

    9.12  Rights of Third Parties ..................................................................63

    9.13  Amendments or Modifications ..............................................................64

    9.14  Agreement Construed as an Entirety .......................................................64

    9.15  Number and Gender ........................................................................64

    9.16  Agreement Supersedes All Prior Agreements ................................................65

    9.17  Controlling Provision Upon Conflict ......................................................65

    9.18  Time, Place and Method of Payments .......................................................65

    9.19  Termination ..............................................................................65

    9.20  Non-Application of Chapter 346 of Texas Finance Code .....................................65

    9.21  Counterpart Execution ....................................................................66

    9.22  Loan Documents Subject to Other Agreements ...............................................66

    9.23  Obligations to EIF........................................................................66

    9.24  Amended and Restated Agreement............................................................66
</TABLE>

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<PAGE>   7

    EXHIBITS

    EXHIBIT A         Borrowing Base Oil and Gas Properties, composed of:
    EXHIBIT A-1       South Timbalier 26
    EXHIBIT A-2       East Bay
    EXHIBIT A-3       Pipeline
    EXHIBIT A-4       EIF Override
    EXHIBIT B         Reducing Revolving Note
    EXHIBIT C         Compliance Certificate
    EXHIBIT D         Security Instruments
    EXHIBIT E         Request for Advance
    EXHIBIT F         Amendment to Subordination Agreement

    SCHEDULES

    Schedule 1.01(b)  Commitment Amount and Aggregate Commitment
    Schedule 1.01(c)  Certain Permitted Liens
    Schedule 2.06     Borrowing Base
    Schedule 4.01     Information Regarding the Borrower and its Subsidiaries
    Schedule 4.08     Certain Oil and Gas Contracts
    Schedule 4.10     List of Purchasers of Production
    Schedule 4.15     Existing Indebtedness
    Schedule 4.16     Material Commitments
    Schedule 4.22     Insurance Certificate
    Schedule 9.05(a)  Commitment Transfer Supplement

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<PAGE>   8

                       REDUCING REVOLVING CREDIT AGREEMENT

          THIS REDUCING REVOLVING CREDIT AGREEMENT (this "Agreement"), dated
March 30, 2000, is by and between ENERGY PARTNERS, LTD., a Delaware corporation
(the "Borrower"), the several banks and financial institutions from time to time
parties to this Credit Agreement (the "Banks," such term to include all
financial institutions which become parties to the Credit Agreement in
accordance with Section 9.05 hereof), BANK ONE, TEXAS, NA, a national banking
association ("Bank One") as the initial Bank, as the LC Issuer (hereinafter
defined) and as agent for the Banks (in such latter capacity and together with
its successors and permitted assigns in such capacity, the "Agent").

                                   WITNESSETH

          WHEREAS, the Borrower and Bank One entered into that certain Loan
Agreement dated June 23, 1999, as amended by the First Amendment thereto dated
August 9, 1999 and the Second Amendment thereto dated November 16, 1999 (the
"Prior Loan Agreement").

          WHEREAS, Borrower has requested that Bank One and the other Banks make
available, and the Banks are willing to make available to Borrower on the terms
and conditions hereinafter set forth, loans in excess of those available to
Borrower under the Prior Loan Agreement, and such loans available under this
Agreement shall be used for, among other things, refinancing the debt owed to
Bank One under the Prior Loan Agreement;

          NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the Banks, the LC Issuer, the Agent and the
Borrower agree as follows:

                                   ARTICLE I.

                                  DEFINITIONS

          As used in this Agreement, the following terms shall have the meanings
indicated:

          "ABR" means a fluctuating rate of interest equal to the higher of (i)
a rate per annum equal to the prime rate of interest announced from time to time
by Bank One or its parent (which is not necessarily the lowest rate charged to
any customer), changing when and as said prime rate changes, and (ii) the sum of
the Federal Funds Effective Rate most recently determined by the Agent plus
one-half percent (1/2%) per annum.

          "ABR Loan" means any Loan from time to time for which interest thereon
is to be computed on the basis of the ABR, as elected by Borrower pursuant to
Section 2.04 hereof.

          "Acquisition Agreement(s)" means, individually, each respective
purchase and sale agreement pursuant to which Borrower agrees to purchase and
the current owner agrees to sell each of South Timbalier 26, the Pipeline and
East Bay, and, collectively, all of such purchase and sale agreements.

<PAGE>   9

          "Additional Margin" means 0.50% per annum times the number of complete
Three Month Periods that have elapsed since Closing Date.

          "Affiliate" means, as applied to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with"), as applied to any Person, means either: (a) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract, or otherwise, or (b) the legal or
beneficial ownership of or voting rights with respect to twenty percent (20%) or
more of the equity interest in such Person.

          "Agent" means Bank One, Texas, NA, as agent for the Banks hereunder
and under the other Loan Documents, and each successor agent.

          "Aggregate Commitment Amount" means the lesser of: (a) the Borrowing
Base in effect from time to time, or (b) the amount stated as the Aggregate
Commitment Amount on Schedule 1.01(b) attached hereto, as the same may be
amended from time to time as provided in this Agreement.

          "Aggregate Outstanding Credit Exposure" means, at any time, the
aggregate of the Outstanding Credit Exposure of all the Banks.

          "Agreement" means this Reducing Revolving Agreement, as the same may
be amended or supplemented from time to time.

          "Amendment to Subordination Agreement" means an amendment of even date
with this Agreement in the form attached hereto as Exhibit "F" by and among EIF,
Borrower, Agent, the LC Issuer and the Banks pursuant to which the Subordination
Agreement is amended.

          "Anticipated Property Sale" means the sale or sales of approximately
50%, in the aggregate, of the Borrower's undivided interest in South Timbalier
26.

          "Applicable Law" means that law in effect from time to time and
applicable to the Notes which lawfully permits the charging and collection of
the highest permissible lawful, non-usurious rate of interest on the Notes,
including laws of the State of Texas and laws of the United States of America;
Chapter 303 of the Texas Finance Code shall be included in the laws of the State
of Texas in determining Applicable Law; and for the purpose of applying said
Chapter 303 to the Notes, the interest ceiling applicable to the Notes under
said Chapter 303 shall be the indicated weekly rate ceiling from time to time in
effect.

          "Applicable Margin" means the applicable LIBOR Margin or ABR Margin
provided for in the Pricing Grid set forth below based upon the Utilization
Percentage.

          "Arranger" means Banc One Capital Markets, Inc., in its capacity as
lead arranger and sole book manager.

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<PAGE>   10

          "Available Aggregate Commitment" means, at any time, the Aggregate
Commitment Amount then in effect minus the Aggregate Outstanding Credit Exposure
at such time.

          "Bank Parties" has the meaning given such term in Section 9.08(B).

          "Bank(s)" means any of the banks signatory to this Agreement, their
successors and, upon the effective date after registration with the Agent
pursuant to Section 9.05 of a Commitment Transfer Supplement executed by a
Purchasing Bank, such Purchasing Bank.

          "Borrowing" means a group of Loans made by the Banks to Borrower on a
single date.

          "Borrowing Base" means the maximum loan amount with respect to the
Borrowing Base Oil and Gas Properties, as determined by the Agent and approved
by the Required Banks from time to time in accordance with Section 2.06 of this
Agreement.

          "Borrowing Base Oil and Gas Properties" means those Oil and Gas
Properties of the Borrower that are subject to the liens created by the Security
Instruments executed pursuant to the Prior Loan Agreement, together with the
additional Borrowing Base Oil and Gas Properties that are described in Exhibit
"A" attached hereto and made a part hereof, as such Exhibit "A" may be amended
from time to time.

          "Breakage Costs" means all reasonable losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
any Bank to fund its LIBOR Loans but excluding loss of anticipated profit with
respect to any LIBOR Loans) which such Bank may sustain: (i) if for any reason
(other than a default by such Bank or the Agent) a borrowing of LIBOR Loans does
not occur on a date specified therefor in a Request for Advance; (ii) if any
repayment or conversion of any LIBOR Loans occurs on a date which is not the
last day of an Interest Period applicable thereto; (iii) if any prepayment of
any LIBOR Loans is not made on any date specified in a notice of prepayment
given by Borrower; or (iv) as a consequence of any default by the Borrower to
repay LIBOR Loans when required by the terms of this Agreement.

          "Business Day" means a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of Texas, provided that
with respect to transactions under this Agreement relating to LIBOR Loans, such
day must also be a Eurodollar Business Day.

          "Cash Flow" means, with respect to each calendar month, Net Income
accrued during such month plus depreciation, depletion, and amortization for the
relevant month.

          "Change of Control" means an event or series of events by which the
Persons who were the shareholders of the Borrower immediately upon the closing
of the Evercore Transaction cannot alone elect at least 66.67% of the board of
directors of the Borrower.

          "Closing" has the meaning provided in Section 3.01.

                                       3
<PAGE>   11

          "Commitment" means, as to any Bank, the obligation of such Bank to
make Loans to, and participate in Facility LCs issued upon the application of,
the Borrower in an aggregate amount at any one time outstanding not to exceed
the lesser of (i) such Bank's Commitment Amount and (ii) such Bank's Percentage
Share of the Borrowing Base then in effect.

          "Commitment Amount" means at any time, for any Bank, the amount set
forth opposite such Bank's name on Schedule 1.01(b) under the heading
"Commitment Amount," as such amount may be changed as provided in this
Agreement.

          "Commitment Transfer Supplement" means a Commitment Transfer
Supplement executed by Agent and a Purchasing Bank substantially in the form of
Schedule 9.05(d) and registered with the Agent pursuant to Section 9.05(d)
hereof.

          "Compliance Certificate" means the certificate of the President or
Chief Financial Officer of the Borrower submitted to the Bank from time to time
pursuant to this Agreement and attesting to the financial covenants and stating,
to such officer's knowledge, whether or not an Event of Default or an Unmatured
Event of Default has occurred and is continuing and, if such an event has
occurred, the actions being taken by the Borrower, to remedy such situation and
that GAAP has been used in the preparation of the Financial Statements, which
certificate shall be in the form attached hereto as Exhibit "C".

          "Consolidated Tangible Net Worth" means, as of any reporting period,
Stockholders' Equity plus Subordinated Debt, less the sum of:

          (A)  Goodwill, including any amounts, however designated on a
               consolidated balance sheet of the Borrower and its Subsidiaries,
               representing the excess of the purchase price paid for assets or
               stock acquired over the value assigned thereto on the books of
               the Borrower;

          (B)  Patents, trademarks, trade names, and copyrights;

          (C)  Any amount at which shares of capital stock of the Borrower
               appear as an asset on the Borrower's balance sheet;

          (D)  Loans and advances to stockholders, directors, officers, or
               employees; and

          (E)  Any other amount in respect of an intangible that should be
               classified as an asset on a consolidated balance sheet of the
               Borrower in accordance with GAAP.

          "Contract Operating Fees" means the fees the Borrower receives for
providing drilling and production operations on behalf of other Persons.

          "COPAS" means the Accounting Procedure Joint Operations Recommended by
the Council of Petroleum Accountants, with respect to onshore and offshore
operations, respectively, including the most current versions thereof and any
other recent versions thereof commonly in use.

                                       4
<PAGE>   12

          "Credit Extension" means the making of a Loan or the issuance of a
Facility LC hereunder.

          "Credit Extension Date" means the date on which a Loan is advanced or
a Facility LC is issued.

          "Current Assets" means at any time, all assets, that should in
accordance with GAAP, be classified as current assets on a consolidated balance
sheet of Borrower and its Subsidiaries, plus the then current availability under
the aggregate Commitments.

          "Current Liabilities" means at any time, all liabilities that should
in accordance with GAAP, be classified as current liabilities on a consolidated
balance sheet of the Borrower and its Subsidiaries, minus the amount of Credit
Extensions under this Agreement and the amount of Subordinated Debt that are
deemed to be current in accordance with GAAP.

          "Current Ratio" means the ratio derived from dividing Current Assets
by Current Liabilities.

          "Debt Placement" means the issuance by the Borrower of at least
$25,000,000 of its unsecured, senior or subordinated debt on terms acceptable to
the Agent and the Required Banks.

          "Debt Service" means, with respect to any reporting period, the sum of
Borrower's total interest expense plus Monthly Borrowing Base Reductions
accruing during such period.

          "Debt Service Coverage Ratio" means the ratio derived from dividing
EBITDAX by Debt Service for each two-consecutive-calendar-quarter period on a
rolling two-quarter basis.

          "East Bay" means those Borrowing Base Oil and Gas Properties described
on Exhibit "A-2" attached hereto.

          "EBITDAX" means, for any reporting period, Borrower's earnings before
deductions for interest expense, taxes, depreciation, depletion, amortization
and dry hole costs.

          "EIF" means Energy Income Fund, L.P., a Delaware limited partnership.

          "EIF Override" means that certain overriding royalty interest
previously owned by EIF, to be reconveyed to Borrower prior to Closing and
included in the Borrowing Base Oil and Gas Properties, as described on Exhibit
"A-4" attached hereto.

          "Environmental Laws" means (a) the following federal laws as they may
be cited, referenced and amended from time to time: the Clean Air Act, the Clean
Water Act, the Safe Drinking Water Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Endangered Species Act, the
Resource Conservation and Recovery Act, the Occupational Safety and Health Act,
the Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, the Toxic Substances Control Act, and the Oil Pollution Act
of 1990; (b) any and all environmental statutes of any state in which property
of the

                                       5
<PAGE>   13

Borrower is situated, as they may be cited, referenced and amended from time to
time; (c) any rules or regulations promulgated under or adopted pursuant to the
above federal and state laws; and (d) any other federal, state or local statute
or any requirement, rule, regulation, code, ordinance or order adopted pursuant
thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling or release of
Hazardous Substances.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.

          "ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with the Borrower would be treated as a single
employer under Section 4001 of ERISA.

          "Eurodollar Business Day" means a day on which dealings are carried on
in the LIBOR Market.

          "Event of Default" means any of the events specified in Section 7.01
of this Agreement.

          "Evercore Parties" means Evercore Capital Partners L.P., Evercore
Capital Partners (NQ) L.P., Evercore Capital Offshore Partners L.P. and Evercore
Co-Investment Partnership L.P.

          "Evercore Transaction" means that certain transaction among the
Evercore Parties and Borrower, as evidenced by the Evercore Transaction
Documents. "Evercore Transaction Documents" means (i) that certain Energy
Partners, Ltd. Stock Purchase Agreement dated November 17, 1999, between
Borrower and the Evercore Parties, (ii) that certain Registration Rights
Agreement dated as of November 17, 1999, between Borrower and the Evercore
Parties, (iii) that certain Certificate of Designations of the Series A
Convertible Preferred Stock of Energy Partners, Ltd., dated November 17, 1999,
executed by Borrower, (iv) that certain Certificate of Designations of the
Series B Convertible Preferred Stock of Energy Partners, Ltd., dated November
17, 1999, executed by Borrower, (v) that certain Certificate of Designations of
the Series C Convertible Preferred Stock of Energy Partners, Ltd., dated
November 17, 1999, executed by Borrower, and (vi) that certain Stockholder
Agreement dated as of November 17, 1999, by and among Borrower, the Evercore
Parties, EIF, and the individual shareholders of Borrower.

          "Facility LC" is defined in Section 2.20(A).

          "Facility LC Application" is defined in Section 2.20(C).

          "Facility Termination Date" means March 30, 2003.

          "Federal Funds Effective Rate" means, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published by the
Federal Reserve Bank of New York for such day on the next succeeding Business
Day or, if such rate is not so published for any day

                                       6
<PAGE>   14

which is a Business Day, the average of the quotations for the day of such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.

          "Financial Statements" means the statements of the financial condition
of the indicated Person, on a consolidated basis, as at the point in time and
for the period indicated and consisting of at least a balance sheet, income
statement and statement of changes in financial position, and, when the
foregoing are audited, accompanied by the certification of such Person's
independent certified public accountants and footnotes to any of the foregoing,
all of which shall be prepared in accordance with GAAP applied on a basis
consistent with that of the preceding year, except for any inconsistency that
results from changes in GAAP from year to year.

          "Floating Rate" means a per annum interest rate determined by
reference to the following schedule:

     o    Before Anticipated Property Sale and payment and cancellation of
          Tranche B:

                    Tranche A:

                         LIBOR + 3.25% per annum or, at Borrower's option
                         pursuant to Section 2.04,

                         ABR + 1.50%  per annum.

                    Tranche B:

                         LIBOR + 5.50% per annum + Additional Margin or, at
                         Borrower's option pursuant to Section 2.04,

                         ABR + 4.00% per annum + Additional Margin.

     o    After Anticipated Property Sale, but prior to the time the Tranche A
          commitment is determined to be equal to or less than a conventional
          borrowing base amount as determined by the Required Banks and Tranche
          B has been repaid and cancelled:

                    Tranche A:

                         LIBOR + 3.00% per annum or, at Borrower's option
                         pursuant to Section 2.04,

                         ABR + 1.50%  per annum.

                    Tranche B:

                         LIBOR + 5.50% per annum + Additional Margin or, at
                         Borrower's option pursuant to Section 2.04,

                         ABR + 4.00% per annum + Additional Margin.

                                       7
<PAGE>   15

     o    After the Tranche A commitment is determined to be equal to or less
          than a conventional borrowing base amount as determined by the
          Required Banks and Tranche B has been repaid and canceled:

                    Tranche A:

                         LIBOR + Applicable Margin or, at Borrower's option
                         pursuant to Section 2.04,

                         ABR + Applicable Margin.

     o    After the occurrence and during the continuation of an Event of
          Default, the Floating Rate determined in accordance with the forgoing
          schedule shall, in each case, be increased by two percent (2%) per
          annum, not to exceed the Maximum Rate.

          "GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable as of the date of Closing, except that solely for purposes
of the definition of Financial Statements herein, changes in GAAP from time to
time (if any) shall be applied and reflected in the Financial Statements.
Accounting principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.

          "General and Administrative Expenses" means total expenses of
Borrower, minus (A) lease operating expenses, (B) dry-hole costs, (C)
depreciation, depletion, and amortization, (D) interest expense, (E) COPAS
overhead, (F) Contract Operating Fees, (G) severance and ad valorem taxes, and
(H) state and federal income taxes.

          "Hazardous Substances" means flammables, explosives, radioactive
materials, hazardous wastes, asbestos or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum and petroleum products and associated oil or natural gas exploration,
production and development wastes or any substances defined as "hazardous
substances", "hazardous materials", "hazardous wastes" or "toxic substances"
under the Comprehensive Environmental Response, Compensation and Liability Act,
as amended, the Superfund Amendments and Reauthorization Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Resource Conservation
and Recovery Act, as amended, the Toxic Substances Control Act, as amended, or
any other Environmental Laws now or hereafter enacted or promulgated by any
regulatory authority or governmental body, but only to the extent any such law
is or becomes applicable to the Borrower or any of its property.

          "Hedge Agreement" means any swap agreement, cap, collar, floor,
exchange transaction, forward agreement or exchange or protection agreement
related to Hydrocarbons or any option with respect to such transaction, as more
specifically provided in those certain master swap agreements on International
Swap Dealers Association forms and the schedules thereto and any confirmations
thereunder entered into by Borrower with any other Person.

                                       8
<PAGE>   16

          "Hydrocarbons" means crude oil, condensate, natural gas, natural gas
liquids and other hydrocarbons.

          "Indebtedness" means, as to any Person, (a) all items of indebtedness
or liability (other than capital (including preferred stock), surplus, deferred
credits and reserves, as such) which in accordance with GAAP would be included
in determining total liabilities as shown on the liability side of a balance
sheet as at the date as of which Indebtedness is to be determined, (b)
indebtedness secured by (or for which the holder of such indebtedness has a
right, contingent or otherwise, to be secured by) any mortgage, deed of trust,
pledge, lien, security interest, or other charge or encumbrance existing on or
encumbering property owned by the Person whose Indebtedness is being determined,
whether or not the indebtedness secured thereby shall have been assumed, (c) all
indebtedness of others which such Person has directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business), discounted with recourse, agreed (contingently or otherwise) to
purchase or repurchase or otherwise acquire, or in respect of which such Person
has agreed to supply or advance funds (whether by way of loan, purchase of
securities or capital contribution, through a commitment to pay for property or
services regardless of the nondelivery of such property or the nonfurnishing of
such services or otherwise), or in respect of which such Person has otherwise
become directly or indirectly liable, contingently or otherwise, whether now
existing or hereafter arising, and (d) all leases (excluding Leases constituting
Oil and Gas Properties) that, in accordance with GAAP, should not be reflected
on the Borrower's balance sheet.

          "Initial Note" means the reducing revolving note in the original face
amount of $200,000,000.00 dated as of the Closing, made by the Borrower payable
to the order of Bank One, in substantially the form attached hereto as Exhibit
"B," together with all deferrals, renewals, extensions, amendments,
modifications or rearrangements thereof.

          "Interest Period" means as to any LIBOR Loan the period commencing on
and including the date of such Loan (or on the effective date of the election
pursuant to Section 2.04(B) by which such Loan became a LIBOR Loan) and ending
on and including the day preceding the numerically corresponding day (or if
there is no such numerically corresponding day, the last day) in the 1st, 2nd,
3rd or 6th calendar month after the date of such Loan, as selected by the
Borrower in accordance with Section 2.04(B), and after such selected month, such
period commencing on and including the day immediately following the last day of
the then ending Interest Period for such Loan and ending on and including the
day preceding the day numerically corresponding to the first day of such
Interest Period (or if there is no such numerically corresponding day, the last
day), in the 1st, 2nd, 3rd or 6th calendar month after the first day of such
Interest Period, as so selected by the Borrower; provided, however, that if any
Interest Period would otherwise end on a day immediately prior to a day that is
not a Business Day it shall be extended so as to end on the day immediately
prior to the next succeeding Business Day unless the same would fall in a
different calendar month, in which case such Interest Period shall end on the
day immediately preceding the first Business Day immediately preceding such next
succeeding Business Day.

          "Investment" in any Person means any stock, bond, note or other
evidence of Indebtedness or any other security (other than current trade and
customer accounts) of, or loan to, such Person.

                                       9
<PAGE>   17

          "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.

          "LC Fee" is defined in Section 2.20(D).

          "LC Issuer" means Bank One (or any subsidiary or Affiliate of Bank One
designated by Bank One and reasonably acceptable to Borrower) in its capacity as
issuer of Facility LCs hereunder.

          "LC Obligations" means, at any time, the sum, without duplication, of
(i) the aggregate undrawn stated amount under all Facility LCs outstanding at
such time plus (ii) the aggregate unpaid amount at such time of all
Reimbursement Obligations.

          "LC Payment Date" is defined in Section 2.20(E). "Leases" means oil
and gas leases and all oil, gas and mineral leases constituting any part of the
Borrowing Base Oil and Gas Properties.

          "LIBOR" means, with respect to each Interest Period, the rate of
interest per annum at which deposits of not less than $1,000,000.00 in United
States dollars are offered in the LIBOR Market for a period of time equal or
comparable to such Interest Period and in an amount equal to or comparable to
the principal amount of the LIBOR Loan to which such Interest Period relates as
appearing on Reuters Screen FRBD as of 11:00 AM (London time) two (2) Business
Days before the first day of the applicable Interest Period, as adjusted for
maximum statutory reserves, provided, however, that if such rate is not
available on Reuters Screen FRBD, then within five (5) Business Days of receipt
of notification, the Agent and the Borrower shall enter into good faith
negotiations for a period of fifteen (15) days (or such shorter period as is
required to agree to the alternative basis) with a view to agreeing on an
alternative basis for determining the rate of interest applicable to LIBOR
Loans, and if no alternative basis is agreed within the fifteen (15) day period,
the LIBOR Loan shall be deemed to have converted to an ABR Loan as of the end of
the last Interest Period.

          "LIBOR Loan" means any Loan from time to time for which interest
thereon is to be computed at a Floating Rate based on LIBOR, as elected by
Borrower pursuant to Section 2.04 hereof.

          "LIBOR Market" means the London interbank offered interest rate market
created by major London clearing banks for deposits in United States dollars.

          "Limitation Period" means any period while any amount remains owing on
the Notes when interest on such amount, calculated at the applicable rate
prescribed on the Notes, plus any fees payable hereunder and deemed to be
interest under applicable Law, would exceed the Maximum Rate.

          "Loan" means, singly, any advance by the Banks to the Borrower
pursuant to this Agreement and "Loans" means, cumulatively, the aggregate sum of
all money advanced by the Banks to the Borrower pursuant to this Agreement.

                                       10
<PAGE>   18

          "Loan Documents" means this Agreement, the Notes, the Facility LC
Applications, the Security Instruments, the Required Hedge Agreement, and all
other promissory notes, security agreements, and other instruments, documents,
and agreements executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be amended,
modified, renewed, extended, or supplemented from time to time.

          "Loan Excess" means, at any point in time, the amount, if any, by
which the outstanding balance on the Credit Extensions exceeds the Aggregate
Commitment Amount then in effect.

          "Marketable Title" means good and indefeasible title, as set forth,
qualified and/or limited on Exhibit "A," free and clear of all mortgages, liens
and encumbrances, except for Permitted Encumbrances.

          "Material Adverse Change" means any change in the business, property,
condition (financial or otherwise) or results of operations, or reasonably
foreseeable prospects of the Borrower and its Subsidiaries which has a Material
Adverse Effect.

          "Material Adverse Effect" means a material adverse effect on (i) the
business, property, condition (financial or otherwise), results of operations,
or reasonably foreseeable prospects of the Borrower and its Subsidiaries taken
as a whole, (ii) the ability of the Borrower to perform its obligations under
the Loan Documents to which it is a party, or (iii) the validity or
enforceability of any of the Loan Documents or the rights or remedies of the
Agent, the Banks or the LC Issuer thereunder.

          "Maximum Rate" means the maximum rate of non-usurious interest
permitted from day to day by Applicable Law, including Chapter 303 of the Texas
Finance Code (and as the same may be incorporated by reference in other Texas
statutes), but otherwise without limitation, that rate based upon the "indicated
weekly rate ceiling."

          "Modify" and "Modification" are defined in Section 2.20(A).

          "Monthly Borrowing Base Reduction" means the amount of the automatic
monthly reduction to the Borrowing Base, as determined from time to time in
accordance with Section 2.06 of this Agreement.

          "Multi-employer Plan" means a plan described in Section 4001(a)(3) of
ERISA which covers employees of the Borrower or any ERISA Affiliate.

          "Net Income" means, for any period, the net income (or loss) of the
Borrower after allowances for taxes for such period, determined in accordance
with GAAP; provided that there shall be excluded from such net income (to the
extent otherwise included therein) the following: (i) the net income of any
Person in which the Borrower has an interest (which interest does not cause the
net income of such other Person to be consolidated with the net income of the
Borrower in accordance with GAAP), except to the extent of the amount of
dividends or distributions actually paid in such period by such other Person to
the Borrower; (ii) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (iii) any extraordinary gains or losses, including gains or losses

                                       11
<PAGE>   19

attributable to property sales not in the ordinary course of business, (iv) the
cumulative effect of a change in accounting principles, and (v) any gains or
losses attributable to writeups or writedowns of assets.

          "Note" and "Notes" means, individually, a promissory note issued by
Borrower payable to the order of a Bank evidencing the Loans made by that Bank
pursuant to Section 2.01 hereof and being substantially in the form of the note
attached as Exhibit B hereto, including the Initial Note, together with any and
all further renewals, extensions for any period, increases or rearrangements
thereof, and means collectively all of such Notes.

          "Obligations" means all obligations, indebtedness, and liabilities of
the Borrower to the Banks and the LC Issuer, now existing or hereafter arising,
including, but not limited to the Indebtedness evidenced by the Notes and the
Reimbursement Obligations, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several,
including, without limitation, the obligations, indebtedness, and liabilities of
the Borrower under this Agreement and the other Loan Documents, and all interest
accruing thereon and all attorneys' fees and other expenses incurred in the
administration, enforcement or collection thereof.

          "Oil and Gas Properties" means fee, leasehold or other interests in or
under mineral estates or oil, gas and other liquid or gaseous hydrocarbon leases
with respect to properties situated in the United States, including, without
limitation, overriding royalty and royalty interests, leasehold estate
interests, net profits interests, production payment interests and mineral fee
interests, together with contracts executed in connection therewith and all
tenements, hereditaments, appurtenances and properties, real or personal,
appertaining, belonging, affixed or incidental thereto.

          "Outstanding Credit Exposure" means, as to any Bank at any time, the
sum of (i) the aggregate principal amount of its Loans outstanding at such time,
plus (ii) an amount equal to its Percentage Share of the LC Obligations at such
time.

          "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

          "Pending Acquisition(s)" means, individually, Borrower's acquisition
of interests in any of South Timbalier 26, the Pipeline or East Bay, and
collectively, Borrower's acquisition of all of South Timbalier 26, the Pipeline
and East Bay.

          "Percentage Share" means, as to any Bank, a fraction (expressed as a
percentage), the numerator of which shall be such Bank's Commitment Amount, and
the denominator of which shall be the Aggregate Commitment Amount stated on
Schedule 1.01(b) attached hereto.

          "Permitted Asset Sales" means (a) sales, leases, assignments,
transfers or disposals of, in one or any series of related transactions, (i) all
or any portion of Borrower's equipment (except for items included in clause (ii)
of this definition), whether now owned or hereafter acquired, including
transfers to Subsidiaries, which, in the aggregate, do not exceed $1,000,000.00
in any twelve month period, and (ii) Borrower's offshore platforms that have
been

                                       12
<PAGE>   20

abandoned or dismantled; (b) sales of Hydrocarbons in the ordinary course of
business and (c) the Anticipated Property Sale.

          "Permitted Encumbrances" means:

          (A)  Liens for taxes, assessments, or similar charges, incurred in the
               ordinary course of business that are not yet due and payable;

          (B)  Liens of mechanics, materialmen, warehousemen, carriers, or other
               like liens, securing obligations incurred in the ordinary course
               of business that are not yet due and payable;

          (C)  Pledges or deposits in connection with or to secure workmen's
               compensation, unemployment insurance, pensions or other employee
               benefits;

          (D)  Encumbrances consisting of covenants, zoning restrictions,
               rights, easements, liens or other restrictions on the use of real
               property, none of which materially impairs the use of such
               property by the Borrower in the operation of its business, and
               none of which is violated in any material respect by existing or
               proposed operations;

          (E)  Liens of operators and/or co-working interest owners under joint
               operating agreements or similar contractual arrangements with
               respect to the Borrower's proportionate share of the expense of
               exploration, development and operation of oil, gas and mineral
               leasehold or fee interests owned jointly with others, to the
               extent that same relate to sums not yet due;

          (F)  Liens securing surety or other bonds required in the normal
               course of business not to exceed $500,000.00 in the aggregate at
               any time in effect;

          (G)  The following, if the validity or amount thereof is being
               contested in good faith by appropriate and lawful proceedings, so
               long as levy and execution thereon have been stayed and continue
               to be stayed and they do not, in the aggregate, materially
               detract from the value of the property of the Borrower or any
               Subsidiary, or materially impair the use thereof in the operation
               of its business:

               (1)  Claims or liens for taxes, assessments, or charges due and
                    payable and subject to interest or penalty;

               (2)  Claims, liens, and encumbrances upon, and defects of title
                    to, real or personal property, including any attachment of
                    personal or real property or other legal process prior to
                    adjudication of a dispute on the merits;

                                       13
<PAGE>   21

               (3)  Claims or liens of mechanics, materialmen, warehousemen,
                    carriers, or other like liens; and

               (4)  Adverse judgments on appeal;

          (H)  Liens securing payment and performance of the Obligations;

          (I)  Liens securing purchase money obligations included in the
               definition of Permitted Indebtedness if such liens encumber only
               the property for which such purchase money obligation was
               incurred;

          (J)  Liens in favor of EIF securing the Subordinated Debt, provided
               such Liens are subordinate to the Banks' Liens securing payment
               and performance of the Obligations;

          (K)  Inchoate liens in respect of royalty owners; and

          (L)  Liens listed on Schedule 1.01(c) attached hereto.

          "Permitted Hedge Agreement" means any Hedge Agreement which Borrower
enters into with or through a counterparty that has a credit rating of at least
"A-" by Standard and Poors or "A3" by Moody's Investment Service, together with
the confirmations which Borrower may hereafter enter into with or through such
counterparty covering in the aggregate, among all such Hedge Agreements, not
more than seventy percent (70%) of the Proved Reserves attributable to
Borrower's interest in its Borrowing Base Oil and Gas Properties.

          "Permitted Indebtedness" means:

          (A)  The Loans and Facility LCs;

          (B)  Unsecured current accounts payable incurred in the ordinary
               course of business which are (i) not more than sixty (60) days
               overdue, or (ii) being contested in good faith by appropriate
               proceedings, or (iii) the subject of usual and customary review
               and evaluation;

          (C)  Extensions of credit from suppliers or contractors who are not
               Affiliates of Borrower for the performance of labor or services
               or the provision of supplies or materials under applicable
               contracts or agreements in connection with Borrower's oil and gas
               exploration and development activities, which are not overdue or
               are being contested in good faith by appropriate proceedings;

          (D)  Letters of credit or performance bonds required to be obtained by
               the Borrower in the normal course of its business to assure the
               proper plugging and abandonment of oil or gas drilling or
               production locations or bonds required by any governmental agency
               or instrumentality in the normal course of the Borrower's
               business;

                                       14
<PAGE>   22

          (E)  Purchase money obligations of the Borrower of up to $1,000,000 at
               any time for the purchase of equipment so long as the purchase
               money obligations do not exceed the fair market value of the
               equipment purchased therewith;

          (F)  The Subordinated Debt so long as no Suspending Event of Default
               (as defined in the Subordination Agreement) has occurred;

          (G)  Lease dated August 12, 1999, as amended, between the Borrower (as
               tenant) and PS Charles Associates, L.P. ("Landlord") covering the
               Borrower's office located at 201 St. Charles Avenue, Suites 3000
               and 3400, New Orleans, Louisiana 70170-3400, together with that
               certain Irrevocable Straight Standby Letter of Credit No. F35362
               dated August 12, 1999 which has an expiry date of August 12, 2000
               in the amount of $135,000 issued at the request of the Borrower
               by Whitney National Bank for the benefit of Landlord to secure
               the Borrower's obligations under such lease;

          (H)  Income taxes payable that are not overdue;

          (I)  Accrued abandonment liabilities;

          (J)  Indebtedness arising out of Permitted Hedge Agreements and/or the
               Required Hedge Agreement; and

          (K)  Other indebtedness incurred by the Borrower not to exceed, in the
               aggregate at any time outstanding, $1,000,000.

          "Person" means an individual, company, corporation, partnership, joint
venture, limited liability company, trust, association, unincorporated
organization or a government or any agency or political subdivision thereof.

          "Pipeline" means that certain Borrowing Base Oil and Gas Property
pipeline described on Exhibit "A-3" attached hereto.

          "Plan" means, at any time, any employee benefit plan which is covered
by ERISA and in respect of which the Borrower or any ERISA Affiliate is (or, if
such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" as defined in Section 3(5) of ERISA.

          "Present Worth" means, at any time and from time to time, the before
income tax future cash flow from the sale of oil and gas to be produced from the
Proved Reserves attributable to the Borrowing Base Oil and Gas Properties, as
set forth in the most recent Reserve Report delivered from Borrower to Agent
pursuant to Section 2.06, discounted to present value at the rate of nine
percent (9%) per annum, and adjusted to incorporate the following additional
criteria: (1) the Hydrocarbon prices used shall be those stated in Agent's then
current Hydrocarbon pricing guidelines, adjusted for Permitted Hedge Agreements
that are in place, and

                                       15
<PAGE>   23

(2) not more than one-third (1/3) of such present value shall be based upon
Proved Reserves in non-producing categories.

          "Pricing Grid" means the following table:

<TABLE>
<CAPTION>
UTILIZATION PERCENTAGE             LIBOR MARGIN                ABR MARGIN                COMMITMENT FEE
----------------------             ------------                ----------                --------------
<S>                                <C>                         <C>                       <C>
          > 90%                       2.25%                       .75%                        .50%

  > 75% < or = to 90%                 2.00%                       .50%                        .50%

  > 50% < or = to 75%                 1.75%                       .25%                       .375%

  > 35% < or = to 50%                 1.50%                         0                        .375%

     < or = to 35%                    1.25%                         0                        .375%
</TABLE>

          "Production Revenue" means revenues of the Borrower from the sale of
its oil and gas production minus any applicable oil and gas production taxes and
royalties.

          "Prior Loan Agreement" has the meaning stated therefor in the first
recital of this Agreement.

          "Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended
from time to time.

          "Purchasing Bank" shall have the meaning assigned to that term in
Section 9.05 hereof.

          "Proved Reserves" means the estimated quantities of crude oil,
condensate, natural gas liquids and natural gas which geological and engineering
data demonstrate with reasonable certainty to be recoverable by primary
producing mechanisms in future years from known reservoirs underlying lands or
interests therein constituting Oil and Gas Properties, under existing economic
and operating conditions. Reserves which can be produced economically through
application of improved recovery techniques (i.e., fluid injection) will be
included in Proved Reserves when successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the pilot project or installed program was based.
In general, the economic productivity of the estimated proved reserves is
supported by actual production or a conclusive formation test; however, in
certain instances proved reserves are assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which indicate
these reservoirs are analogous to similar reservoirs in the same field which are
producing or have demonstrated the ability to produce on a formation test.

                                       16
<PAGE>   24

          "Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Borrower then outstanding under Section 2.20 to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.

          "Reportable Event" means any of the events set forth in Section 4043
of ERISA.

          "Request for Advance" means the written or verbal (confirmed in
writing within one (1) Business Day) request by the Borrower to the Agent for an
advance by the Banks pursuant to this Agreement, which Request for Advance shall
be signed by an authorized officer of the Borrower and shall include a statement
of the amount requested to be advanced, the date of the requested advance and
such other information as the Agent in its reasonable discretion deems
necessary.

          "Required Banks" means, at any time, Banks holding at least sixty-six
and two-thirds percent (66 2/3%) of the Aggregate Commitment Amount or, if the
Aggregate Commitment Amount has been terminated, Banks having at least sixty-six
and two-thirds percent (66 2/3%) of the Aggregate Outstanding Credit Exposure.

          "Required Hedge Agreement" means a commodities swap between Borrower
and a counterparty that has a credit rating of at least "A-" by Standard and
Poors or "A3" by Moody's Investment Service, conducted pursuant to a current
form of Master Agreement promulgated by the International Swap Dealer's
Association ("ISDA") together with the corresponding ISDA Schedule and
Confirmation(s) (or other form of agreement acceptable to Agent and the Required
Banks) pursuant to which Borrower has hedged for a period of fourteen (14)
months from the Closing a notional quantity of: (a) 7,700 barrels of oil per day
for the period prior to the completion of the Anticipated Property Sale, and (b)
6,600 barrels of oil per day for the period from and after the completion of the
Anticipated Property Sale; at a weighted average fixed price equal to or greater
than Twenty-Three and 80/100 Dollars ($23.80) per barrel.

          "Required Number" means: in the case of notices hereunder (i) relative
to borrowings, prepayments, elections of LIBOR Loans, selections of Interest
Periods for, or other transactions in respect of, LIBOR Loans: by 10:00 a.m.,
Central Standard Time on the third Business Day prior to the proposed activity;
or (ii) relative to all transactions in respect of ABR Loans: the same Business
Day by 1:00 p.m., Central Standard Time; it being understood, however, that in
the case of notices involving transactions in respect of more than one type of
Loan (such as a change in type of Loan in accordance with Section 2.04(B)),
"Required Number" means that number of days, as indicated above in respect of
the Loans involved, which would constitute the longest applicable period of
time.

          "Reserve Report" means a report prepared by an independent petroleum
engineer or firm of engineers reasonably satisfactory to the Agent regarding the
Proved Reserves attributable to the Borrowing Base Oil and Gas Properties, using
the criteria and parameters required by and acceptable to the Securities and
Exchange Commission, and incorporating the present cost of appropriate plugging
and abandonment obligations to be incurred in the future, taking into account
any plugging and abandonment fund required to be accrued or established by
Borrower out of cash flow from the Borrowing Base Oil and Gas Properties covered
by such report with respect to such future obligations.

                                       17
<PAGE>   25

          "Scheduled Monthly Capital Expenditure" means $3,333,000.00 each month
for the months of April and May, 2000, provided that if the Anticipated Property
Sale occurs during May 2000, it shall mean $2,667,000.00 for May, and if the
Anticipated Property Sale occurs during April 2000 it shall mean $2,667,000.00
for each of April and May 2000; and for each month thereafter, it means the
actual capital expenditures incurred by Borrower during such month, minus the
"Excess Actual Capital Expenditures," as hereinafter defined. For purposes of
this definition, the following additional terms shall have the meanings
prescribed herein: (a) the "Base Amount" means $3,333,000.00 for each month from
June 2000 until the effective date of the Anticipated Property Sale, and
$2,667,000.00 for each month from the effective date of the Anticipated Property
Sale and thereafter; provided that the Base Amount for the month in which the
effective date of the Anticipated Property Sale occurs shall be the sum of the
product of $3,333,000.00 times a fraction, the numerator of which is the number
of days in the month prior to, but not including, the effective date of the
Anticipate Property Sale and the denominator of which is the total number of
days in such month, plus the product of $2,667,000.00 times a fraction, the
numerator of which is the number of days in the month from and including the
effective date of the Anticipated Property Sale until the end of such month
divided by the total number of days in such month; and provided further, that if
the Anticipated Property Sale occurs prior to June 1, 2000, the Base Amount
shall mean $2,667,000.00 for each month from and after June 2000; (b)
"Cumulative Actual Capital Expenditures" means the sum, at the end of each month
beginning with June 2000, of the actual capital expenditures incurred by
Borrower for all such months beginning with June 2000; (c) "Cumulative Base
Amount" means the sum, at the end of each month beginning with June 2000, of the
Base Amount applicable to all such months beginning with June 2000; and (d)
"Excess Actual Capital Expenditures" means, as of the end of each month
beginning with June 2000, the amount (if any) by which Actual Cumulative Capital
Expenditures exceeds the Cumulative Base Amount.

          "Security Instruments" means the security instruments described on
Exhibit "D," in form and substance satisfactory to the Agent, to be executed by
Borrower pursuant to Section 3.01, and any and all other instruments or
documents hereafter executed in connection with or as security for the payment
of the Notes.

          "South Timbalier 26" means those Borrowing Base Oil and Gas Properties
described on Exhibit "A-1"attached hereto.

          "Stockholders' Equity" means, at any time, the sum of the following
accounts set forth on a consolidated balance sheet of the Borrower, prepared in
accordance with GAAP: (A) the par or stated value of all outstanding capital
stock (common and preferred); (B) capital surplus; and (C) retained earnings.
"Subordinated Debt" means (i) debt of Borrower to EIF in an amount not to exceed
$10,000,000.00 plus accrued interest pursuant to that certain Financing
Agreement dated April 15, 1998 (as amended), and (ii) additional debt of
Borrower to EIF incurred for the sole purpose of curing any Events of Default
under this Agreement and on terms substantially similar to the debt described in
clause (i) of this definition, provided that all of such debt described in this
definition shall be subordinate and inferior to Borrower's Obligations under
this Agreement.

          "Subordination Agreement" means a subordination agreement dated June
23, 1999, originally by and among EIF, Borrower and Bank One pertaining to the
Subordinated Debt

                                       18
<PAGE>   26

and EIF's liens and security interests in the Borrowing Base Oil & Gas
Properties (including the overriding royalty interests therein owned by EIF), as
amended.

          "Subsidiary" means, as to any Person, any corporation in which such
Person, directly or indirectly through its Subsidiaries, owns more than fifty
percent (50%) of the stock of any class or classes having by the terms thereof
the ordinary voting power to elect a majority of the directors of such
corporation, and any partnership, association, joint venture, or other entity in
which such Person, directly or indirectly through its Subsidiaries, has more
than a fifty percent (50%) equity interest at the time.

          "Three Month Period" means each period of three consecutive months,
the first of which begins on the Closing Date and ends on the same date of the
third calendar month thereafter, and each subsequent one of which ends on the
same date of the third calendar month after the prior such period ended.

          "Tranche A" and "Tranche A Commitment" mean that part of the Aggregate
Commitment Amount, which constitutes a reducing revolving line of credit in the
amount of $90,000,000.00 as of the Closing, as it is reduced from time to time
pursuant to Schedule 2.06 and Section 2.06 hereof, under which the Borrower may
borrow, repay and reborrow from time to time until the Facility Termination
Date, as more fully set forth in Section 2.01 and subject to all of the terms
and conditions of this Agreement.

          "Tranche B" and "Tranche B Commitment" mean that part of the Aggregate
Commitment Amount which constitutes a reducing bridge financing in the amount of
$25,000,000.00 as of the Closing, as it is reduced from time to time pursuant to
Schedule 2.06 and Section 2.06 hereof, under which the Borrower may borrow in
one or more advances and repay, but may not reborrow thereunder, for use only to
provide funding for the acquisition of interests in South Timbalier 26 together
with the Pipeline, and/or East Bay.

          "Tranche B Termination Date" means March 30, 2001.

          "Transfer Order Letters" means the letters in lieu of division or
transfer orders, in form acceptable to the Agent.

          "Unmatured Event of Default" means any event or occurrence which
solely with the lapse of time or the giving of notice or both will ripen into an
Event of Default.

          "Utilization Percentage" means the percentage of the Tranche A
Commitment represented by the aggregate principal amount of all Credit
Extensions outstanding under Tranche A.

          Undefined Terms. Undefined financial accounting terms used in this
Agreement shall be defined according to GAAP.

                                       19
<PAGE>   27

                                  ARTICLE II.

                        THE LOANS AND LETTERS OF CREDIT

          2.01 The Commitment. From and including the date of this Agreement and
prior to the Facility Termination Date, each Bank severally agrees, on the terms
and conditions set forth in this Agreement, to (i) make Loans to the Borrower
and (ii) participate in Facility LCs issued upon the request of the Borrower,
provided that, after giving effect to the making of each Loan and the issuance
of each Facility LC, such Bank's Outstanding Credit Exposure shall not exceed
its Commitment. Subject to the terms of this Agreement, the Borrower may borrow,
repay and reborrow under the Tranche A component of the Aggregate Commitment
Amount at any time prior to the Facility Termination Date. All Commitments to
extend credit hereunder shall expire on the Facility Termination Date.

          Subject to the terms of this Agreement, the Borrower may borrow and
repay, but may not reborrow, the amounts available under the Tranche B component
of the Commitments at any time prior to the Tranche B Termination Date. The
Commitments to extend credit, insofar as they relate to Tranche B, shall expire
on the Tranche B Termination Date.

          The LC Issuer will issue Facility LCs hereunder on the terms and
conditions set forth in Section 2.20.

          2.02 Notice and Manner of Borrowing.

          (a) The amount and date of each Credit Extension shall be designated
by Borrower's execution of a Request for Advance to be received by the Agent at
least the Required Number of, but not more than ten (10), Business Days prior to
the date of such Credit Extension, which date shall be a Business Day. The Agent
shall promptly advise the Banks and, if applicable, the LC Issuer, of any
Request for Advance given pursuant to this Section 2.02, of each Bank's
Percentage Share of any requested Borrowing and, if applicable, the amount
requested for any Facility LC by telephone, confirmed promptly in writing, or
telecopier. Upon satisfaction of the applicable conditions set forth in Article
III, each Borrowing shall be made at the office of the Agent, and shall be
funded prior to 3:00 o'clock p.m., Houston, Texas time, on the day so requested
in immediately available funds in the amount so requested.

          (b) Each Bank shall make each Loan to be made by it hereunder on the
date of the proposed Borrowing by wire transfer of immediately available funds
to the Agent in Houston, Texas, not later than 11:00 a.m., Houston, Texas time,
and upon fulfillment of the applicable conditions set forth in Article III, the
Agent will make such funds available to Borrower as Borrower shall direct to the
Agent from time to time or, if a Borrowing shall not occur on such date because
any condition precedent herein specified shall not have been met, return the
amounts so received to the respective Banks as soon as practicable. Unless the
Agent shall have received notice from a Bank prior to the date of any proposed
Borrowing that such Bank will not make available to the Agent such Bank's
Percentage Share of such Borrowing, the Agent may assume that such Bank has made
its Percentage Share available to the Agent on the date of such Borrowing in
accordance with this paragraph (b) and the Agent may, in reliance upon such
assumption, make available to Borrower on such date a corresponding amount. If,
and to the

                                       20
<PAGE>   28

extent that, such Bank shall not have made its Percentage Share available to the
Agent, such Bank and Borrower severally agree to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to Borrower until the date such
amount is repaid to the Agent at (i) in the case of Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to
the Agent such corresponding amount, such amount shall constitute such Bank's
Loan as part of such Borrowing for purposes of this Agreement.

          2.03 Payment Procedure. All payments and prepayments made by Borrower
under this Agreement shall be made to the Agent at its office specified in
Section 9.03 for the account of the Banks in immediately available funds before
11:00 a.m., Houston, Texas time, on the date that such payment is required to
be made. The Agent will promptly thereafter cause to be distributed like funds
relating to such payments or prepayments ratably to the Banks (and if the
payment relates to amounts owed to a particular Bank only, in like funds to such
Bank), in each case, to be applied in accordance with the terms of this
Agreement. Borrower hereby authorizes the Agent, if and to the extent payment or
prepayment (including prepayments required pursuant to Section 2.11 hereof) is
not made when due hereunder or under the Notes or any other Loan Document, to
charge from time to time against Borrower's account with the Agent any amount so
due. Any payment received and accepted by the Agent (or any branch or Affiliate
thereof) after such time shall be considered for all purposes (including the
calculation of interest, to the extent permitted by law) as having been made on
the next following Business Day.

          2.04 Payments of Interest under the Notes. Subject to the terms and
provisions of this Agreement, interest on the Loan, calculated at the Floating
Rate, shall be due and payable as follows:

          (A) Interest on ABR Loans shall be calculated on the basis of a
     365/366-day year, as applicable, and on LIBOR Loans on the basis of a
     360-day year, in each case counting the actual number of days elapsed.
     Interest on the outstanding principal balance of the Loans shall accrue for
     each day at either a Floating Rate based on ABR for such day for ABR Loans,
     or a Floating Rate based on LIBOR for the Interest Period which includes
     such day for LIBOR Loans, all as elected and specified (including
     specification as to length of Interest Period, as permitted by the
     definition of that term, with respect to any election of a Floating Rate
     based on LIBOR) by the Borrower in accordance with Section 2.04(B);
     provided that:

               (1) In the absence of an election by the Borrower of a Floating
          Rate based on LIBOR, or, having made such election, but upon the
          Required Number of days prior to the end of the then current Interest
          Period the Borrower fails or is not entitled under the terms of this
          Agreement to elect to continue a Floating Rate based on LIBOR and
          specify the applicable Interest Period therefor, then upon the
          expiration of such then current Interest Period, interest on the Loans
          shall accrue for each day at a Floating Rate based on ABR for such
          day, until the Borrower, pursuant to Section 2.04(B), elects a
          different Floating Rate and specifies the Interest Period for the
          Loans.

                                       21
<PAGE>   29

               (2) Interest accruing on any LIBOR Loan during any Interest
          Period shall be payable on the first Business Day of the next Interest
          Period except that interest will be payable on the Facility
          Termination Date on any LIBOR Loan with an Interest Period ending on
          the Facility Termination Date; provided that all accrued interest on
          any LIBOR Loan converted or prepaid pursuant to Section 2.11 shall be
          paid immediately upon such prepayment or conversion.

          (B) By at least the Required Number of days prior to the advance of
     any Loan hereunder, the Borrower shall select the initial Floating Rate to
     be charged on such Loan, and from time to time thereafter the Borrower may
     elect, on at least the Required Number of days irrevocable prior written
     (or verbal, promptly confirmed by written) notice to the Agent, an initial
     Floating Rate for any additional Loan, or to change the Floating Rate on
     any Loan to any other Floating Rate (including, when applicable, the
     selection of the Interest Period); provided that; (i) the Borrower shall
     not select an Interest Period that extends beyond the Facility Termination
     Date; (ii) except as otherwise provided in Section 2.11 no such change from
     a Floating Rate based on LIBOR to another Floating Rate shall become
     effective on a day other than the day, which must be a Business Day, next
     following the last day of the Interest Period last effective for such LIBOR
     Loan; (iii) any elections made by the Borrower pursuant to this Section
     2.04(B) shall be in the amount of $1,000,000, plus any additional increment
     of $1,000,000, or such lesser amount as constitutes the balance of all
     Loans then outstanding hereunder; (iv) notwithstanding anything herein to
     the contrary, the Borrower may not make any election under this Section
     2.04(B) that would result in Loans outstanding based on more than six (6)
     different LIBORs without the consent of the Required Banks to do so; and
     (v) the first day of each Interest Period as to a LIBOR Loan shall be a
     Business Day.

          (C) Interest on ABR Loans shall be paid quarterly in arrears on the
     first Business Day of each calendar quarter (for the immediately preceding
     quarter) commencing with the quarter following any quarter during which
     interest begins to accrue at a Floating Rate based on ABR, as elected by
     Borrower pursuant to Section 2.04(B), and on the date the principal of such
     Loans shall be due (on the stated Facility Termination Date, on
     acceleration, or otherwise).

          2.05 General Provisions Relating to Interest. It is the intention of
the parties hereto to comply strictly with the usury Laws of the State of Texas
and the United States of America and, in this connection, there shall never be
collected, charged or received on any sums advanced hereunder interest in excess
of the Maximum Rate. For purposes of Chapter 303 of the Texas Finance Code, as
amended, the Borrower agrees that the maximum rate to be charged shall be the
"indicated (weekly) rate ceiling" as defined in said Chapter, provided that the
Bank may also rely to the extent permitted by applicable Laws of the State of
Texas or the United States of America, on alternative maximum rates of interest
under other applicable Laws of the State of Texas or the United States of
America applicable to the Loans, if greater. Notwithstanding anything herein or
in the Notes to the contrary, during any Limitation Period, the interest rate to
be charged on amounts evidenced by the Notes shall be the Maximum Rate and the
obligation of the Borrower for any fees payable hereunder and deemed to be
interest under applicable Law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
Laws of the State of Texas or the United

                                       22
<PAGE>   30

States of America, the interest rate to be charged hereunder shall remain at the
Maximum Rate until such time as there has been paid to each Bank (a) the amount
of interest in excess of the Maximum Rate that such Bank would have received
during the Limitation Period had the interest rate remained at the relevant
rates specified in the Note, and (b) all interest and fees otherwise due to such
Bank but for the effect of such Limitation Period.

          If under any circumstances the aggregate amounts paid on the Notes or
under this Agreement include amounts which by Law are deemed interest and which
would exceed the amount permitted if the Maximum Rate were in effect, the
Borrower stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable Laws of the State of
Texas or the United States of America, the result of mathematical error on the
part of both the Borrower and the Banks, and each Bank shall promptly refund the
amount of such excess (to the extent only of such interest payments above the
Maximum Rate which could lawfully have been collected and retained) upon
discovery of such error by such Bank or notice thereof from the Borrower.

          2.06 Borrowing Base Determination. Notwithstanding the following
provisions of this Section, the Borrowing Base shall be as set forth on Schedule
2.06 attached hereto, as further reduced from time to time by the mandatory
prepayments made pursuant to Section 2.08 hereof, from the date of Closing until
the earlier of: (a) October 1, 2000, (b) the occurrence of an Event of Default,
or (c) any unscheduled Borrowing Base redetermination initiated by the Agent and
approved by the Required Banks based on a substantive, adverse change in
economic conditions generally applicable to independent producers operating in,
and/or oil and gas properties located in, the Texas/Louisiana Gulf Coast and/or
the Gulf of Mexico Outer Continental Shelf. Thereafter, the Borrowing Base shall
be determined pursuant to the following provisions of this Section. On or before
September 1, 2000, the Borrower shall furnish to the Agent information
sufficient to update to an effective date of June 1, 2000, the most recent
petroleum engineering reports provided to the Agent prior to Closing relative to
the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties.
Upon receipt of such report, the Agent shall, in the normal course of business
make a determination of the Borrowing Base and the Monthly Borrowing Base
Reduction which shall become effective upon approval by the Required Banks and
subsequent written notification from the Agent to the Borrower, and which,
subject to the other provisions of this Agreement, shall be the basis on which
the Borrowing Base shall thereafter be calculated until the effective date of
the next redetermination of the Borrowing Base and the Monthly Borrowing Base
Reduction as set forth in this Section. Thereafter, on or before each April 1
and October 1 until the Facility Termination Date, beginning April 1, 2001, the
Borrower shall furnish to the Agent a report, in form and substance satisfactory
to the Agent, which report shall set forth, as of each preceding January 1 or
July 1, as applicable, the Proved Reserves attributable to the Borrowing Base
Oil and Gas Properties. Each report to be provided on or before each April 1
shall be a complete report relating to the Proved Reserves attributable to the
Borrowing Base Oil and Gas Properties prepared by an independent petroleum
engineer or firm of engineers reasonably satisfactory to the Agent. Each report
to be provided on or before each October 1 shall simply update the previous
complete report, and may be prepared by the Borrower's own engineers and shall
be certified by the President or Chief Financial Officer of the Borrower. Upon
receipt of each such report, the Agent shall, in the normal course of business,
make a determination of the Borrowing Base and the Monthly Borrowing Base
Reduction which shall become effective upon approval by the Required Banks

                                       23
<PAGE>   31

and subsequent written notification from the Agent to the Borrower, and which,
subject to the other provisions of this Agreement, shall be the basis on which
the Borrowing Base shall thereafter be calculated until the effective date of
the next redetermination of the Borrowing Base and the Monthly Borrowing Base
Reduction as set forth in this Section 2.06. The Agent may, subject to approval
of the Required Banks, and must, upon the request of the Required Banks,
redetermine the Borrowing Base and the Monthly Borrowing Base Reduction at any
time, and from time to time, which redetermination shall become effective upon
approval by the Required Banks and subsequent written notification from the
Agent to the Borrower and which, subject to the other provisions of this
Agreement, shall be the basis on which the Borrowing Base shall thereafter be
calculated until the effective date of the next redetermination of the Borrowing
Base and the Monthly Borrowing Base Reduction, as set forth in this Section. The
Agent may request in writing that the Borrower provide a Reserve Report
regarding the Proved Reserves attributable to the Borrowing Base Oil and Gas
Properties with an effective date not more than ninety (90) days prior to
Borrower's delivery of such Reserve Report to Agent, and such Reserve Report
shall be delivered to Agent within ninety (90) days after Borrower's receipt of
such written request.

          The Borrower shall have the right to request, by written notice to
Agent, one unscheduled redetermination of the Borrowing Base and Monthly
Borrowing Base Reduction between any two scheduled redeterminations thereof,
subject to contemporaneously providing to Agent a Reserve Report with an
effective date not more than ninety (90) days prior to the date of such notice.

          If at any time the Required Banks cannot otherwise agree on a
redetermination of the Borrowing Base and/or the Monthly Borrowing Base
Reduction, respectively, then the Borrowing Base and/or the Monthly Borrowing
Base Reduction, as applicable, shall be set on the basis of the Agent's
calculation of the "weighted arithmetic average" (as hereinafter calculated) of
the Borrowing Base and the Monthly Borrowing Base Reduction, as determined by
each individual Bank and communicated to Agent in writing. However, the amount
of the Borrowing Base shall never be increased and the amount of the Monthly
Borrowing Base Reduction shall never be decreased at any time without the
unanimous consent of the Banks, notwithstanding anything else herein to the
contrary. For purposes of this paragraph, the "weighted arithmetic average" of
the Borrowing Base shall be determined by first multiplying the Borrowing Base
proposed in writing to Agent by each Bank by such Bank's Percentage Share, and
then adding the results of each such calculation, with the resultant sum being
the Borrowing Base. Likewise, the "weighted arithmetic average" of the Monthly
Borrowing Base Reduction shall be determined by first multiplying the Monthly
Borrowing Base Reduction proposed in writing to Agent by each Bank by such
Bank's Percentage Share, and then adding the results of each such calculation,
with the resultant sum being the Monthly Borrowing Base Reduction.

          The Borrowing Base shall represent the Required Banks' approval of the
Agent's determination, in accordance with its customary lending practices, of
the maximum loan amount with respect to the Borrowing Base Oil and Gas
Properties and the Borrower acknowledges, for purposes of this Agreement, such
determination by the Agent as being the maximum loan amount with respect to the
Borrowing Base Oil and Gas Properties. In making any redetermination of the
Borrowing Base and the Monthly Borrowing Base Reduction, the Agent and the Banks
shall apply the parameters and other credit factors consistently applied then

                                       24
<PAGE>   32

generally being utilized by the Agent and each such Bank, respectively, for
Borrowing Base redeterminations for other similarly situated borrowers. The
Borrower, Required Banks and the Agent acknowledge that (a) due to the
uncertainties of the oil and gas extraction process, the Borrowing Base Oil and
Gas Properties are not subject to evaluation with a high degree of accuracy and
are subject to potential rapid deterioration in value, and (b) for this reason
and the difficulties and expenses involved in liquidating and collecting against
the Borrowing Base Oil and Gas Properties, the Agent's determination of the
maximum loan amount with respect to the Borrowing Base Oil and Gas Properties
contains an equity cushion, which equity cushion is acknowledged by the Borrower
as essential for the adequate protection of the Banks.

          2.07 Mandatory Prepayment Due to a Loan Excess. In the event that a
Loan Excess exists, the Borrower shall: (a) immediately, in the case of a Loan
Excess resulting from a Monthly Borrowing Base Reduction, or (b) within sixty
(60) days after receipt of written notice from Agent of the redetermined
Borrowing Base, in the case of a Loan Excess resulting from a Borrowing Base
determination, (i) prepay the principal of the Note in an aggregate amount at
least equal to such Loan Excess or (ii) add to the Borrowing Base Oil and Gas
Properties additional Oil and Gas Properties of the Borrower sufficient in
value, as determined pursuant to Section 2.06, to increase the Borrowing Base to
equal the unpaid principal amount of the Notes.

          2.08 Other Mandatory Prepayments.

          (A) On each date on which the Borrower sells any of its Oil and Gas
     Properties (including, without limitation, any of those included within the
     Anticipated Property Sale), the Borrowing Base will be automatically
     reduced to the loan value (determined in accordance with the procedures for
     determining the Borrowing Base) of the remaining Borrowing Base Oil and Gas
     Properties, and the Borrower shall be required to make the prepayment, if
     any, required pursuant to Section 2.07.

          (B) On the date that the Borrower receives the net proceeds from any
     Anticipated Property Sale, the Tranche B Commitment will be automatically
     and permanently reduced by, and the Borrower shall immediately prepay the
     outstanding Tranche B Loans by, an amount equal to the excess, if any, of
     (i) the aggregate amount of such net proceeds, over (ii) the amount of the
     prepayment of Tranche A loans required pursuant to Section 2.08(A).

          (C) On each date on which the Borrower completes the Debt Placement or
     issues any capital securities, the Tranche B Commitment will be
     automatically and permanently reduced by, and the Borrower shall
     immediately prepay the outstanding Tranche B Loans by, an amount equal to
     the net proceeds of such Debt Placement or issuance.

          (D) Except to the extent otherwise provided in Section 2.07(a), if on
     any date the Outstanding Credit Exposure under Tranche A exceeds the amount
     of the then effective Tranche A Commitment, the Borrower shall be required
     to immediately prepay the Tranche A Loans by the amount of such excess.

                                       25
<PAGE>   33

          (E) Except to the extent otherwise provided in Section 2.07(a), if on
     any date the sum of the aggregate principal amount of the Loans outstanding
     under Tranche B exceeds the amount of the then effective Tranche B
     Commitment, the Borrower shall be required to immediately prepay the
     Tranche B Loans by the amount of such excess.

          2.09 Prepayment and Conversion. Upon the Required Number of days
written notice to the Agent, the Borrower may, without the payment of penalty or
premium, prepay the principal of the Loans or voluntarily convert the applicable
Floating Rate of any Loan prior to the termination of the applicable Interest
Period in whole or in part, from time to time. Any partial payment or conversion
of ABR Loans shall be made in the sum of not less than $1,000,000, and any
partial payment or conversion of LIBOR Loans shall be made in the sum of not
less than $1,000,000 or any $1,000,000 increment in addition thereto. With
respect to any such prepayment or conversion of any LIBOR Loan the Borrower
agrees to pay to the Banks upon the request of the Agent such amount or amounts
as will compensate the Banks for Breakage Costs, excluding, however, any such
Breakage Costs resulting from a payment or prepayment made more than sixty (60)
days prior to the Agent's request for payment of Breakage Costs. The payment of
any such Breakage Costs to the Banks shall be made within thirty (30) days of a
request therefor from Agent. If LIBOR cannot be determined on the date of such
prepayment, the Agent shall calculate LIBOR by interpolating LIBOR in effect
immediately prior to the prepayment and LIBOR in effect immediately after the
prepayment.

          2.10 Increased Cost of Loans.

          (A) Notwithstanding any other provisions herein, if as a result of any
     regulatory change after the date hereof

               (1) the basis of taxation of payments to any Bank of the
          principal of, or interest on, any LIBOR Loan or any other amounts due
          under this Agreement in respect of any such LIBOR Loan (except for
          taxes imposed on the overall net income or receipts of such Bank, and
          franchise or other taxes imposed generally on such Bank), by the
          jurisdiction (or any political subdivision therein) in which the Bank
          has its principal office (if such other taxes do not specifically
          affect the cost to the Bank of making the Loans) is changed;

               (2) any reserve, special deposit, or similar requirement
          (including without limitation any reserve requirement under
          regulations of the Board of Governors of the Federal Reserve System)
          against assets of, deposits with, or for the account of, or credit
          extended by such Bank, is imposed, increased, modified, or deemed
          applicable; or

               (3) any other condition affecting this Agreement or any LIBOR
          Loan is imposed on such Bank or (in the case of LIBOR Loans) the LIBOR
          Market;

          and the result of any of the foregoing is to increase the actual
          direct cost to such Bank of making or maintaining any such LIBOR Loan
          (and such increase shall not have been compensated by a corresponding
          increase in the interest rate applicable to the respective Loans) by
          an amount deemed by such Bank to be

                                       26
<PAGE>   34

          material (such increases in cost and reductions in amounts receivable
          being herein called "Increased Costs"), then the Borrower shall pay
          such Bank, within thirty (30) days after its written demand, such
          additional amount or amounts as will compensate such Bank for those
          Increased Costs. No Bank will demand to be compensated by Borrower for
          such Increased Costs unless such Bank generally makes such demands to
          its other LIBOR Loan customers who are similarly situated. A
          certificate of such Bank setting forth the basis for the determination
          of such amount necessary to compensate such Bank as aforesaid
          (including a representation by such Bank that it is generally making
          demands as required by the preceding sentence), accompanied by
          documentation showing reasonable support for such increased costs or
          reduced sums received by such Bank, shall be delivered to the Borrower
          and shall be conclusive, save for manifest error, as to such
          determination and such amount. The affected Bank shall notify the
          Borrower, as promptly as practicable after such Bank obtains knowledge
          of any Increased Costs or other sums payable pursuant to this Section
          2.10 and determines to request compensation therefor, or any event
          occurring after the Closing which will entitle such Bank to
          compensation pursuant to this Section; provided that, notwithstanding
          anything herein to the contrary, the Borrower shall not be obligated
          for the payment of any Increased Costs or other sums payable pursuant
          to this Section 2.10 to the extent such Increased Costs or other sums
          accrued more than 90 days prior to the date upon which the Borrower
          was given such notice. If the Borrower is required to indemnify or pay
          additional amounts pursuant to this Section 2.10, then the Bank will
          take such action as in the reasonable judgment of the Bank (i) will
          eliminate or reduce any such additional payment which may thereafter
          accrue and (ii) is not otherwise commercially unreasonable. The Bank
          shall use its reasonable efforts to obtain in a timely fashion any
          refund, deduction or credit of any taxes paid or reimbursed by the
          Borrower pursuant to this Section 2.10. If the Bank receives a benefit
          in the nature of a refund, deduction or credit (including a refund in
          the form of a deduction from or credit against taxes that are
          otherwise payable by the Bank) of any taxes with respect to which the
          Borrower has made a payment under Section 2.10, the Bank agrees to
          reimburse the Borrower to the extent of the benefit of such refund,
          deduction or credit promptly after the Bank reasonably determines that
          such refund deduction or credit has become final; provided, however,
          that nothing contained in this paragraph shall require the Bank to
          make available its tax returns (or any other information relating to
          its taxes which it deems to be confidential) or to attempt to obtain
          any such refund, deduction or credit, which attempt would be
          inconsistent with any reporting position otherwise taken by the Bank
          on its tax returns.

          (B) Notwithstanding the foregoing provisions of this Section 2.10, in
     the event that by reason of any regulatory change any Bank either (i)
     incurs Increased Costs based on, or measured by, the excess above a
     specified level of the amount of a category of deposits or other
     liabilities of such Bank that includes deposits by reference to which the
     interest rate on LIBOR Loans is determined as provided in this Agreement or
     a category of extensions of credit or other assets of such Bank that
     includes LIBOR Loans or (ii) becomes subject to restrictions on the amount
     of such a category of liabilities or assets

                                       27
<PAGE>   35

     that it may hold, then, if such Bank so elects by written notice to the
     Borrower, the obligation of such Bank to make or convert Loans of any other
     type into LIBOR Loans hereunder shall be suspended until the earlier of the
     date such regulatory change ceases to be in effect or the date the Borrower
     and such Bank agree upon an alternative method of determining the interest
     rate payable by the Borrower on LIBOR Loans, and all LIBOR Loans of such
     Bank then outstanding shall be converted into an ABR Loan (if not otherwise
     prohibited under the terms of this Agreement) at such Bank's option.

          2.11 Change of Law. Notwithstanding any other provision herein, in the
event that any change in any applicable law or in the interpretation or
administration thereof shall make it unlawful for the Banks to (i) honor any
commitment it may have hereunder to make any LIBOR Loan, then such commitment
shall terminate, or (ii) maintain any LIBOR Loan, then all LIBOR Loans of the
Banks then outstanding shall be repaid and converted to ABR Loans (unless the
Banks' obligations to fund Loans hereunder has been suspended by any other
provisions of this Agreement) at the Borrower's option in accordance with the
election procedures set forth in Section 2.04(B); provided, however, that prior
to the effective date of such election, interest shall be calculated at the ABR.
Any remaining commitment of the Banks hereunder to make LIBOR Loans (but not
other Loans) shall be suspended so long as they are prohibited by any applicable
law. Upon the occurrence of any such change, the Agent shall promptly notify the
Borrower thereof, and shall furnish to the Borrower in writing evidence thereof
certified by the Agent.

          Any repayment or conversion of any LIBOR Loan which is required under
this Section 2.11 or under 2.04(B) shall be effected by payment thereof,
together with accrued interest thereon, on demand, and concurrently there shall
occur the borrowing of the corresponding ABR Loan as provided herein.

          If any repayment to the Banks of any LIBOR Loan (including conversions
thereof) is made under this Section 2.11 on a day other than a day otherwise
scheduled for a payment of principal of or interest on such Loan, the Borrower
shall pay to the Banks upon its request of the Agent such amount or amounts as
will compensate the Banks for Breakage Costs, excluding, however, any such
Breakage Costs resulting from a prepayment or conversion made more than sixty
(60) days prior to the Agent's request for payment of Breakage Costs. The
payment of any such Breakage Costs to the Banks shall be made within thirty (30)
days of a request therefor from Agent.

          2.12 Mitigation: Mandatory Assignment. Each Bank shall use reasonable
efforts to avoid or mitigate any increased cost or suspension of the
availability of an interest rate under Sections 2.09 through 2.10 above, to the
greatest extent practicable (including transferring the Loans to another lending
office or Affiliate of a Bank) unless, in the opinion of such Bank, such efforts
would be likely to have an adverse effect upon it. In the event a Bank makes a
request to the Borrower for additional payments in accordance with Sections 2.09
or 2.10, then, provided that no Event of Default or Unmatured Event of Default
has occurred and is continuing at such time, the Borrower may, at its own
expense and in its sole discretion, require such Bank to transfer and assign in
whole (but not in part), without recourse, all of its interests, rights and
obligations under this Agreement to an assignee which shall assume such assigned
obligations (which assignee may be another Bank, if a Bank accepts such
assignment); provided that (a) such assignment shall not conflict with any law,
rule or regulation or order of any court or other

                                       28
<PAGE>   36

governmental authority and (b) the Borrower or such assignee shall have paid to
the Agent for the account of the assigning Bank in immediately available funds
the principal of and interest accrued to the date of such payment on the portion
of the Loans hereunder held by such assigning Bank and all other amounts owed to
such assigning Bank hereunder, including amounts owed pursuant to Sections 2.09
and 2.10 hereof.

          2.13 Pro Rata Treatment and Payments. Each Borrowing by Borrower from
the Banks hereunder, each payment by Borrower on account of any fee hereunder
and any reduction of the Commitments of the Banks shall be made pro rata
according to the respective Percentage Shares of the Banks. Each payment
(including each prepayment) by Borrower on account of principal of and interest
on the Loans shall be made pro rata according to the respective outstanding
principal amounts of the Loans then held by the Banks. The Agent shall
distribute such payments to the Banks promptly upon receipt in like funds as
received.

          2.14 Sharing of Payments and Setoffs. Each Bank agrees that if it
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against Borrower (pursuant to Section 9.01 or otherwise), including, but not
limited to, a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Bank under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by similar means, obtain payment (voluntary
or involuntary) in respect of any Loan or Loans (other than pursuant to Section
2.10) as a result of which the unpaid principal portion of its Loans shall be
proportionately less than the unpaid principal portion of the Loans of any other
Bank, it shall simultaneously purchase from such other Banks at face value a
participation in the Loans of such other Banks, so that the aggregate unpaid
principal amount of Loans and participations in Loans held by each Bank shall be
in the same proportion to the aggregate unpaid principal amount of all Loans
then outstanding as the principal amount of its Loans prior to such exercise of
banker's lien, setoff, counterclaim or other event was to the principal amount
of all Loans outstanding prior to such exercise of banker's lien, setoff,
counterclaim or other event; provided, however, that if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.14 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest.

          2.15 Advances to Satisfy Obligations of the Borrower. The Agent or any
Bank may, but shall not be obligated to, make advances hereunder for the benefit
of the Banks and apply same to the satisfaction of any condition, warranty,
representation or covenant of the Borrower contained in this Agreement, and the
funds so advanced and applied shall be part of the Loan proceeds advanced under
this Agreement and evidenced by the Notes.

          2.16 Assignment of Production. Certain of the Security Instruments
covering the Borrowing Base Oil and Gas Properties contain an assignment unto
and in favor of Agent for the benefit of the Banks of all oil, gas and other
minerals produced and to be produced from or attributable to the Borrowing Base
Oil and Gas Properties together with all of the revenues and proceeds
attributable to such production, and such Security Instruments further provide
that all such revenues and proceeds which may be so collected by Agent for the
benefit of the Banks pursuant to the assignment shall be applied to the payment
of the Notes and the satisfaction of all other Indebtedness to be secured by
such Security Instruments. The Borrower hereby appoints

                                       29
<PAGE>   37

the Agent as its agent and attorney-in-fact until this Agreement has been
terminated in accordance with Section 9.19 hereof for purposes of completing the
Transfer Order Letters delivered to the Agent pursuant to Section 3.01 hereof,
which power is coupled with an interest and is not revocable.

          2.17 Commitment Fee. As consideration for the commitment of the Banks
to make Credit Extensions to the Borrower through the Facility Termination Date
pursuant to this Agreement, the Borrower agrees to pay to the Agent for the
account of the Banks within five (5) Business Days of receipt of the Agent's
statement as to quarterly periods ending March 31, June 30, September 30 and
December 31 of each year (except the first period shall be for a period of time
from the Closing to June 30, 2000) during the period commencing on the date of
this Agreement to and including the Facility Termination Date and at the
Facility Termination Date, a commitment fee equal to the percentage per annum
specified in the Pricing Grid based on the Utilization Percentage (computed on
the basis of a year of 360 days) multiplied by an amount equal to the daily
average excess, if any, of the Aggregate Commitment Amount over the Outstanding
Credit Exposure, throughout the period from the date of this Agreement or
previous calculation date provided above, whichever is later, to the relevant
calculation date or the Facility Termination Date, as the case may be.

          2.18 Addition/Deletion of Borrowing Base Oil & Gas Properties. The
Borrower may, from time to time upon written notice to the Agent, propose to add
Oil and Gas Properties of the Borrower to the Borrowing Base Oil and Gas
Properties. Any such proposal to add Oil and Gas Properties of the Borrower to
the Borrowing Base Oil and Gas Properties shall be accompanied by a Reserve
Report applicable to such properties that conforms to the requirements of
Section 2.06, and evidence sufficient to establish that the Borrower has
Marketable Title to such Oil and Gas Properties, and any such addition shall
become effective at such time as: (a) the Agent, with the approval of the Banks,
has made a determination of the amount by which the Borrowing Base would be
increased as the result of such addition and (b) the conditions set forth in
Article III hereof, to the extent they are applicable to such additional Oil and
Gas Properties of the Borrower, have been satisfied. In determining the increase
in the Borrowing Base pursuant to this Section, the Agent and the Banks shall
apply the parameters and other credit factors consistently applied then
generally being utilized by the Agent and each such Bank, respectively, for
Borrowing Base determinations for other similarly situated borrowers

          2.19 Adjustment to Aggregate Commitment Amount. At any time that
Borrower proposes to increase the Borrowing Base by adding additional Oil and
Gas Properties to the Borrowing Base Oil and Gas Properties pursuant to Section
2.18, Borrower may also request that Banks increase the amount of the Aggregate
Commitment Amount. At any time that Borrower makes such a request it shall
promptly provide Agent with such financial information as Agent may request to
assist the Agent in evaluating such request. Following the receipt of such
information from Borrower, the Agent shall, with the unanimous approval of the
Banks and in the normal course of its business, make a redetermination of the
Aggregate Commitment Amount, which shall become effective upon written
notification from the Agent to Borrower of the new Aggregate Commitment Amount.
The Borrower may upon written notice to Agent, not sooner than one hundred
eighty (180) days subsequent to the last such action by Borrower, amend the
definition of the Aggregate Commitment Amount by reducing the amount set forth
in such definition. Upon such reduction, the Banks shall not be obligated to
make Credit

                                       30
<PAGE>   38

Extensions in excess of such reduced Aggregate Commitment Amount. If and when
the Banks increase the Aggregate Commitment Amount at Borrower's request, the
commitment fee, as determined pursuant to Section 2.17 of this Agreement, shall
be calculated using such increased amount for all of the calculation period in
which such Aggregate Commitment Amount was increased.

          2.20 Facility LCs.

          (A) Issuance. The LC Issuer hereby agrees, on the terms and conditions
     set forth in this Agreement, to issue standby letters of credit (each, a
     "Facility LC") and to renew, extend, increase, decrease or otherwise modify
     each Facility LC ("Modify," and each such action a "Modification"), from
     time to time from and including the date of this Agreement and prior to the
     Facility Termination Date upon the request of the Borrower; provided that
     immediately after each such Facility LC is issued or Modified, (i) the
     aggregate amount of the outstanding LC Obligations shall not exceed
     $5,000,000.00 and (ii) the Aggregate Outstanding Credit Exposure shall not
     exceed the Aggregate Commitment Amount. No Facility LC shall have an expiry
     date later than the earlier of (x) the fifth Business Day prior to the
     Facility Termination Date and (y) one year after its issuance.

          (B) Participations. Upon the issuance or Modification by the LC Issuer
     of a Facility LC in accordance with this Section 2.20, the LC Issuer shall
     be deemed, without further action by any party hereto, to have
     unconditionally and irrevocably sold to each Bank, and each Bank shall be
     deemed, without further action by any party hereto, to have unconditionally
     and irrevocably purchased from the LC Issuer, a participation in such
     Facility LC (and each Modification thereof) and the related LC Obligations
     in proportion to its Percentage Share.

          (C) Notice. Subject to Section 2.20(A), the Borrower shall give the LC
     Issuer notice prior to 10:00 a.m. (Houston, Texas time) at least five
     Business Days prior to the proposed date of issuance or Modification of
     each Facility LC, specifying the beneficiary, the proposed date of issuance
     (or Modification) and the expiry date of such Facility LC, and describing
     the proposed terms of such Facility LC and the nature of the transactions
     proposed to be supported thereby. Upon receipt of such notice, the LC
     Issuer shall promptly notify the Agent, and the Agent shall promptly notify
     each Bank, of the contents thereof and of the amount of such Bank's
     participation in such proposed Facility LC. The issuance or Modification by
     the LC Issuer of any Facility LC shall, in addition to the conditions
     precedent set forth in Article III (the satisfaction of which the LC Issuer
     shall have no duty to ascertain), be subject to the conditions precedent
     that such Facility LC shall be satisfactory to the LC Issuer and that the
     Borrower shall have executed and delivered such application agreement
     and/or such other instruments and agreements relating to such Facility LC
     as the LC Issuer shall have reasonably requested (each, a "Facility LC
     Application"). In the event of any conflict between the terms of this
     Agreement and the terms of any Facility LC Application, the terms of this
     Agreement shall control.

                                       31
<PAGE>   39

          (D) LC Fees. The Borrower shall pay to the Agent, for the account of
     the Banks ratably in accordance with their respective Percentage Shares,
     with respect to each Facility LC, a letter of credit fee at a rate equal to
     the then otherwise applicable LIBOR Margin per annum on the average daily
     undrawn stated amount under such Facility LC, such fee to be payable in
     arrears on or before the first Business Day of each calendar month (each
     such fee described in this sentence an "LC Fee"). The Borrower shall also
     pay to the LC Issuer for its own account (x) at the time of issuance of
     each Facility LC, a fronting fee calculated at the rate of fifteen (15)
     basis points per annum, and (y) documentary and processing charges in
     connection with the issuance or Modification of and draws under Facility
     LCs in accordance with the LC Issuer's standard schedule for such charges
     as in effect from time to time.

          (E) Administration; Reimbursement by Banks. Upon receipt from the
     beneficiary of any Facility LC of any demand for payment under such
     Facility LC, the LC Issuer shall notify the Agent and the Agent shall
     promptly notify the Borrower and each other Bank as to the amount to be
     paid by the LC Issuer as a result of such demand and the proposed payment
     date (the "LC Payment Date"). The responsibility of the LC Issuer to the
     Borrower and each Bank shall be only to determine that the documents
     (including each demand for payment) delivered under each Facility LC in
     connection with such presentment shall be in conformity in all material
     respects with such Facility LC. The LC Issuer shall endeavor to exercise
     the same care in the issuance and administration of the Facility LCs as it
     does with respect to letters of credit in which no participations are
     granted, it being understood that in the absence of any gross negligence or
     willful misconduct by the LC Issuer, each Bank shall be unconditionally and
     irrevocably liable without regard to the occurrence of any Default or any
     condition precedent whatsoever, to reimburse the LC Issuer on demand for
     (i) such Bank's Percentage Share of the amount of each payment made by the
     LC Issuer under each Facility LC to the extent such amount is not
     reimbursed by the Borrower pursuant to Section 2.20(F) below, plus (ii)
     interest on the foregoing amount to be reimbursed by such Bank, for each
     day from the date of the LC Issuer's demand for such reimbursement (or, if
     such demand is made after 11:00 a.m. (Houston, Texas time) on such date,
     from the next succeeding Business Day) to the date on which such Bank pays
     the amount to be reimbursed by it, at a rate of interest per annum equal to
     the Federal Funds Effective Rate for the first three days and, thereafter,
     at a rate of interest equal to the Floating Rate based on ABR.

          (F) Reimbursement by Borrower. The Borrower shall be irrevocably and
     unconditionally obligated to reimburse the LC Issuer on or before the
     applicable LC Payment Date for any amounts to be paid by the LC Issuer upon
     any drawing under any Facility LC, without presentment, demand, protest or
     other formalities of any kind; provided that neither the Borrower nor any
     Bank shall hereby be precluded from asserting any claim for direct (but not
     consequential) damages suffered by the Borrower or such Bank to the extent,
     but only to the extent, caused by (i) the willful misconduct or gross
     negligence of the LC Issuer in determining whether a request presented
     under any Facility LC issued by it complied with the terms of such Facility
     LC or (ii) the LC Issuer's failure to pay under any Facility LC issued by
     it after the presentation to it of a request strictly complying with the
     terms and conditions of such Facility LC. All such

                                       32
<PAGE>   40

     amounts paid by the LC Issuer and remaining unpaid by the Borrower shall
     bear interest, payable on demand, for each day until paid at a rate per
     annum equal to (x) the rate applicable to ABR Loans for such day if such
     day falls on or before the applicable LC Payment Date and (y) the sum of 2%
     plus the rate applicable to ABR Loans for such day if such day falls after
     such LC Payment Date. The LC Issuer will pay to each Bank ratably in
     accordance with its Percentage Share all amounts received by it from the
     Borrower for application in payment, in whole or in part, of the
     Reimbursement Obligation in respect of any Facility LC issued by the LC
     Issuer, but only to the extent such Bank has made payment to the LC Issuer
     in respect of such Facility LC pursuant to Section 2.20(E). Subject to the
     terms and conditions of this Agreement (including without limitation the
     submission of a Request for Advance in compliance with Section 2.02 and the
     satisfaction of the applicable conditions precedent set forth in Article
     III), the Borrower may request a Loan hereunder for the purpose of
     satisfying any Reimbursement Obligation.

          (G) Obligations Absolute. The Borrower's obligations under this
     Section 2.20 shall be absolute and unconditional under any and all
     circumstances and irrespective of any setoff, counterclaim or defense to
     payment which the Borrower may have or have had against the LC Issuer, any
     Bank or any beneficiary of a Facility LC. The Borrower further agrees with
     the LC Issuer and the Banks that the LC Issuer and the Banks shall not be
     responsible for, and the Borrower's Reimbursement Obligation in respect of
     any Facility LC shall not be affected by, among other things, the validity
     or genuineness of documents or of any endorsements thereon, even if such
     documents should in fact prove to be in any or all respects invalid,
     fraudulent or forged, or any dispute between or among the Borrower, any of
     its Affiliates, the beneficiary of any Facility LC or any financing
     institution or other party to whom any Facility LC may be transferred or
     any claims or defenses whatsoever of the Borrower or of any of its
     Affiliates against the beneficiary of any Facility LC or any such
     transferee. The LC Issuer shall not be liable for any error, omission,
     interruption or delay in transmission, dispatch or delivery of any message
     or advice, however transmitted, in connection with any Facility LC. The
     Borrower agrees that any action taken or omitted by the LC Issuer or any
     Bank under or in connection with each Facility LC and the related drafts
     and documents, if done without gross negligence or willful misconduct,
     shall be binding upon the Borrower and shall not put the LC Issuer or any
     Bank under any liability to the Borrower. Nothing in this Section 2.20(G)
     is intended to limit the right of the Borrower to make a claim against the
     LC Issuer for damages as contemplated by the proviso to the first sentence
     of Section 2.20(F).

          (H) Actions of LC Issuer. The LC Issuer shall be entitled to rely, and
     shall be fully protected in relying, upon any Facility LC, draft, writing,
     resolution, notice, consent, certificate, affidavit, letter, cablegram,
     telegram, telecopy, telex or teletype message, statement, order or other
     document believed by it to be genuine and correct and to have been signed,
     sent or made by the proper Person or Persons, and upon advice and
     statements of legal counsel, independent accountants and other experts
     selected by the LC Issuer. The LC Issuer shall be fully justified in
     failing or refusing to take any action under this Agreement unless it shall
     first have received such advice or concurrence of the Required Banks as it
     reasonably deems appropriate or it shall first be indemnified to its

                                       33
<PAGE>   41

     reasonable satisfaction by the Banks against any and all liability and
     expense which may be incurred by it by reason of taking or continuing to
     take any such action. Notwithstanding any other provision of this Section
     2.20, the LC Issuer shall in all cases be fully protected in acting, or in
     refraining from acting, under this Agreement in accordance with a request
     of the Required Banks, and such request and any action taken or failure to
     act pursuant thereto shall be binding upon the Banks and any future holders
     of a participation in any Facility LC.

          (I) Indemnification. The Borrower hereby agrees to indemnify and hold
     harmless each Bank, the LC Issuer and the Agent, and their respective
     directors, officers, agents and employees from and against any and all
     claims and damages, losses, liabilities, costs or expenses which such Bank,
     the LC Issuer or the Agent may incur (or which may be claimed against such
     Bank, the LC Issuer or the Agent by any Person whatsoever) by reason of or
     in connection with the issuance, execution and delivery or transfer of or
     payment or failure to pay under any Facility LC or any actual or proposed
     use of any Facility LC, including, without limitation, any claims, damages,
     losses, liabilities, costs or expenses which the LC Issuer may incur by
     reason of or in connection with (i) the failure of any other Bank to
     fulfill or comply with its obligations to the LC Issuer hereunder (but
     nothing herein contained shall affect any rights the Borrower may have
     against any defaulting Bank) or (ii) by reason of or on account of the LC
     Issuer issuing any Facility LC which specifies that the term "Beneficiary"
     included therein includes any successor by operation of law of the named
     Beneficiary, but which Facility LC does not require that any drawing by any
     such successor Beneficiary be accompanied by a copy of a legal document,
     satisfactory to the LC Issuer, evidencing the appointment of such successor
     Beneficiary; provided that the Borrower shall not be required to indemnify
     any Bank, the LC Issuer or the Agent for any claims, damages, losses,
     liabilities, costs or expenses to the extent, but only to the extent,
     caused by (x) the willful misconduct or gross negligence of the LC Issuer
     in determining whether a request presented under any Facility LC complied
     with the terms of such Facility LC or (y) the LC Issuer's failure to pay
     under any Facility LC after the presentation to it of a request strictly
     complying with the terms and conditions of such Facility LC. Nothing in
     this Section 2.20(I) is intended to limit the obligations of the Borrower
     under any other provision of this Agreement.

          (J) Banks' Indemnification. Each Bank shall, ratably in accordance
     with its Percentage Share, indemnify the LC Issuer, its affiliates and
     their respective directors, officers, agents and employees (to the extent
     not reimbursed by the Borrower) against any cost, expense (including
     reasonable counsel fees and disbursements), claim, demand, action, loss or
     liability (except such as result from such indemnitees' gross negligence or
     willful misconduct or the LC Issuer's failure to pay under any Facility LC
     after the presentation to it of a request strictly complying with the terms
     and conditions of the Facility LC) that such indemnitees may suffer or
     incur in connection with this Section 2.20 or any action taken or omitted
     by such indemnitees hereunder.

          (K) Rights as a Bank. In its capacity as a Bank, the LC Issuer shall
     have the same rights and obligations as any other Bank.

                                       34
<PAGE>   42

                                  ARTICLE III.

                                   CONDITIONS

          The obligation of the Banks to make the Credit Extensions is subject
to the following conditions precedent:

          3.01 General Conditions to Initial Disbursements. At the time of the
initial Credit Extensions (the "Closing"):

          (A) The legal structure, organization and ownership of Borrower shall
     be satisfactory to the Agent, the Banks and their respective counsel;

          (B) With respect to any Acquisition Agreement for which the Banks are
     funding Loans, the proceeds of which will be used by Borrower to pay any
     part of the purchase price required by such Acquisition Agreement, the
     material terms and conditions of such Acquisition Agreement shall be
     acceptable to the Agent and the Arranger, the representations and
     warranties therein shall be accurate in all material respects as of the
     date of the closing thereof, the conditions therein shall have been
     satisfied (or waived with the consent of the Agent, which consent shall not
     be unreasonably withheld), and the transaction contemplated by such
     Acquisition Agreement shall have unconditionally closed prior to or
     contemporaneously with such funding by the Banks;

          (C) The Agent shall have received prior to closing a satisfactory
     third party engineering report dated effective as of January 1, 2000 on the
     Oil and Gas Properties owned and to be acquired by the Borrower pursuant to
     the Acquisition Agreements (the "Initial Report"); such Initial Report
     shall be in form and substance reasonably satisfactory to the Agent and the
     Arranger and shall be issued by Netherland Sewell & Associates, Ryder Scott
     Company, La Roche Petroleum Consultants, or another independent petroleum
     engineering firm reasonably acceptable to the Agent and the Arranger, and
     it shall not differ in any material respect from the engineering
     information previously provided by Borrower to Agent;

          (D) That certain Development Note executed by the Borrower and made
     payable to EIF dated as of April 15, 1998, as amended, shall have a current
     outstanding principal balance of not more than $10,000,000, and its
     maturity date must have been extended to a date not earlier than July 1,
     2001;

          (E) The Agent shall have received all environmental reports available
     to the Borrower with respect to the Borrowing Base Oil and Gas Properties
     and the Oil and Gas Properties to be acquired pursuant to the Acquisition
     Agreements, and shall be reasonably satisfied with the contents thereof and
     the Borrower's plans with respect thereto;

          (F) Marketable Title to the EIF Override shall have been conveyed to
     Borrower; and

                                       35
<PAGE>   43
                  (G) The notes, liens and security interests held by Bank One
         under the Prior Loan Agreement shall have been assigned and transferred
         to Bank One, as Agent under this Agreement, for the benefit of the
         Banks and LC Issuer.

                  3.02 General Conditions to all Disbursements. At the time of
the Closing and at each subsequent Credit Extension:

                  (A) No Event of Default shall have occurred and be continuing,
         and no Unmatured Event of Default shall have occurred;

                  (B) The representations and warranties contained in Article IV
         of this Agreement shall be true and correct in all material respects as
         though such representations and warranties had been made on such date,
         except such as are expressly limited to a prior date, which shall have
         been true and correct in all material respects as of such prior date;

                  (C) The Agent and the Banks shall have been, and shall
         continue to be, satisfied, in their good faith discretion, that the
         Borrower holds Marketable Title to the Borrowing Base Oil and Gas
         Properties, and that such ownership includes record title to an
         undivided net revenue interest in the production from each such
         Borrowing Base Oil and Gas Property that is not less than, as well as
         an undivided working interest in each Borrowing Base Oil and Gas
         Property that is not greater than (unless there is a corresponding
         increase in the net revenue interest attributed to such party therein),
         the net revenue interest therein and the working interest therein,
         respectively, attributed to the Borrower on Exhibit "A," subject to the
         limitations and qualifications on such exhibit (or attributed to
         Borrower in any Security Instrument applicable to any Oil and Gas
         Property that is added to the Borrowing Base Oil and Gas Properties in
         connection with any subsequent funding after the Closing);

                  (D) No Material Adverse Change shall have occurred since the
         date of the latest audited Financial Statements provided to the Agent;

                  (E) All of the Security Instruments previously delivered with
         respect to the Borrowing Base Oil and Gas Properties shall have
         remained in full force and effect; and

                  (F) All legal matters incidental thereto shall be reasonably
         satisfactory to each Bank's designated legal counsel.

                  3.03 Deliveries at the Closing. The Borrower shall have duly
delivered or caused to be delivered to the Agent, prior to or contemporaneously
with the Closing, the following:

                  (A) The Initial Note;

                  (B) Each of the Security Instruments covering any Borrowing
         Base Oil and Gas Properties not already covering by valid and
         continuing Security Instruments in favor of Agent;

                                       36
<PAGE>   44
                  (C) Transfer Order Letters applicable to the production of oil
         and gas from the Borrowing Base Oil and Gas Properties;

                  (D) The results of a Uniform Commercial Code search showing
         all financing statements and other documents or instruments on file
         against the Borrower in the Offices of the Secretaries of State of the
         State of Texas, the State of Delaware, the State of Louisiana and each
         State in which any of the Borrowing Base Oil and Gas Properties are
         located or deemed to be located, and the counties and/or parishes in
         which the Borrower maintains its principal place of business and in
         which any of the Borrowing Base Oil and Gas Properties are located,
         such search to be as of a date no more than ten (10) days prior to the
         date of Closing.

                  (E) A certified (as of the date of the Closing) copy of
         resolutions of the Borrower's Board of Directors authorizing the
         execution, delivery, and performance of this Agreement, the Notes, and
         each other document to be delivered pursuant hereto;

                  (F) A certificate (dated the date of the Closing) of the
         Borrower's corporate secretary as to the incumbency and signatures of
         the officers of the Borrower signing this Agreement, the Notes, and
         each other document to be delivered pursuant hereto;

                  (G) A copy, certified as of the most recent date practicable
         by the Secretary of State of the state in which Borrower is
         incorporated, of the Borrower's certificate of incorporation, together
         with a certificate (dated the date of the Closing) of the Borrower's
         corporate secretary to the effect that such certificate of
         incorporation has not been amended since the date of the aforesaid
         certification;

                  (H) Certificates, as of the most recent dates practicable, of
         the aforesaid Secretaries of State, the Secretary of State of each
         state in which the Borrower is qualified as a foreign corporation, and
         the department of revenue or taxation of each of the foregoing states,
         as to the good standing of the Borrower;

                  (I) A Compliance Certificate, dated the date of the Closing;

                  (J) The Amendment to Subordination Agreement;

                  (K) Payment of the Agent's attorneys' fees upon receipt of a
         reasonably detailed invoice pursuant to Section 5.12 hereof; and

                  (L) A legal opinion or opinions of outside counsel to the
         Borrower, addressed to Agent, the Banks, the Arranger and the LC
         Issuer, in form and substance reasonably satisfactory to the Agent,
         covering, among other matters reasonably requested by Agent or its
         counsel, the matters addressed in Sections 4.01, 4.02, 4.03, 4.14,
         4.17, 4.20 and 4.21 hereof, and also regarding the enforceability of
         the Acquisition Agreements and their compliance with all Applicable
         Law.

                  3.04 Documents Required for Subsequent Disbursements. As of
the time of funding any additional advances to Borrower that have been approved
by the Banks pursuant to Section 2.01 and are made in conjunction with the
addition of Oil and Gas Properties owned by

                                       37
<PAGE>   45
the Borrower to the Borrowing Base Oil and Gas Properties, the Borrower shall
have duly delivered to the Agent: (i) the Security Instruments that are
necessary or appropriate, in the reasonable opinion of the Agent, relating to
such additional Oil and Properties, and (ii) Transfer Order Letters applicable
to the production of oil and gas from the such additional Borrowing Base Oil and
Gas Properties.

                                  ARTICLE IV.

                         REPRESENTATIONS AND WARRANTIES

                  To induce the Agent and the Banks to enter into this Agreement
and to make the Credit Extensions hereunder, Borrower represents and warrants to
the Agent and the Banks that:

                  4.01 Existence. The Borrower is a corporation, duly organized,
legally existing, and in good standing under the Laws of the State of Delaware;
each Subsidiary is a corporation or limited liability company duly organized,
validly existing, and in good standing under the Laws of its state of
incorporation or organization; the Borrower and its Subsidiaries have the lawful
power to own their properties and to engage in the businesses they conduct, and
each is duly qualified and in good standing as a foreign corporation or limited
liability company in the jurisdictions wherein the nature of the business
transacted by it or property owned by it makes such qualification necessary; the
states in which the Borrower and each Subsidiary are incorporated or organized
and qualified to do business are set forth in Schedule 4.01; the addresses of
all places of business of the Borrower and its Subsidiaries are as set forth in
Schedule 4.01; neither the Borrower nor any Subsidiary has changed its name,
been the surviving company in a merger, acquired any business, or changed its
principal executive office within five (5) years and one (1) month prior to the
date hereof, except as disclosed on Schedule 4.01; the Borrower has no
Subsidiaries other than the Subsidiaries named in Schedule 4.01; and all of the
authorized, issued and outstanding shares of capital stock or membership
interests of each Subsidiary is owned by the Borrower. Borrower is qualified
under applicable Minerals Management Service regulations to act as the operator
of the Leases where required.

                  4.02 Due Authorization. Upon execution of the Loan Documents
and the Subordination Agreement, the execution and delivery by the Borrower of
this Agreement and the borrowings hereunder; the execution and delivery by the
Borrower of the Notes, the Security Instruments, and the Transfer Order Letters;
and the repayment by the Borrower of the Indebtedness evidenced by the Notes and
interest and fees provided in the Notes and this Agreement are (a) within the
corporate power of the Borrower; (b) have been duly authorized by all necessary
corporate action, and (c) do not and will not (i) require the consent of any
regulatory authority or governmental body, (ii) contravene or conflict with any
provision of Law or of the articles of incorporation or bylaws of the Borrower,
(iii) contravene or conflict with any indenture, instrument or other agreement
to which the Borrower is a party or by which its property may be presently bound
or encumbered, or (iv) result in or require the creation or imposition of any
mortgage, lien, pledge, security interest, charge or other encumbrance in, upon
or of any of the properties or assets of the Borrower under any such indenture,
instrument or other agreement, other than under any of the Security Instruments.

                                       38
<PAGE>   46

                  4.03 Valid and Binding Obligations. This Agreement, the Notes,
and the Security Instruments when duly executed and delivered, will be legal,
valid and binding obligations of and enforceable against the Borrower, in
accordance with their respective terms (subject to any applicable bankruptcy,
insolvency or other Laws of general application affecting creditors' rights,
general equitable principles, whether considered in a proceeding in equity or at
law, and judicial decisions interpreting any of the foregoing).

                  4.04 Scope and Accuracy of Financial Statements. All Financial
Statements submitted and to be submitted to the Agent hereunder are and will be
complete and correct in all material respects, are and will be prepared in
accordance with GAAP consistently applied, and do and will fairly reflect the
financial condition and the results of the operations of the Borrower in all
material respects as of the dates and for the period stated therein (subject
only to normal year-end audit adjustments with respect to such unaudited interim
statements of the Borrower), and no Material Adverse Change has occurred since
the effective date of the latest audited Financial Statements of Borrower
delivered to Agent.

                  4.05 Title to Borrowing Base Oil and Gas Properties. The
Borrower has Marketable Title to the working and net revenue interests in the
Borrowing Base Oil and Gas Properties as set forth on Exhibit "A", free and
clear of all mortgages, liens and encumbrances, except for Permitted
Encumbrances and any other exceptions, limitations or qualifications expressly
disclosed on Exhibit "A."

                  4.06 Oil and Gas Leases. The Leases which constitute any part
of the Borrowing Base Oil and Gas Properties are in full force and effect as to
those portions within the Borrowing Base Oil and Gas Properties, are valid,
subsisting leases as to those portions within the Borrowing Base Oil and Gas
Properties to which they pertain and all rentals, royalties and other amounts
due and payable in accordance with the terms of the Leases as to those portions
within the Borrowing Base Oil and Gas Properties, overriding royalties, net
profits or other production burdens have been duly paid or provided for; the
obligations to be performed under the Leases as to those portions within the
Borrowing Base Oil and Gas Properties have been duly performed; and the Borrower
is not aware of any default by any third party under any of the Leases with
respect to such third party's obligations.

                  4.07 Interest in the Borrowing Base Oil and Gas Properties.
Except as otherwise set forth on Exhibit "A" hereto, with respect to each of the
Borrowing Base Oil and Gas Properties, the ownership of the Borrower in such
property will, with respect to the wells, units and/or tracts of land described
in Exhibit "A" hereto in connection with such property, (i) entitle the Borrower
to receive (subject to the terms and provisions of this Agreement) a decimal
share of the oil and gas produced from, or allocated to, such wells, units
and/or tracts equal to not less than the decimal share set forth in Exhibit "A"
in connection with such wells, units and/or tracts, and (ii) cause the Borrower
to be obligated to bear a decimal share of the cost of exploration, development
and operation of such wells, units and/or tracts of land not greater than the
decimal share set forth in Exhibit "A" in connection with such wells, units
and/or tracts, unless any increase in the Borrower's share of costs is
accompanied by a pro-rata increase in the Borrower's share of revenue. Except as
set forth in the instrument and agreements, if any, more particularly described
in Exhibit "A" hereto, all such shares of production which the Borrower is
entitled to receive, and shares of expenses which the Borrower is obligated to
bear, are not

                                       39
<PAGE>   47
subject to change, except for changes attributable to future elections by the
Borrower not to participate in operations proposed pursuant to customary forms
of applicable joint operating agreements, and except for changes attributable to
changes in participating areas under any federal units wherein participating
areas may be formed, enlarged or contracted in accordance with the rules and
regulations of the applicable governmental authority.

                  4.08 Oil and Gas Contracts. Except as set forth on Schedule
4.08 attached hereto, the Borrower is not obligated, by virtue of any prepayment
under any contract providing for the sale by the Borrower of Hydrocarbons which
contains a "take-or-pay" clause or under any similar prepayment agreement or
arrangement, including, without limitation, "gas balancing agreements", to
deliver a material amount of Hydrocarbons produced from the Borrowing Base Oil
and Gas Properties at some future time without then or thereafter receiving full
payment therefor (i.e., in the case of oil, not in excess of sixty (60) days,
and in the case of gas, not in excess of ninety (90) days). Except as set forth
on Schedule 4.08 attached hereto, the Borrowing Base Oil and Gas Properties are
not subject to any contractual, or other arrangement for the sale of crude oil
which cannot be canceled on ninety (90) days' (or less) notice, unless the price
provided for therein is equal to or greater than the prevailing market price in
the vicinity. The Borrowing Base Oil and Gas Properties are not subject to any
gas sales contract that contains any material terms which are not customary in
the industry within the region in which the Borrowing Base Oil and Gas
Properties affected thereby are located. The Borrowing Base Oil and Gas
Properties are not subject to any regulatory refund obligation and no facts
exist which might cause the same to be imposed.

                  4.09 Producing Wells. All producing wells located on the
Borrowing Base Oil and Gas Properties have been, during all times that such were
under the direction or control of the Borrower and, to the knowledge of the
Borrower, at all other times, drilled, operated and produced in conformity with
all applicable Laws, rules, regulations and orders of all regulatory authorities
having jurisdiction, are subject to no penalties on account of past production,
and are bottomed under and are producing from, and the well bores are wholly
within, the Borrowing Base Oil and Gas Properties, or on Oil and Gas Properties
which have been pooled, unitized or communitized with the Borrowing Base Oil and
Gas Properties.

                  4.10 Purchasers of Production. The persons who are purchasing
the Borrower's interests in oil and gas produced from the Borrowing Base Oil and
Gas Properties as of the calendar month during which the initial Loans are made
hereunder are identified on Schedule 4.10 attached hereto.

                  4.11 Authorizations and Consents. No authorization, consent,
approval, exemption, franchise, permit or license of, or filing with, any
governmental or public authority or any third party is required to authorize, or
is otherwise required in connection with the valid execution and delivery by the
Borrower of this Agreement, the Notes, and the Security Instruments, or any
other instrument contemplated hereby, the repayment by the Borrower of advances
against the Notes and interest and fees provided in the Notes and this
Agreement, or the performance by the Borrower of its obligations under any of
the foregoing.

                  4.12 Environmental Laws. Except to the extent that the failure
to do so would not have and would not be expected to have a Material Adverse
Effect, the Borrower (a) is and

                                       40
<PAGE>   48
has in the past been in compliance with all Environmental Laws and all permits,
requests and notifications relating to health, safety or the environment
applicable to the Borrower or any of its properties, assets, operations and
businesses; (b) has obtained and adhered to and currently possesses all
necessary permits and other approvals, including interim status under the
Federal Resource Conservation and Recovery Act, necessary to store, dispose of
and otherwise handle Hazardous Substances and to operate its properties, assets
and businesses; (c) has reported, to the extent required by all federal, state
and local statutes, Laws, ordinances, regulations, rules, permits, judgments,
orders and decrees, all past and present sites owned and/or operated by the
Borrower where any Hazardous Substance has been released, treated, stored or
disposed of and (d) has not used, stored, or Released any Hazardous Substance in
excess of amounts allowed by Environmental Law. There is (x) no location on any
property currently or previously owned or operated by the Borrower where
Hazardous Substances are known to have entered or are likely to enter into the
soil or groundwater or such property, other than immaterial releases of oil or
natural gas in the ordinary course of business none of which releases (i) either
individually, or in the aggregate, has had or may be expected to have a Material
Adverse Effect or (ii) has violated or may be expected to violate any
Environmental Laws, except for any such violation that has not had and would not
be expected to have a Material Adverse Effect, and (y) no on-site or off-site
location to which the Borrower has released or transported Hazardous Substances
or arranged for the transportation or disposal of Hazardous Substances, which is
or is likely to be the subject of any federal, state, local or foreign
enforcement action or any investigation which could lead to any material claims
against any such entity for any clean-up cost, remedial work, damage to natural
resources, common law or legal liability, including, but not limited to, claims
under Comprehensive Environmental Response, Compensation, and Liability Act. For
the purposes of this Section, references to "the Borrower" shall include all
predecessors, successors-in-interest of the Borrower; provided, that with
respect to the Borrower's properties or assets, the foregoing representations as
to predecessors and successors-in-interest are limited to the knowledge of the
Borrower.

                  4.13 Compliance with Laws, Rules, Regulations and Orders.
Except to the extent that the failure to comply would not materially interfere
with the conduct of the business of the Borrower or any Subsidiary, the Borrower
and its Subsidiaries have each complied with all applicable Laws with respect
to: (1) the conduct of its business; and (2) the use, maintenance, and operation
of the Borrowing Base Oil and Gas Properties and personal properties owned or
leased by it in the conduct of its business; except as expressly set forth on
Exhibit "A" hereto, the Borrower and its Subsidiaries possess all licenses,
approvals, registrations, permits and other authorizations necessary to enable
it to carry on its business in all material respects as now conducted, and all
such licenses, approvals, registrations, permits and other authorizations are in
full force and effect; and the Borrower has no reason to believe that the
Borrower or any of its Subsidiaries will be unable to obtain the renewal of any
such licenses, approvals, registrations, permits and other authorizations.

                  4.14 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements, the Borrower and its Subsidiaries do not
have any liabilities, direct or contingent, which may materially and adversely
affect it, its business or assets. There is no litigation or other action of any
nature pending before any court, governmental instrumentality, regulatory
authority or arbitral body or, to the knowledge of the Borrower threatened
against or affecting the Borrower or its Subsidiaries which might reasonably be
expected to result in any

                                       41
<PAGE>   49
material, adverse change in the Borrower or its Subsidiaries, or the business or
assets of either. To the best of the Borrower's knowledge, no unduly burdensome
restriction, restraint or hazard exists by contract or Law that would have a
Material Adverse Effect.

                  4.15 Existing Indebtedness. All Indebtedness of the Borrower
and any Subsidiary consisting of liability to repay borrowed money or to pay
money to become due on capital leases as of the Closing is described in Schedule
4.15; and neither the Borrower nor any Subsidiary is in default with respect to
any of its existing Indebtedness.

                  4.16 Material Commitments. Except as described in Schedule
4.16 hereto, (a) neither the Borrower nor any Subsidiary has any material leases
(other than oil and gas leases), contracts or commitments of any kind
(including, without limitation, employment agreements; collective bargaining
agreements; powers of attorney; distribution arrangements; patent license
agreements; contracts for future purchase or delivery of goods or rendering of
services; bonuses, pension and retirement plans; or accrued vacation pay,
insurance and welfare agreements); (b) to the best of the Borrower's knowledge,
all parties to all such material leases, contracts, and other commitments to
which the Borrower or any Subsidiary is a party have complied with the
provisions of such leases, contracts, and other commitments; and (c) to the best
of the Borrower's knowledge, no party is in default under any thereof and no
event has occurred that but for the giving of notice or the passage of time, or
both, would constitute a default, except for defaults and events that have not
had and would not be expected to have a Material Adverse Effect.

                  4.17 Margin Stock. The Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations T, U, or X of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of any extension of credit under this Agreement will
be used to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying margin stock. Neither the Borrower nor
any Person acting on its behalf has taken any action that might cause the
transactions contemplated by this Agreement or the Notes to violate Regulations
T, U, or X or to violate the Securities Exchange Act of 1934, as amended.

                  4.18 Proper Filing of Tax Returns and Payment of Taxes Due.
Except as otherwise permitted herein, the Borrower has filed all federal, state,
and local tax returns and other reports required by any applicable Laws to have
been filed prior to the date hereof, has paid or caused to be paid all taxes,
assessments, and other governmental charges that are due and payable prior to
the date hereof, and has made adequate provision for the payment of such taxes,
assessments, or other charges accruing but not yet payable; the Borrower has no
knowledge of any material deficiency or additional assessment in connection with
any taxes, assessments, or charges not provided for on its books.

                  4.19 ERISA. The Borrower is in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited Transaction has occurred and is continuing with respect to any
plan; no notice of intent to terminate a plan has been filed, nor has any plan
been terminated; no circumstances exist which constitute grounds under Section
4042 of ERISA entitling the PBGC to institute proceedings to terminate, or

                                       42
<PAGE>   50

appoint a trustee to administrate a plan, nor has the PBGC instituted any such
proceedings; neither the Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multi-Employer
Plan; the Borrower and each ERISA Affiliate has met its minimum funding
requirements under ERISA with respect to all of its plans and the present value
of all vested benefits under each plan exceeds the fair market value of all plan
assets allocable to such benefits, as determined on the most recent valuation
date of the plan and in accordance with the provisions of ERISA and the
regulations thereunder for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the plan under Title IV of ERISA; and
neither the Borrower nor any ERISA Affiliate has incurred any liability to the
PBGC under ERISA.

                  4.20 Investment Company Act Compliance. Neither the Borrower
nor any Subsidiary is directly or indirectly controlled by, or acting on behalf
of, any, Person which is an "Investment Company," within the meaning of the
Investment Company Act of 1940, as amended.

                  4.21 Public Utility Holding Company Act Compliance. The
Borrower is not a "holding company", or an "affiliate" of a "holding company" or
of a "subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.

                  4.22 Insurance. The Borrower maintains insurance with respect
to the properties and business of the Borrower providing coverage for such
liabilities, casualties, risks and contingencies and in such amounts as is
customary in the industry. The insurance coverage reflected on the Certificate
of Insurance attached hereto as Schedule 4.22 is in full force and effect, and
all premiums due thereon have been paid.

                  4.23 Material Misstatements and Omissions. No representation
or warranty by or with respect to the Borrower or any Subsidiary contained
herein or in any certificate or other document furnished by the Borrower or any
Subsidiary pursuant hereto contains any untrue statement of a material fact or
omits to state a material fact necessary to make such representation or warranty
not misleading in light of the circumstances under which it was made.

                                   ARTICLE V.

                              AFFIRMATIVE COVENANTS

                  Borrower covenants so long as any Indebtedness of the Borrower
to any Bank remains unpaid under this Agreement, or any Obligations of the
Borrower to any Bank remain unsatisfied, or any Bank remains obligated to make
advances hereunder, to:

                  5.01 Use of Funds. Use funds advanced under the Tranche B
Commitment solely for purposes of making the Acquisition or any component
thereof, and use funds advanced under the Tranche A Commitment to (A) refinance
existing debt owed to Bank One under the Prior Loan Agreement, (B) fund
acquisitions of Oil and Gas Properties, (C) fund Borrower's working capital
needs, (D) fund a loan in an amount not to exceed [$1,300,000.00] from

                                       43
<PAGE>   51

Borrower to EPL Pipeline L.L.C. to provide the funds necessary to enable EPL
Pipeline L.L.C. to purchase the Pipeline, and (E) fund permitted payments of
Subordinated Debt.

                  5.02 Maintenance and Access to Records. Keep adequate records
in accordance with good accounting practices, of all of the transactions of the
Borrower so that at any time, and from time to time, such records present fairly
the financial condition of the Borrower which may be readily determined and, at
the Agent's reasonable request, make all financial records and records relating
to the Borrowing Base Oil and Gas Properties available for the Agent's
inspection and permit the Agent to make and take away copies thereof.

                  5.03 Monthly and Annual Unaudited Financial Statements.
Deliver to the Agent, on or before the forty-fifth (45th) day after the end of
each calendar month, unaudited Financial Statements of the Borrower, as at the
end of such period and from the beginning of such fiscal year to the end of the
respective period, as applicable, which Financial Statements shall be certified
by the president or chief financial officer of the Borrower, as being true and
correct, subject to changes resulting from year-end audit adjustments.

                  5.04 Annual Audited Financial Statements. Deliver to the
Agent, on or before the one hundred twentieth (120th) day after the close of
each fiscal year of the Borrower a copy of annual audited Financial Statements
of the Borrower, together with the report and opinion thereon of KPMG or such
other firm of independent certified public accountants acceptable to the Agent
at its reasonable discretion.

                  5.05 Compliance Certificate. At the time of delivery of the
certified but unaudited Financial Statements pursuant to Section 5.03 above, and
the delivery of the annual audited Financial Statements pursuant to Section 5.04
above, deliver to the Agent a Compliance Certificate.

                  5.06 Statement of Material Adverse Change. Deliver to the
Agent, promptly upon any officer of the Borrower having knowledge of any
Material Adverse Change (or any event or circumstance that would result in any
such Material Adverse Change), a statement of the President, Chief Financial
Officer, or the Treasurer of the Borrower, setting forth the change in condition
or event or circumstance likely to result in any such change and the steps being
taken by the Borrower with respect to such change in condition or event or
circumstance.

                  5.07 Title Defects. Cure any title defects to the Borrowing
Base Oil and Gas Properties material in value, in the reasonable opinion of the
Agent, and, in the event any title defects are not cured in a timely manner, pay
all related costs and fees incurred by the Agent for the account of the Banks to
do so; provided, however, the Borrower may remove any of its Oil and Gas
Properties from the determination of the Borrowing Base so long as the
Indebtedness evidenced by the Revolving Notes is less than or equal to the
Borrowing Base (determined by the Banks in accordance with Section 2.06
exclusive of such Oil and Gas Properties).

                  5.08 Additional Information. Furnish to the Agent all
information, if any, filed with the SEC by the Borrower and all information
routinely provided by the Borrower to its shareholders, generally. Furnish to
the Agent, promptly upon the Agent's reasonable request, such additional
financial or other information concerning the assets, liabilities, operations,
and

                                       44
<PAGE>   52

transactions of the Borrower, including, without limitation, information
concerning title to any of the Borrowing Base Oil and Gas Properties.

                  5.09 Compliance with Laws and Payment of Assessments and
Charges. Materially comply with all applicable statutes and government
regulations, including, without limitation, ERISA, and pay all taxes,
assessments, governmental charges, claims for labor, supplies, rent and other
obligations which, if unpaid, might become a lien other than a Permitted
Encumbrance against its property, except any of the foregoing being contested in
good faith and as to which accruals satisfactory to the Agent, in its reasonable
discretion, have been provided.

                  5.10 Maintenance of Existence and Good Standing. Maintain the
Borrower's corporate existence and good standing in the jurisdiction of its
organization, and maintain the Borrower's qualification and good standing in all
other jurisdictions wherein the property now owned or hereafter acquired or
business now or hereafter conducted by Borrower necessitates same, other than
those jurisdictions wherein the failure to so qualify will not have a material
adverse effect on the Borrower.

                  5.11 Further Assurances. Promptly cure any defects in the
execution and delivery of this Agreement, the Notes, the Security Instruments,
the Transfer Order Letters, or any other instrument referred to herein or
executed in connection with the Notes, and upon the reasonable request of the
Agent promptly execute and deliver to the Agent all such other and further
instruments as may be reasonably required or desired by the Agent from time to
time in compliance with the covenants and agreements made in this Agreement.

                  5.12 Initial Expenses of the Bank. Pay prior to or at Closing
all documented reasonable fees and expenses of Porter & Hedges, L.L.P., the
special legal counsel for the Agent incurred directly and solely in connection
with the preparation of this Agreement, the Notes, the Security Instruments, the
Transfer Order Letters, and any other instrument referred to herein or executed
directly and solely in connection with the Notes, the satisfaction of the
conditions precedent set forth in Article III of this Agreement and the
consummation of the transactions contemplated in this Agreement.

                  5.13 Subsequent Expenses of the Agent and the Arranger. Upon
request, promptly reimburse the Agent and the Arranger and any Bank for all
documented amounts reasonably expended, advanced or incurred by the Agent, the
Arranger or any such Bank to collect the Notes or to enforce the rights of the
Agent, the Arranger or such Banks under this Agreement, the Notes, the Security
Instruments, the Transfer Order Letters, or any other instrument referred to
herein or executed in connection with the Notes, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the Borrower
by the Agent and which amounts will include, but not be limited to, (a) all
court costs, (b) reasonable attorneys' fees, (c) fees of auditors and
accountants, (d) investigation expenses, (e) internal fees of the Agent's
in-house legal counsel, (f) fees and expenses incurred in connection with the
Agent's and any such Bank's participation as a member of the creditors committee
in a case commenced under Title 11 of the United States Code or other similar
Law of the United States, the State of Texas or any other jurisdiction, (g) fees
and expenses incurred in connection with lifting the automatic stay prescribed
in Sections 362 Title 11 of the United States Code, and (h) fees and expenses
incurred in connection with any action pursuant to Sections 1129 Title 11 of the
United States

                                       45
<PAGE>   53

Code, reasonably incurred by the Agent and/or any such Bank in connection with
the collection of any sums due under this Agreement, together with interest at
the Floating Rate per annum, calculated on a basis of a year of three hundred
sixty (360) days on each such amount from the date of notification to the
Borrower that the same was expended, advanced or incurred by the Agent and/or
any such Bank until, but not including, the date it is repaid to the Agent or
such Bank, with the obligations under this Section 5.13, surviving the
non-assumption of this Agreement in a case commenced under Title 11 of the
United States Code or other similar Law of the United States, the State of Texas
or any other jurisdiction and being binding upon the Borrower or a trustee,
receiver or liquidator of any such party appointed in any such case.

                  5.14 Maintenance of Tangible Property. Maintain all of its
tangible property relating to the Borrowing Base Oil and Gas Properties in good
repair and condition and make all necessary replacements thereof and operate
such property in a good and workmanlike manner in accordance with standard
industry practices, unless the failure to do so would not have a material
adverse effect on the Borrower or the value of any Borrowing Base Oil and Gas
Property.

                  5.15 Maintenance of Insurance. Continue to maintain, or cause
to be maintained, insurance with respect to the properties and business of the
Borrower against such liabilities, casualties, risks and contingencies and in
such amounts as is customary in the industry and furnish to the Agent annually
after the execution of this Agreement certificates evidencing such insurance.

                  5.16 Inspection of Tangible Assets/Right of Audit. Permit any
authorized representative of the Agent or any Bank to visit and inspect (at the
risk of the Agent, such Bank and/or such representative) any tangible asset of
the Borrower, and/or to audit the books and records of the Borrower during
normal business hours, at the expense of the Agent or such Bank and during
normal business hours following reasonable advance notice.

                  5.17 Payment of Note and Performance of Obligations. Pay the
Notes according to the reading, tenor and effect thereof, as modified hereby,
and do and perform every act and discharge all of the Obligations provided to be
performed and discharged hereunder.

                  5.18 Borrowing Base. Maintain a Borrowing Base such that the
amount of the Outstanding Credit Exposure will not, at any time other than
during applicable grace periods expressly set forth elsewhere in this Agreement,
exceed the Borrowing Base.

                  5.19 Compliance with Environmental Laws. To the extent
necessary to avoid a Material Adverse Effect, comply with any and all
requirements of Law, including, without limitation, Environmental Laws, (a)
applicable to any natural or environmental resource or media located on, above,
within, in the vicinity of, related to or affected by any Borrowing Base Oil and
Gas Properties or any other property of the Borrower, or (b) applicable to the
performance or conduct of its operations, including, without limitation, all
permits, licenses, registrations, approvals and authorizations, and, in this
regard, comply with, and require all employees, crew members, agents,
contractors and subcontractors (pursuant to appropriate contractual provisions)
and future lessees (pursuant to appropriate lease provisions) of the Borrower
while such Persons are acting within the scope of their relationship with the
Borrower, to so comply with, all applicable requirements of Law, including,
without limitation, applicable Environmental Laws,

                                       46
<PAGE>   54

and other applicable requirements with respect to the property of the Borrower,
and the operation thereof necessary or appropriate to enable the Borrower to
fulfill its obligations under all applicable requirements of Law, including,
without limitation, Environmental Laws, applicable to the use, generation,
handling, storage, treatment, transport and disposal of any Hazardous Substances
now or hereafter located or present on or under any such property.

                  5.20 Hazardous Substances Indemnification. INDEMNIFY AND HOLD
THE AGENT, THE ARRANGER AND THE BANKS HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE
AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS
AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND
EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, OUT OF (a) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER OR FROM ITS PROPERTY, WHETHER
PRIOR TO OR DURING THE TERM HEREOF, OR (b) ANY ACTIVITY CARRIED ON OR UNDERTAKEN
ON OR OFF ITS PROPERTY, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER
BY THE BORROWER, OR ANY PREDECESSOR IN TITLE OR ANY EMPLOYEES, AGENTS,
CONTRACTORS OR SUBCONTRACTORS OF THE BORROWER, OR ANY PREDECESSOR IN TITLE, OR
ANY THIRD PERSONS AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN
CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION,
CLEANUP, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME
LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY; WITH THE FOREGOING INDEMNITY
FURTHER APPLYING TO ANY RESIDUAL CONTAMINATION ON OR UNDER THE PROPERTY OF THE
BORROWER, OR ANY PROPERTY OF ANY OTHER PERSON, OR AFFECTING ANY NATURAL
RESOURCES, AND TO ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING
IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES, IRRESPECTIVE OF WHETHER ANY OF SUCH
ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS
OF LAW, INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LAWS, AND SURVIVING
SATISFACTION OF ALL INDEBTEDNESS OF THE BORROWER TO THE AGENT AND THE BANKS AND
THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH INDEBTEDNESS HAS BEEN
SATISFIED WHOLLY IN CASH FROM THE BORROWER AND NOT BY WAY OF REALIZATION AGAINST
ANY PROPERTY OR THE CONVEYANCE OF ANY PROPERTY OF THE BORROWER IN LIEU THEREOF,
PROVIDED THAT THE CLAIMS AND OTHER ACTIONS OF ANY KIND AGAINST THE AGENT, THE
ARRANGER OR THE BANKS WHICH GIVE RISE TO SUCH INDEMNITY ARE NOT BARRED BY THE
APPLICABLE STATUTE OF LIMITATIONS AT THE TIME SUCH CLAIMS OR ACTIONS ARE
INSTITUTED AND SUCH INDEMNITY SHALL NOT EXTEND TO ANY ACT OR OMISSION BY THE
AGENT, THE ARRANGER OR THE BANKS WITH RESPECT TO THE RELEVANT PROPERTY
SUBSEQUENT TO THE AGENT, THE ARRANGER OR ANY BANK BECOMING THE OWNER OF, TAKING
POSSESSION OF TO THE EXCLUSION OF THE BORROWER OR ASSUMING OPERATIONS OF ANY
PROPERTY PREVIOUSLY OWNED BY THE BORROWER AND WITH RESPECT TO WHICH PROPERTY
SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY, CHARGE, PROCEEDING, ORDER,
JUDGMENT, ACTION OR REQUIREMENT ARISES SUBSEQUENT TO THE ACQUISITION OF TITLE
THERETO, TAKING POSSESSION THEREOF OR ASSUMPTION OF OPERATIONS THEREON BY THE
AGENT, THE ARRANGER OR ANY BANK.

                  5.21 Properties Not Operated by the Borrower. With regard to
all of the Borrower's covenants in this Article V that relate to Oil and Gas
Properties, if any, for which Borrower is not the operator, to the extent that
the performance of such covenants can only be carried out through the operator,
the Borrower shall exercise reasonable diligence under the terms of the
applicable operating agreements to cause the operators to satisfy such
covenants, but shall not be directly responsible for doing so.

                                       47
<PAGE>   55

                  5.22 Transactions with Affiliates. Conduct all transactions
with any Affiliate of the Borrower on an arm's-length basis (provided that such
transactions are otherwise permitted by the terms of this Agreement).

                  5.23 Leases. Keep and continue all Leases comprising the
Borrowing Base Oil and Gas Properties and related contracts and agreements
relating thereto in full force and effect in accordance with the terms thereof
and not permit the same to lapse or otherwise become impaired for failure to
comply with the obligations thereof, whether express or implied; provided,
however, that this provision shall not prevent the Borrower from abandoning and
releasing any such Leases upon their termination as the result of cessation of
production in paying quantities that did not result from the Borrower's failure
to maintain such production as a reasonably prudent operator.

                  5.24 Operation of Borrowing Base Oil and Gas Properties.
Operate or, to the extent that the right of operation is vested in others,
exercise all reasonable efforts to require the operator to operate the Borrowing
Base Oil and Gas Properties and all wells drilled thereon and that may hereafter
be drilled thereon, continuously and in a good and workmanlike manner in
accordance with the best usage of the field and in accordance with all Laws of
the State in which the Borrowing Base Oil and Gas Properties are situated and
the United States of America, as well as all rules, regulations, and Laws of any
governmental agency having jurisdiction to regulate the manner in which the
operation of the Borrowing Base Oil and Gas Properties shall be carried on, and
comply with all terms and conditions of the Leases it now holds, and any
assignment or contract obligating the Borrower in any way with respect to the
Borrowing Base Oil and Gas Properties; but nothing herein shall be construed to
empower the Borrower to bind the Agent or any Bank to any contract obligation,
or render the Agent or any Bank in any way responsible or liable for bills or
obligations incurred by the Borrower.

                  5.25 Assignments. Upon request of the Bank, execute and
deliver written notices of assignments to any persons, corporations or other
entities owing or which may in the future owe to the Borrower monies or accounts
arising in connection with any of the following matters: (a) any oil, gas or
mineral production from the Borrowing Base Oil and Gas Properties; (b) any gas
contracts, processing contracts or other contracts relating to the Borrowing
Base Oil and Gas Properties; or (c) the operation of or production from any part
of the Borrowing Base Oil and Gas Properties.

                  5.26 Change of Purchasers of Production. On or before each
anniversary of the Closing, and at any other time that the Agent may so request
in writing, the Borrower shall notify the Agent in writing of the identity and
address of each then-current purchaser of production from the Borrowing Base Oil
and Gas Properties and, if requested by the Agent, shall provide the Agent with
Transfer Order Letters executed by the Borrower and addressed to such purchasers
of production.

                  5.27 Payment of Taxes, Etc. The Borrower and its Subsidiaries
will each pay or cause to be paid when due, all taxes, assessments, and charges
or levies imposed upon it or on any of its property or which it is required to
withhold and pay, except where contested in good faith by appropriate
proceedings with adequate reserves therefor having been set aside on its books,
provided, however, that the Borrower and its Subsidiaries shall each pay or
cause to be

                                       48
<PAGE>   56

paid all such taxes, assessments, charges, or levies forthwith whenever
foreclosure on any lien that may have attached (or security therefor) appears
imminent.

                  5.28 Notice of Litigation. The Borrower and its Subsidiaries
will each give immediate notice to the Agent of: (1) any litigation or
proceeding in which it is a party if an adverse decision therein would require
it to pay more than $250,000.00 or deliver assets the value of which exceeds
such sum (whether or not the claim is considered to be covered by insurance);
and (2) the institution of any other suit or proceeding involving the Borrower
that might materially and adversely affect its operations, financial condition,
property, or business prospects.

                  5.29 Notice of Events of Default. The Borrower and its
Subsidiaries will each notify the Agent immediately if it becomes aware of the
occurrence of any Event of Default or of any fact, condition, or event that only
with the giving of notice or passage of time or both, would become an Event of
Default or if it becomes aware of any Material Adverse Change (including,
without limitation, proceedings in bankruptcy, insolvency, reorganization, or
the appointment of a receiver or trustee), or of the failure of the Borrower to
observe any of its undertakings hereunder or under the Security Instruments.

                  5.30 Notice of Change of Principal Offices. The Borrower and
its Subsidiaries will each notify the Agent thirty (30) days in advance of any
change in the location of their principal offices.

                  5.31 Employee Benefit Plans. Fund its Plan(s) in accordance
with no less than the minimum funding standards of 29 U.S.C.A. Sections
1082 (Section 302 of ERISA); furnish the Agent, promptly after the filing or
receiving of the same, with copies of any reports or other statements filed
with, or notices or other communications received from, the United States
Department of Labor, the PBGC, or the Internal Revenue Service with respect to
any such Plan; promptly advise the Agent of the occurrence of any Reportable
Event or Prohibited Transaction with respect to any such Plan and the action the
Borrower proposes to take with respect thereto; and promptly advise the Agent
when the Borrower knows or has reason to believe that the PBGC or the Borrower
has instituted or will institute proceedings under Title IV of ERISA to
terminate any such Plan and the action the Borrower proposes to take with
respect thereto.

                  5.32 Cash Flow Forecasts. On or before the forty-fifth (45th)
day after the end of each fiscal quarter prior to the Facility Termination Date,
the Borrower shall prepare and submit to the Agent a monthly cash flow forecast
in a form reasonably acceptable to the Agent.

                  5.33 Operating Accounts. Maintain its primary operating
accounts with the Agent.

                  5.34 P&A Expenses. Develop and implement a plan reasonably
satisfactory to Agent, with the consent of the Required Banks, for managing
Borrower's expenses associated with well and platform plugging and abandonment
expenses.

                  5.35 Payment of Obligations. Promptly pay (or renew and
extend) all of its Indebtedness (subject to Section 6.01 in the case of
Subordinated Debt), as it becomes due (unless such Indebtedness is contested in
good faith by appropriate proceedings).

                                       49
<PAGE>   57

                  5.36 Completion of Anticipated Property Sale. Complete all
components of the Anticipated Property Sale as of a date not later than October
1, 2000, for a net, aggregate sales price of at least $38,000,000.00.

                  5.37 Required Hedge Agreement. Enter into the Required Hedge
Agreement(s) and provide evidence thereof satisfactory to Agent on or before
5:00 PM local time in Houston, Texas, on April 3, 2000.

                                  ARTICLE VI.

                               NEGATIVE COVENANTS

                  Without the prior written consent of the Agent and the
Required Banks and so long as any part of the principal or interest on the Notes
shall remain unpaid or any Bank remains obligated to make advances hereunder,
the Borrower covenants that it will not:

                  6.01 Other Indebtedness; Payments on Subordinated Debt. Incur,
create, assume or suffer to exist any Indebtedness, whether by way of loan or
the issuance or sale of securities except Permitted Indebtedness. The Borrower
shall not make any payments on Subordinated Debt, provided, however, that the
Borrower may make, as and when due, Contingent Payments (as defined in the
Subordination Agreement) so long as, prior to a Contingent Payment being made,
the Borrower has satisfied the Payment Conditions (as defined in the
Subordination Agreement).

                  6.02 Loans or Advances. Make or agree to make or allow to
remain outstanding any loans or advances to any Person, except advances or
extensions of credit in the form of accounts receivable incurred in the ordinary
course of business, and except for the intercompany loan to EPL Pipeline L.L.C.
in an amount not to exceed [$1,300,000.00] to provide funding for the
acquisition of the Pipeline by EPL Pipeline L.L.C.

                  6.03 Mortgages or Pledges of Assets. Create, incur, assume or
permit to exist, any mortgage, pledge, security interest, lien or encumbrance on
any of its properties or assets (now owned or hereafter acquired), except for
Permitted Encumbrances.

                  6.04 Sales of Assets. Except for Permitted Asset Sales, sell,
lease, assign, transfer or otherwise dispose of, in one or any series of related
transactions, all or any portion of its Oil and Gas Properties or other material
assets, whether now owned or hereafter acquired, including transfers to
Subsidiaries, nor enter into any arrangement, directly or indirectly, with any
Person to sell and rent or lease back as lessee such property or any part
thereof which is intended to be used for substantially the same purpose or
purposes as the property sold or transferred.

                  6.05 Dividends. Declare or pay any distribution on, or
purchase, redeem or otherwise acquire for value, any interest in the Borrower,
except for the payment on the "Series A Preferred Stock," the "Series B
Preferred Stock" and the "Series C Preferred Stock" (as such terms are defined
in the Evercore Transaction Documents) of: (a) "in kind" dividends to become due
at any time, and (b) cash dividends to become due at any time after December 31,
2001, but only to the extent that such dividends are required to be paid by the
terms of the Evercore

                                       50
<PAGE>   58

Transaction Documents and such payment would not result in an Event of Default
or Unmatured Event of Default under any other provisions of this Agreement.

                  6.06 Payment of Accounts Payable. Allow any account payable to
remain unpaid more than sixty (60) days after due date, except such as are (i)
being contested in good faith and as to which adequate provision or accrual has
been made, or (ii) the subject of usual and customary review and evaluation.

                  6.07 Cancellation of Insurance. Allow any insurance policy
required to be carried hereunder to be terminated or lapse or expire without
provision for adequate renewal thereof.

                  6.08 Investments. Make Investments in or purchase or otherwise
acquire all or substantially all of the assets of any Person, or any shares of
stock of, or similar interest in, any other Person, if the result of such action
would impair the ability of the Borrower to perform any of its Obligations
pursuant to this Agreement, including, without limitation, the obligation to
repay the Indebtedness evidenced by the Notes, except that the Borrower may
invest in instruments that are investment grade, short-term commercial paper.

                  6.09 Changes in Structure or Business. Consolidate or merge
with or purchase (for cash or securities) all or substantially all of the assets
or capital stock of any corporation, firm, association or enterprise, or allow
any such entity to be merged into the Borrower, or change the basic business
operations of the Borrower.

                  6.10 Limitation on Leases. Incur or otherwise become obligated
to make payments on operating and capital leases not incurred in the ordinary
course of business.

                  6.11 Pooling or Unitization. Voluntarily pool or unitize all
or any part of the Borrowing Base Oil and Gas Properties where the pooling or
unitization would result in the diminution of the Borrower's net revenue
interest in production from the pooled or unitized lands, without the Required
Banks' prior consent, which will not be unreasonably withheld. Any unitization,
pooling or communization or other action or instrument in violation of this
Section 6.11 shall be of no force or effect against any Bank.

                  6.12 Hedge Agreements. Except for Permitted Hedge Agreements
and the Required Hedge Agreement, enter into or become obligated under any
contract for sale for future delivery of Hydrocarbons other than normal
production contracts entered into in the Borrower's normal course of business
(whether or not the subject Hydrocarbons are to be delivered), forward contract,
Hedging Agreement, futures contract or any other similar agreement, without the
prior written consent of the Required Banks, acting in their discretion.

                  6.13 Capital Stock of Borrower. Neither the Borrower nor any
Subsidiary will: (a) issue, redeem, purchase, or retire any of its capital stock
or grant or issue or purchase or retire for any consideration any warrant,
right, or option pertaining thereto or other security convertible into any of
the foregoing, or (b) permit any transfer, sale, redemption, retirement, or
other change in the ownership of the outstanding capital stock of the Borrower
or any Subsidiary, without the prior written consent of the Required Banks,
acting in their discretion; except for: (x) the issuance or transfer of the
Borrower's capital stock which does not result in a Change of Control,

                                       51
<PAGE>   59

and (y) any transfer, sale, redemption, retirement, conversion or other change
in the ownership of the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock as required or permitted by the terms of that
certain Stockholder Agreement referred to in clause (vi) of the definition of
Evercore Transaction Documents.

                  6.14 Margin Stock. Neither the Borrower nor any Subsidiary
will directly or indirectly apply any part of the proceeds of the Loans to the
purchasing or carrying of any "margin stock" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, or any regulations,
interpretations or rulings thereunder.

                  6.15 General and Administrative Expenses. Pay, incur, or
otherwise become obligated to pay General and Administrative Expenses which
exceed eight percent (8%) of Borrower's Production Revenue during any fiscal
quarter beginning with the quarter commencing July 1, 2000, and continuing
through the end of the fiscal quarter during which the Anticipated Property Sale
is completed, and thereafter, such percentage shall be increased from eight
percent (8%) to ten percent (10%).

                  6.16 Minimum Tangible Net Worth. Permit Consolidated Tangible
Net Worth to be not less than $50,000,000.00, plus 75% of Borrower's positive
Net Income, if any, accrued during each calendar quarter subsequent to October
31, 1999, calculated cumulatively as of the end of each fiscal quarter of
Borrower beginning with the quarter ending December 31, 1999, with no reduction
for negative Net Income during any such quarter, and 100% of any increase in
shareholder's equity resulting from the sale or issuance of stock in Borrower
subsequent to the consummation of the Evercore Transaction.

                  6.17 Current Ratio. Permit as of the end of any fiscal month
its Current Ratio to be less than 1.10 to 1.00.

                  6.18 Debt Service Coverage Ratio. Permit, as of the end of any
fiscal quarter, its Debt Service Coverage Ratio to be less than 1.50 to 1.0,
calculated on a rolling two-quarter basis, except that the initial calculation
of such ratio shall be made based on a single quarter with regard to the quarter
ending as of June 30, 2000.

                  6.19 Ratio of Credit Exposure to Present Value of Borrowing
Base Oil and Gas Properties. Permit the sum of the Outstanding Credit Exposure
plus the outstanding balance of all other loans and capital leases that Borrower
is obligated to repay to exceed at any time ninety percent (90%) of the Present
Worth of the Borrowing Base Oil and Gas Properties.

                                  ARTICLE VII.

                                EVENTS OF DEFAULT

                  7.01 Enumeration of Events of Default. Any of the following
events shall be considered an Event of Default as that term is used herein:

                  (a) Default shall be made by the Borrower in the payment of
any installment of principal or interest (including, without limitation, any
mandatory prepayments payable pursuant to either Section 2.07 or 2.08 of this
Agreement) on the Notes, any LC Fee or any other

                                       52
<PAGE>   60

monetary obligation (other than Reimbursement Obligations) payable hereunder
when due, including without limitation, any other fee due to Agent, LC Issuer or
any Bank hereunder within five (5) days after such payment was due, or in the
payment of any Reimbursement Obligation within one Business Day after the same
becomes due;

                  (b) Default shall be made by the Borrower in the due
observance or performance of any affirmative covenant required in this
Agreement, the Notes, the Facility LC Applications or the Security Instruments
and such default continues for more than thirty (30) days after the earlier of:
(i) Borrower having knowledge thereof, or (ii) Borrower receiving written notice
thereof from the Agent;

                  (c) Default shall be made by the Borrower in the due
observance or performance of any negative covenant required in this Agreement,
the Notes, the Facility LC Applications or the Security Instruments;

                  (d) Any representation or warranty herein made by the Borrower
proves to have been untrue in any respect material to the Borrower, or any
representation, statement (including Financial Statements), certificate or data
furnished or made by the Borrower to the Agent in connection herewith proves to
have been untrue in any respect material to the Borrower as of the date the
facts therein set forth were stated or certified;

                  (e) Default shall be made by the Borrower (as principal or
other surety) in payment or performance of any bond, debenture, note or other
evidence of Indebtedness for borrowed money, or under any credit agreement, loan
agreement, indenture, promissory note or similar agreement or instrument
executed in connection with any of the foregoing; and such default shall remain
unremedied for in excess of the period of grace, if any, with respect thereto,
with the effect of accelerating the maturity of any such material Indebtedness
in an aggregate amount of $100,000.00 or more;

                  (f) The Borrower discontinues its usual business or applies
for or consents to the appointment of a receiver, trustee or liquidator of it or
all or a substantial part of its assets, or (ii) files a voluntary petition
commencing a case under Title 11 of the United States Code, seeking liquidation,
reorganization or rearrangement or taking advantage of any bankruptcy,
insolvency, debtor's relief or other similar Law of the United States the State
of Texas or any other jurisdiction, or (iii) makes a general assignment for the
benefit of creditors, or (iv) is unable, or admits in writing its inability to
pay its debts generally as they become due, or (v) files an answer admitting the
material allegations of a petition filed against it in any case commenced under
Title 11 of the United States Code or any reorganization, insolvency,
conservatorship or similar proceeding under any bankruptcy, insolvency, debtor's
relief or other similar Law of the United States, the State of Texas or any
other jurisdiction;

                  (g) An order, judgment or decree shall be entered against the
Borrower by any court of competent jurisdiction or by any other duly authorized
authority, on the petition of a creditor or otherwise, granting relief under
Title 11 of the United States Code or under any bankruptcy, insolvency, debtor's
relief or other similar Law of the United States, the State of Texas or any
other jurisdiction, approving a petition seeking reorganization or an
arrangement of its debts or appointing a receiver, trustee, conservator,
custodian or liquidator of it or all or any

                                       53
<PAGE>   61

substantial part of its assets, and the failure to have such order, judgment or
decree dismissed within thirty (30) days of its entry;

                  (h) the Borrower has concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder, delay or
defraud its creditors or any of them; or has made or suffered a transfer of any
of its property which would be characterized as a fraudulent conveyance under
bankruptcy or similar Laws; or has made any transfer of its property to or for
the benefit of a creditor at a time when other creditors similarly situated have
not been paid; or has suffered or permitted, while insolvent, any creditor to
obtain a lien upon any of its property through legal proceedings or distraint
which is not vacated within thirty (30) days from the date thereof; or

                  (i) the Liens under the Security Instruments cease to be
perfected or cease to be first priority Liens subject to only Permitted
Encumbrances.

                  7.02 Rights Upon Unmatured Event of Default. At any time that
there exists an Unmatured Event of Default, any obligation of the Banks and the
LC Issuer to make Credit Extensions shall be suspended unless and until the
Agent, with the approval of the Required Banks and the LC Issuer, shall
reinstate the same in writing, the Unmatured Event of Default shall have been
waived by the Agent, with approval of the Required Banks and the LC Issuer or
the relevant Unmatured Event of Default shall have been remedied prior to
ripening into an Event of Default.

                  7.03 Rights Upon Default. Upon the happening of an Event of
Default specified in Subsections 7.01 (f) or (g), the obligations of the Banks
and the LC Issuer to make Credit Extensions hereunder shall automatically
terminate and all Obligations then outstanding hereunder and the interest
accrued thereon shall automatically become immediately due and payable without
any election or action on the part of the Agent, any Bank or the LC Issuer. Upon
the happening and during the continuation of any other Event of Default, the
Agent may, or upon the request of the Required Banks, the Agent shall terminate
or suspend the obligations of the Banks and the LC Issuer to make Credit
Extensions hereunder, or declare the Obligations to be immediately due and
payable, or both, and upon such declaration with respect to the Obligations they
shall become immediately due and payable. In either case, the entire principal
and interest shall thereupon become immediately due and payable, without notice
(including, without limitation, notice of intent to accelerate maturity or
notice of acceleration of maturity) and without presentment, demand, protest,
notice of protest or other notice of default or dishonor of any kind, except as
provided to the contrary elsewhere herein, all of which are hereby expressly
waived by the Borrower.

                  If, within thirty (30) days after acceleration of the maturity
of the Obligations or termination of the obligations of the Banks and LC Issuer
to make Credit Extensions hereunder as the result of any Event of Default (other
than any Event of Default specified in subsections 7.01(f) or (g)) and before
any judgement or decree for the payment of the Obligations due shall have been
obtained or entered, the Required Banks (in their sole discretion) shall direct
with respect to the Obligations relating to the Loans or the LC Issuer (in its
sole discretion) shall direct with respect to Obligations relating to Facility
LCs, the Agent shall, by notice to the Borrower, rescind and annul such
acceleration and/or termination.

                                       54
<PAGE>   62

                  7.04 Remedies. After any acceleration, as provided for in
Section 7.03, the Agent, the Banks and the LC Issuer shall have, in addition to
the rights and remedies given them by this Agreement and the Security
Instruments, all those allowed by all applicable Laws, including, but without
limitation, the Uniform Commercial Code as enacted in any jurisdiction in which
any Borrowing Base Oil and Gas Properties may be located. Without limiting the
generality of the foregoing, the Agent may, or upon the request of the Required
Banks shall, immediately without demand of performance and without other notice
(except as specifically required by this Agreement or the Security Instruments)
or demand whatsoever to the Borrower, all of which are hereby expressly waived,
and without advertisement, sell at public or private sale or otherwise realize
upon, in Harris County, Texas, or in any other place where the Borrowing Base
Oil and Gas Properties may be located, or in such other place or places as the
Agent may designate, the whole or, from time to time, any part of the Borrowing
Base Oil and Gas Properties, or any interest which the Borrower may have
therein. After deducting from the proceeds of sale or other disposition of the
Borrowing Base Oil and Gas Properties all expenses (including all reasonable
expenses for legal services), the Bank shall apply such proceeds toward the
satisfaction of the Obligations. Any remainder of the proceeds after
satisfaction in full of the Obligations shall be distributed as required by
applicable Laws. Notice of any sale or other disposition shall be given to the
Borrower at least five (5) days before the time of any public sale or of the
time after which any intended private sale or other disposition of the Borrowing
Base Oil and Gas Properties is to be made, which the Borrower hereby agrees
shall be reasonable notice of such sale or other disposition. The Borrower
agrees to assemble, or to cause to be assembled, at its own expense, documents
evidencing its ownership of the Borrowing Base Oil and Gas Properties and such
other documents or items as the Agent may reasonably request at such place or
places as the Agent shall designate. At any such sale or other disposition, the
Agent and/or any Bank, to the extent permissible under applicable Laws, may
purchase the whole or any part of the Borrowing Base Oil and Gas Properties,
free from any right of redemption on the part of the Borrower, which right is
hereby waived and released. Without limiting the generality of any of the rights
and remedies conferred upon the Agent for the benefit of the Banks under this
paragraph, the Agent may, to the full extent permitted by the applicable Laws:

                  (A) Enter upon the premises of the Borrower (and, to the
         extent necessary in the judgment of the Agent, exclude therefrom the
         Borrower or any Affiliate thereof) and take immediate possession of the
         Borrowing Base Oil and Gas Properties, either personally or by means of
         a receiver appointed by a court of competent jurisdiction, using all
         necessary force to do so;

                  (B) At the Agent's option, use, operate, manage, and control
         the Borrowing Base Oil and Gas Properties in any lawful manner;

                  (C) Collect and receive all rents, income, revenue, earnings,
         issues, and profits therefrom for the benefit of the Banks; and

                  (D) Maintain, repair, renovate, alter, or remove the Borrowing
         Base Oil and Gas Properties as the Banks may determine in their
         discretion.

                                       55
<PAGE>   63

                  7.05 Right of Set-off. Upon the occurrence of any Event of
Default, each Bank may, and is hereby authorized by the Borrower, at any time
and from time to time, to the fullest extent permitted by applicable Laws,
without advance notice to the Borrower (any such notice being expressly waived
by the Borrower), set-off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and any other
indebtedness at any time owing by such Bank to or for the credit or the account
of the Borrower against any or all of the Obligations of the Borrower now or
hereafter existing, whether or not such Obligations have matured and
irrespective of whether such Bank may have exercised any other rights that they
have or may have with respect to such Obligations, including, without
limitation, any acceleration rights. Each Bank agrees promptly to notify the
Borrower after any such set-off and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of each Bank under this Section 7.05 are in addition to the other
rights and remedies (including, without limitation, other rights of set-off)
which the Banks may have.

                                 ARTICLE VIII.

                                    THE AGENT

                  8.01 Authorization and Action. Each Bank hereby irrevocably
appoints and authorizes the Agent to act on its behalf and to exercise such
powers under this Agreement and the other Loan Documents as are specifically
delegated to or required of the Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto. As to any matters not
expressly provided for by this Agreement or the other Loan Documents (including,
without limitation, enforcement or collection of the Notes), the Agent shall not
be required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and, as between the Agent and the Banks, shall
be fully protected in so acting or refraining from acting) upon the instructions
of the Required Banks, and such instructions shall be binding upon all Banks and
all holders of Notes; provided, however, that the Agent shall not be required to
take any action which exposes such Agent to personal liability or which is
contrary to this Agreement, the other Loan Documents or applicable law.

                  8.02 Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to any Bank for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or the other Loan Documents (i) with the consent or at the
request of the Required Banks or (ii) in the absence of its or their own gross
negligence or willful misconduct (it being the express intention of the parties
that the Agent and its directors, officers, agents and employees shall have no
liability for actions and omissions under this Section 8.02 resulting from their
sole ordinary or contributory negligence). Without limitation of the generality
of the foregoing, the Agent: (i) may treat the payee of each Note as the holder
thereof until the Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to the Agent; (ii) may
consult with legal counsel (including counsel for Borrower or any of its
Subsidiaries), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (iii) makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any statements, warranties or representations made
in or in connection with this Agreement or

                                       56
<PAGE>   64

the other Loan Documents; (iv) except as otherwise expressly provided herein,
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement or the
other Loan Documents or to inspect the property (including the books and
records) of Borrower and its Subsidiaries; (v) shall not be responsible to any
Bank for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto; and (vi) shall
incur no liability under or in respect of this Agreement or the other Loan
Documents by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telegram, telecopier, cable or telex) reasonably
believed by it to be genuine and signed or sent by the proper party or parties;
and (vii) the provisions of this Section 8.02 shall survive the termination of
this Agreement and/or the payment or assignment of any of the Indebtedness under
this Agreement.

                  8.03 The Agent and Affiliates. With respect to its Commitment,
the Credit Extensions made by it and the Note issued to it as a Bank, the Agent
shall have the same rights and powers under this Agreement or the other Loan
Documents as any other Bank and may exercise the same as though it were not the
Agent. The term "Bank" or "Banks" shall, unless otherwise expressly indicated,
include the Agent in its individual capacity. The Agent and its affiliates may
accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with Borrower, any of its respective
Subsidiaries and any Person who may do business with or own securities of
Borrower, any of its respective Subsidiaries, all as if the Agent were not the
Agent and without any duty to account therefor to the Banks.

                  8.04 Bank Credit Decision. Each Bank acknowledges and agrees
that it has, independently and without reliance upon the Agent or any other Bank
and based on the Financial Statements referred to in Section 5.04 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
and agrees that it will, independently and without reliance upon the Agent or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents.

                  8.05 Agent's Indemnity. The Agent shall not be required to
take any action hereunder or to prosecute or defend any suit in respect of this
Agreement or the other Loan Documents unless indemnified to the Agent's
satisfaction by the Banks against loss, cost, liability and expense. If any
indemnity furnished to the Agent shall become impaired, it may call for
additional indemnity and cease to do the acts indemnified against until such
additional indemnity is given. In addition, the Banks agree to indemnify the
Agent (to the extent not reimbursed by Borrower), ratably according to the
respective principal amounts of the Notes then held by each of them (or if no
Notes are at the time outstanding, ratably according to either (i) the
respective amounts of their Commitments, or (ii) if no Commitments are
outstanding, the respective amounts of the Commitments immediately prior to the
time the Commitments ceased to be outstanding), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by the Agent under

                                       57
<PAGE>   65

this Agreement or the other Loan Documents (including, without limitation, any
action taken or omitted under Article II of this Agreement); provided, that no
Bank shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Each Bank
agrees, however, that it expressly intends, under this Section 8.05, to
indemnify the Agent ratably as aforesaid for all such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements arising out of or resulting from the Agent's ordinary or
contributory negligence. Without limitation of the foregoing, each Bank agrees
to reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent
in connection with the preparation, execution, administration, or enforcement
of, or legal advice in respect of rights or responsibilities under, this
Agreement and the other Loan Documents to the extent that the Agent is not
reimbursed for such expenses by Borrower. The provisions of this Section 8.05
shall survive the termination of this Agreement and/or the payment or assignment
of any of the Indebtedness under this Agreement.

                  8.06 Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Banks and Borrower and may be removed as
Agent under this Agreement and the other Loan Documents at any time with or
without cause by the Required Banks. Upon any such resignation or removal, the
Required Banks with the concurrence of Borrower shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within 30 calendar
days after the retiring Agent's giving of notice of resignation or the Required
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks and with the concurrence of Borrower, appoint a successor Agent. Upon
the acceptance of any appointment as Agent hereunder and under the other Loan
Documents by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation or removal as Agent hereunder and under the other
Loan Documents, the provisions of this Article VIII shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement and the other Loan Documents.

                  8.07 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Unmatured Event of Default or Event
of Default hereunder unless the Agent shall have received notice from a Bank or
Borrower referring to this Agreement, describing such Unmatured Event of Default
or Event of Default and stating that such notice is a "notice of default." If
the Agent receives such a notice, the Agent shall give notice thereof to the
Banks; provided, however, if such notice is received from a Bank, the Agent also
shall give notice thereof to Borrower. The Agent shall be entitled to take
action or refrain from taking action with respect to such Unmatured Event of
Default or Event of Default as provided in Section 8.01 and Section 8.02.

                                       58
<PAGE>   66

                                  ARTICLE IX.

                                  MISCELLANEOUS

                  9.01 Security Interests in Deposits and Right of Offset or the
Banker's Lien. The Borrower hereby transfers, assigns, pledges and grants to
each Bank a security interest (as security for the payment and/or performance of
the Obligations of the Borrower, with such interest of each Bank to be
retransferred, reassigned and/or released by such Bank at the expense of the
Borrower upon payment in full and/or complete performance by the Borrower of all
such Obligations) and the right, exercisable at such time as any obligation
hereunder shall mature, whether by acceleration of maturity or otherwise, of
offset or banker's lien against all funds or other property of the Borrower now
or hereafter or from time to time on deposit with or in the possession of such
Bank, including, without limitation, all certificates of deposit and other
depository accounts.

                  9.02 Survival of Representations, Warranties and Covenants.
All representations and warranties of the Borrower and all covenants and
agreements herein made shall survive the execution and delivery of the Notes and
this Agreement and shall remain in force and effect so long as any debt is
outstanding under the Notes, or any renewal or extension of this Agreement or
the Notes, or the Banks remain obligated to make advances hereunder.

                  9.03 Notices and Other Communications. Notices, requests and
communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, facsimile, telex,
telegram or hand):

                       (A)  If to the
                            Borrower:       ENERGY PARTNERS, LTD.
                                            201 St. Charles Avenue, Suite 3400
                                            New Orleans, Louisiana 70170-3400
                                            Attention: Chief Executive Officer

                            with a copy
                            to:             Evercore Partners
                                            65 East 55th Street, 33rd Floor
                                            New York, New York 10022
                                            Attn: Austin M. Beutner

                            with a copy
                            to:             Energy Income Fund, L.P.
                                            c/o Associated Energy Managers, Inc.
                                            136 Dwight Road
                                            Longmeadow, Massachusetts 01106
                                            Attention: Robert D. Gershen

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<PAGE>   67

                       (B)  If to the
                            Agent or
                            the Banks:      BANK ONE, TEXAS, N.A.
                                            910 Travis, 6th Floor
                                            Houston, Texas 77002
                                            Attention: Stephen M. Shatto

                  Any party may, by proper written notice hereunder to the
other, change the individuals or addresses to which such notices to it shall
thereafter be sent. Notwithstanding anything to the contrary herein, although
the Agent will use reasonable commercial efforts to provide EIF with a copy of
any notice to Borrower of an Event of Default pursuant to Sections 7.01(a) and
(b) of this Agreement, any inadvertent failure by the Agent to provide EIF with
a copy of any such notice shall in no way waive, impair, or diminish the Banks'
rights and remedies upon an Event of Default against the Borrower hereunder or
under applicable law.

                  9.04 Parties in Interest. All covenants and agreements herein
contained by or on behalf of the Borrower shall be binding upon the Borrower and
its successors and assigns and inure to the benefit of the Agent and the Banks
and their respective successors and assigns.

                  9.05 Successors and Assigns; Participation; Purchasing Banks.

                  (a) Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
permitted assigns of such party; and all covenants, promises and agreements by
or on behalf of Borrower, the Agent or the Banks that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
permitted assigns. Borrower may not assign or transfer any of its rights or
obligations hereunder without the written consent of all the Banks.

                  (b) Each Bank may, without the consent of Borrower, sell
participation to one or more banks or other financial institutions in all or a
portion of its rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, all or a portion of its Commitment,
the Loans owing to it, and the Notes held by it); provided, however, that (i)
the selling Bank's obligations under this Agreement and the other Loan Documents
shall remain unchanged, (ii) such Bank shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) Borrower,
the Agent, and the other Banks shall continue to deal solely and directly with
the selling Bank in connection with such Bank's rights and obligations under
this Agreement and the other Loan Documents, (iv) the selling Bank shall remain
the holder of its Note(s) for all purposes of this Agreement, and (v) no
participant under any such participation shall have any right to approve any
amendment or waiver of any provision of this Agreement or any Note, or any
consent to any departure by the Borrower therefrom, except to the extent that
such amendment, waiver or consent would reduce to the principal of, or interest
on, the Notes or any fees or other amounts payable hereunder, in each case to
the extent subject to such participation, or postpone any regularly scheduled
payment of principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, in each case to the extent subject to such participation.

                                       60
<PAGE>   68

                  (c) With the prior written consent of Borrower and the Agent,
each Bank may assign to one or more banks or other entities (a "Purchasing
Bank"), all or a portion of its interests, rights and obligations under this
Agreement and the other Loan Documents (including, without limitation, all or a
portion of its Commitment and the same portion of the Loans at the time owing to
it and the Notes held by it); provided, however, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all the assigning
Bank's rights and obligations under this Agreement and the other Loan Documents,
(ii) after giving effect to such assignment, the Purchasing Bank's Commitment
must be at least $5,000,000 (either solely as the result of such assignment or
as the result of multiple assignments from two or more assigning Banks), (iii)
the parties to each such assignment shall execute and deliver to the Agent a
Commitment Transfer Supplement together with any Notes subject to such
Commitment Transfer Supplement, (iv) the assigning Bank shall pay to Agent an
assignment fee of $3,500, (v) an assigning Bank shall not assign a portion of
such Bank's Commitment in an amount less than an amount equal to the lesser of
such Bank's Commitment hereunder and $2,500,000 and (vi) if the assigning Bank
has retained any Commitment hereunder, such assigning Bank's Commitment shall be
at least $5,000,000 after giving effect to such assignment. Upon such execution
and delivery, from and after the effective date specified in each Commitment
Transfer Supplement, which effective date shall be at least five Business Days
after the execution thereof (x) the Purchasing Bank thereunder shall be a party
hereto and, to the extent herein provided in such, have the rights and
obligations of a Bank hereunder and (y) the assignor Bank thereunder shall, to
the extent provided in such assignment, be released from its obligations under
this Agreement and the other Loan Documents (and, in the case of a Commitment
Transfer Supplement covering all of the remaining portion of an assigning Bank's
rights and obligations under this Agreement and the other Loan Documents, such
Bank shall cease to be a party hereto). Such Commitment Transfer Supplement
shall be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting
adjustment of Percentage Shares arising from the purchase by such Purchasing
Bank of all or a portion of the rights and obligations of such assigning Bank
under this Agreement, the Notes and the other Loan Documents.

                  (d) The Agent shall maintain at its office a copy of each
Commitment Transfer Supplement delivered to it and a register for the
recordation of the names and addresses of the Banks and the Commitment Amount
of, and principal amount of the Loans owing to, each Bank from time to time (the
"Register"). The entries in the Register shall be conclusive, in the absence of
manifest error, and Borrower, the Agent, and the Banks may treat each Person
whose name is recorded in the Register as a Bank hereunder for all purposes of
this Agreement. The Register shall be available for inspection by Borrower or
any Bank at any reasonable time and from time to time upon reasonable prior
notice.

                  (e) Upon its receipt of a Commitment Transfer Supplement
executed by an assigning Bank and a Purchasing Bank together with any Notes
subject to such Commitment Transfer Supplement and the written consent to such
Commitment Transfer Supplement, the Agent shall (i) accept such Commitment
Transfer Supplement, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Banks and Borrower. Within
five (5) Business Days after receipt of such notice, Borrower shall, at its own
expense, execute and deliver to the Agent, in exchange for the surrendered
Notes, replacement Notes dated as of the effective date of such surrendered
Notes and otherwise substantially in the form

                                       61
<PAGE>   69

of the Notes replaced thereby payable to the order of such Purchasing Bank in an
amount equal to the Commitment assumed by it pursuant to such Commitment
Transfer Supplement and, if the assigning Bank has retained any Commitment
hereunder, replacement Notes dated as of the effective date of the surrendered
Notes and otherwise substantially in the form of the Notes replaced thereby
payable to the order of the assigning Bank in an amount equal to the Commitment
of such assigning Bank retained by it hereunder. Such replacement Notes shall be
in an aggregate principal amount equal to the aggregate principal amount of such
surrendered Notes. Contemporaneously with the delivery of the replacement Notes,
the canceled Notes shall be returned to Borrower marked "Replaced."

                  (f) Each Bank agrees to hold any confidential information
which it may receive from the Borrower pursuant to this Agreement in confidence,
except for disclosure (i) to its Affiliates and to other Banks and their
respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to such Bank, (iii) to regulatory officials, (iv) to any
Person as requested pursuant to or as required by law, regulation, or legal
process, (v) to any Person in connection with any legal proceeding to which such
Bank is a party, (vi) to such Bank's direct or indirect contractual
counterparties in swap agreements or to legal counsel, accountants and other
professional advisors to such counterparties, and (vii) permitted by this
Section. Notwithstanding any other provision herein, any Bank may, in connection
with any assignment or participation or proposed assignment or participation
pursuant to this Section 9.05, disclose to the assignee or participant or
proposed assignee or participant, any information relating to Borrower or any
other Subsidiary of Borrower furnished to such Bank by or on behalf of Borrower
or any other Subsidiary of Borrower; provided, that prior to any such
disclosure, each such assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any confidential
information relating to Borrower and any of its Subsidiaries received from such
Bank to the same extent as required by this Section.

                  (g) Assignment to Federal Reserve Bank. Notwithstanding any
other language in this Agreement, any Bank may at any time assign all or any
portion of its rights under this Agreement and the Notes to a Federal Reserve
Bank as collateral in accordance with Regulation A and the applicable operating
circular of such Federal Reserve Bank.

                  9.06 Renewals and Extensions. All provisions of this Agreement
relating to the Notes shall apply with equal force and effect to each and all
promissory notes hereafter executed which in whole or in part represent a
renewal, extension, amendment, modification or rearrangement of any part of the
Indebtedness originally represented by the Notes.

                  9.07 No Waiver by the Agent, the Banks or the LC Issuer. No
course of dealing on the part of the Agent, the Banks or the LC Issuer, their
officers or employees, nor any failure or delay by the Agent, any Bank or the LC
Issuer with respect to exercising any of its rights, powers or privileges under
this Agreement, the Notes, the Facility LC Applications, the Security
Instruments, or any other instrument referred to herein or executed in
connection with the Notes shall operate as a waiver thereof. The rights and
remedies of the Agent, the Banks and the LC Issuer under this Agreement, the
Notes, the Facility LC Applications, the Security Instruments, or any other
instrument referred to herein or executed in connection with the Notes shall be
cumulative and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.

                                       62
<PAGE>   70

                  No Credit Extensions hereunder shall constitute a waiver of
any of the covenants or warranties of the Borrower contained herein or of any of
the conditions to the Banks' or the LC Issuer's obligation to make further
Credit Extensions hereunder. In the event that the Borrower is unable to satisfy
any such covenant, warranty or condition, no such Credit Extension shall have
the effect of precluding the Banks or the LC Issuer from thereafter declaring
such inability to be an Event of Default as hereinabove provided.

                  9.08 Waiver, Release, and Indemnification by the Borrower. To
the maximum extent permitted by applicable Laws, the Borrower:

                  (A) Waives (1) protest of all commercial paper at any time
         held by any Bank on which the Borrower is in any way liable; (2) except
         as the same may herein be specifically granted, notice of acceleration
         and intention to accelerate; and (3) notice and opportunity to be
         heard, after acceleration in the manner provided in Section 7.03,
         before exercise by Agent, any Bank or the LC Issuer of the remedies of
         self-help, set-off, or of other summary procedures permitted by any
         applicable Laws or by any agreement with the Borrower, and, except
         where required hereby or by any applicable Laws, notice of any other
         action taken by Agent, any Bank or the LC Issuer;

                  (B) Releases Agent, each Bank and the LC Issuer and their
         respective officers, employees, directors, attorneys, and agents
         (collectively, the "Bank Parties") from all claims for loss or damage
         caused by any act or omission on the part of any of them except willful
         misconduct or gross negligence; and

                  (C) Agrees to indemnify and hold the Bank Parties harmless
         from and against all claims, damages, liabilities and expenses, known
         or unknown, accrued and unaccrued, unless attributable to the Bank
         Parties' own gross negligence or willful misconduct, that may now or
         hereafter be asserted against any of the Bank Parties in connection
         with or arising out of any investigation, litigation or proceeding
         directly or indirectly relating to or arising out of any of the
         transactions contemplated by this Agreement.

                  9.09 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

                  9.10 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules attached to this Agreement are incorporated herein for all purposes
and shall be considered a part of this Agreement.

                  9.11 Survival Upon Unenforceability. In the event any one or
more of the provisions contained in this Agreement, the Notes, the Security
Instruments, or in any other instrument referred to herein or executed in
connection with the Notes shall, for any reason, be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof or of any other instrument referred
to herein or executed in connection herewith.

                  9.12 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of the Agent, the Banks, the LC
Issuer and Borrower and no other

                                       63
<PAGE>   71

Person shall have standing to require satisfaction of such provisions in
accordance with their terms or be entitled to assume that any Bank will refuse
to make advances in the absence of strict compliance with any or all thereof.
Any or all of such provisions may be freely waived in whole or in part by the
Agent, the Banks and the LC Issuer at any time if in their discretion they deem
it advisable to do so.

                  9.13 Amendments or Modifications. Subject to the provisions of
this Section, the Required Banks (or the Agent with the consent in writing of
the Required Banks) and the Borrower may enter into agreements supplemental
hereto for the purpose of adding or modifying any provisions to the Loan
Documents or changing in any manner the rights of the Banks or the Borrower
hereunder or waiving any Event of Default hereunder; provided, however, that no
such supplemental agreement shall, without the consent of all of the Banks:

         (i)      Extend the final maturity of any Loan, postpone any regularly
                  scheduled payment of principal of any Loan, forgive all or any
                  portion of the principal amount thereof, or reduce the rate or
                  extend the time of payment of interest or fees thereon.

         (ii)     Reduce the percentage specified in the definition of Required
                  Banks.

         (iii)    Extend the Facility Termination Date, or reduce the amount or
                  extend the payment date for, the mandatory payments required
                  under Sections 2.07 or 2.08, or increase the Aggregate
                  Commitment Amount or the Commitment of any Bank hereunder, or
                  permit the Borrower to assign its rights under this Agreement.

         (iv)     Amend the requirement that the Borrowing Base may be increased
                  and the Monthly Borrowing Base Reduction may be decreased only
                  with the consent of all Banks.

         (v)      Release any guarantor of any Loan or, except as provided in
                  the Security Instruments, release all or substantially all of
                  the Borrowing Base Oil and Gas Properties.

         (vi)     Amend this Section 9.13.

         No amendment of any provision of this Agreement relating to the Agent
shall be effective without the written consent of the Agent.

                  9.14 Agreement Construed as an Entirety. This Agreement, for
convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal relations
of the parties hereto shall be determined from this Agreement as an entirety and
without regard to the aforesaid division into Articles and Sections and without
regard to headings prefixed to said Articles or Sections.

                  9.15 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the

                                       64
<PAGE>   72

masculine, feminine, and neuter, when such construction is appropriate, and
specific enumeration shall not exclude the general, but shall be construed as
cumulative.

                  9.16 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTES, THE FACILITY LC APPLICATIONS, THE SECURITY
INSTRUMENTS, AND ANY OTHER WRITTEN INSTRUMENTS EXECUTED PURSUANT TO THIS
AGREEMENT REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO WITH RESPECT TO THE SUBJECT HEREOF AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

                  9.17 Controlling Provision Upon Conflict. In the event of a
conflict between the provisions of this Agreement and those of the Notes, the
Facility LC Applications, the Security Instruments or any other instrument
referred to herein or executed in connection with the Notes, the provisions of
this Agreement shall control; provided if any of the Facility LC Applications or
Security Instruments contain any representations, warranties, or covenants of
the Borrower that are in addition to or are more restrictive on the Borrower
than those set forth in this Agreement, such additional or more restrictive
representations, warranties, and covenants shall control.

                  9.18 Time, Place and Method of Payments. All payments required
pursuant to this Agreement or the Notes shall be made in immediately available
funds; shall be deemed received by the Agent on the next Business Day following
receipt if such receipt is after 4:00 p.m., on any Business Day, and shall be
made at the principal banking quarters of the Agent in Houston, Texas.

                  9.19 Termination. This Agreement and the Aggregate Commitment
Amount may be canceled by the Borrower without premium or penalty prior to the
Facility Termination Date upon at least thirty (30) days' prior written notice,
provided, that the Obligations that are then due and payable are paid and
performed in full to the satisfaction of the Agent and the Banks; provided,
however that any such cancellation hereunder shall not terminate any
obligations, representations or warranties of the Borrower to the Agent and/or
the Banks hereunder and under other Loan Documents that survive beyond the
Facility Termination Date. Upon the earlier to occur of the (i) the Facility
Termination Date, and (ii) cancellation of this Agreement and the Aggregate
Commitment Amount prior thereto in accordance with this Section 9.19 and upon
payment and performance in full of the Obligations that are due and payable to
the satisfaction of the Banks, the Agent agrees, at the Borrower's request and
sole cost and expense, to execute and deliver any such lien release documents
and other documentation reasonably requested by the Borrower to release or
terminate the Agent's liens and security interests hereunder and under the other
Loan Documents.

                  9.20 Non-Application of Chapter 346 of Texas Finance Code. The
provisions of Chapter 346 of the Texas Finance Code are specifically declared by
the parties hereto not to

                                       65
<PAGE>   73

be applicable to this Agreement or any of the other Security Instruments or to
the transactions contemplated hereby.

                  9.21 Counterpart Execution. This Agreement may be executed as
one instrument signed by all parties or in separate counterparts hereof, each of
which counterparts shall be considered an original and all of which shall be
deemed to be one instrument, and any signed counterpart shall be deemed
delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.

                  9.22 Loan Documents Subject to Other Agreements. Agent and
each Bank hereby acknowledge that they are aware of the terms and provisions of
that certain Farmout Agreement and those four certain Partial Assignments of
Operating Rights described in the Consent Letter dated June 9, 1999 from
Borrower to Chevron U.S.A. Inc. and Kewanee Industries, Inc., and executed by
Kewanee Industries, Inc. on June 11, 1999 and by Chevron U.S.A. Inc. on June 17,
1999. In reliance on that certain Officer's Certificate of the president of
Borrower dated June 23, 1999 relating to such Consent Letter, which Borrower
agrees Agent and each Bank are entitled to rely on, Agent and each Bank agree
and acknowledge that this Agreement and all other Loan Documents, insofar as
they pertain to the Oil and Gas Properties covered by the foregoing Farmout
Agreement and Assignments, shall be subject and subordinate to any existing
liens, encumbrances or privileges in favor of Chevron or Kewanee by operation of
law or such agreements between Borrower and such parties. Agent and each Bank
also acknowledge that this Agreement and all of the Loan Documents are subject
to the terms and provisions of that certain Asset Purchase Agreement (the
"Purchase Agreement") dated June 23, 1998, effective April 1, 1998, executed by
and between Shell Offshore Inc., et al., Borrower and Union Oil Company of
California d/b/a Spirit Energy 76 ("Spirit"), insofar as this Agreement and the
Loan Documents pertain to the Oil and Gas Properties covered by such Purchase
Agreement.

                  9.23 Obligations to EIF. Agent and each Bank hereby
acknowledge and agree that Borrower is required pursuant to the terms of that
certain Financing Agreement dated April 15, 1998 by and between Borrower and
EIF, as amended, to execute and deliver additional mortgage supplements to EIF
covering any and all additional interests that it earns or has earned pursuant
to the terms of the Farmout Agreement dated June 9, 1998, by and between Chevron
U.S.A. Inc., Kewanee Industries, Inc. and Borrower. Agent and each Bank hereby
agree that Borrower's execution and delivery of such additional mortgage
supplements to EIF shall not constitute a breach of any representation, warranty
or covenant contained in this Agreement or any of the Security Instruments and
shall not constitute a default hereunder or under any of the Security
Instruments; provided that such additional mortgage supplements shall be subject
to the Subordination Agreement.

                  9.24 Amended and Restated Agreement. This Agreement amends,
extends, rearranges and restates the Prior Loan Agreement. The Prior Loan
Agreement and all Loan Documents and Security Instruments (as defined in the
Prior Loan Agreement) referred to therein have, as of the Closing, been assigned
from Bank One, Texas, N.A., as the sole lender under the Prior Loan Agreement,
to Bank One, Texas, N.A., as Agent hereunder, for the benefit of the Banks and
the LC Issuer, pursuant to an Assignment of Notes and Liens delivered in
satisfaction of Section 3.01(G) of this Agreement. All Security Instruments (as
defined and

                                       66
<PAGE>   74

executed pursuant to the Prior Loan Agreement) shall also constitute Security
Instruments as defined in this Agreement, and they shall continue to secure all
Obligations of Borrower to the Agent, the Banks and the LC Issuer hereunder.

                  IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.

                                        BORROWER

                                        ENERGY PARTNERS, LTD.

                                        By: /s/ RICHARD A. BACHMANN
                                           ------------------------------
                                           Richard A. Bachmann, President

                                        BANK

                                        BANK ONE, TEXAS, N.A.
                                        As Agent, as a Bank and as LC Issuer

                                        By: /s/ STEPHEN M. SHATTO
                                           ------------------------------
                                           Stephen M. Shatto
                                           Vice President

                                       67<PAGE>   1
                                                                   EXHIBIT 10.18

                           PURCHASE AND SALE AGREEMENT

                                 by and between

                               OCEAN ENERGY, INC.
                                    (Seller)

                                       and

                              ENERGY PARTNERS, LTD.
                                     (Buyer)

                                   ----------

                               SOUTH PASS 24 FIELD
                               SOUTH PASS 27 FIELD
                               SOUTH PASS 39 FIELD
                               (EAST BAY COMPLEX)

                                   ----------

                             Dated January 26, 2000
                            Effective January 1, 2000

<PAGE>   2

                           PURCHASE AND SALE AGREEMENT

                                LIST OF EXHIBITS

Exhibit A         Assets

         A-1 - Leases

         A-2 - Other Interests and Contracts

Exhibit B         Assignment and Conveyance of Oil and Gas Leases

         B-1      Assignment and Conveyance - OCS Leases

         B-2      Assignment and Conveyance - Louisiana State Leases

         B-3      Assignment and Conveyance - Private Landowner Leases

         B-4      Assignment and Conveyance - BLM Lease

         B-5      Assignment and Conveyance - OCS Pipeline Rights-of-Way

         B-6      Assignment and Conveyance - Louisiana State Pipeline
                  Rights-of-Way

         B-7      Assignment and Conveyance - Louisiana State Surface Leases

         B-8      Assignment and Conveyance - Private Surface Leases

         B-9      Assignment of Subsurface Agreements

         B-10     Assignment of Overriding Royalty

Exhibit C         Assignment and Assumption of Contracts

Exhibit D         Bill of Sale of Facilities and Movables

Exhibit E         Letter-in-Lieu

Exhibit F         Nonforeign Affidavit

Exhibit G         Pending Litigation and Claims

Exhibit H         [Intentionally Omitted]

<PAGE>   3

Exhibit I         Production Handling Agreement

Exhibit J         Trust Agreement

Exhibit K         Qualified Intermediary

         K-1      Seller's Assignment Notice

         K-2      Buyer's Assignment Notice

Exhibit L         Seismic Information and Data

Exhibit M         Excluded Pipeline

Exhibit N         Employee List

<PAGE>   4

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                        <C>
ARTICLE I  DEFINITIONS                                                     1
     1.1   Agreement                                                       1
     1.2   Assets                                                          1
     1.3   BLM                                                             1
     1.4   Burdens                                                         2
     1.5   Business Day                                                    2
     1.6   Buyer                                                           2
     1.7   Buyer's Assumed Obligations                                     2
     1.8   Buyer's Credits                                                 2
     1.9   Casualty Loss                                                   2
     1.10  Claims                                                          2
     1.11  Closing                                                         2
     1.12  Closing Date                                                    2
     1.13  Code                                                            2
     1.14  DEQ                                                             2
     1.15  DOC                                                             2
     1.16  Defects                                                         2
     1.17  Effective Time                                                  2
     1.18  Environment                                                     2
     1.19  Environmental Defect                                            2
     1.20  Environmental and Conservation Laws                             3
     1.21  Environmental Obligations                                       3
     1.22  Excluded Assets                                                 3
     1.23  Final Settlement                                                5
     1.24  Final Settlement Statement                                      5
     1.25  Governmental Body                                               5
     1.26  Hazardous Materials                                             5
     1.27  Hydrocarbons                                                    5
     1.28  Interim Period                                                  5
     1.29  Inventory Hydrocarbons                                          5
     1.30  [Intentionally Omitted]                                         6
     1.31  Leases                                                          6
     1.32  MMS                                                             6
     1.33  NORM                                                            6
     1.34  Party and Parties                                               6
     1.35  Performance Deposit                                             6
     1.36  Person                                                          6
     1.37  Personal Property and Other Interests                           6
     1.38  Plugging and Abandonment Obligations                            7
     1.39  Preliminary Settlement Statement                                7
     1.40  Production Handling Agreement                                   7
</TABLE>

<PAGE>   5
<TABLE>
<S>                                                                       <C>
     1.41  Property Taxes                                                  7
     1.42  Purchase Price                                                  7
     1.43  Release                                                         7
     1.44  Seller                                                          8
     1.45  Seller's Bond                                                   8
     1.46  Seller's Credits                                                8
     1.47  Seller's Retained Obligations                                   8
     1.48  Shell Trust Agreement                                           8
     1.49  SMB                                                             8
     1.50  Tax Period                                                      8
     1.51  Title Defect                                                    8
     1.52  Transfer Taxes                                                  8
     1.53  Trust Agreement                                                 9

ARTICLE II   PURCHASE AND SALE                                             9
     2.1   Sale and Purchase                                               9
     2.2   Performance Deposit                                             9
     2.3   Qualified Intermediary                                          9

ARTICLE III  PURCHASE PRICE AND PAYMENT                                   10
     3.1   Purchase Price                                                 10
     3.2   Adjustments to Purchase Price                                  10
     3.3   Seller's Preliminary and Final Settlement Statements           10

ARTICLE IV   SELLERS' REPRESENTATIONS AND WARRANTIES                      12
     4.1   Seller's Representations and Warranties                        12
     4.2   Seller's Notice                                                14
     4.3   Corrective Action                                              14

ARTICLE V     BUYER'S REPRESENTATIONS AND WARRANTIES                      15
     5.1   Buyer's Representations and Warranties                         15
     5.2   Buyer's Notice                                                 16

ARTICLE VI    ACCESS TO INFORMATION AND INSPECTION                        16
     6.1   Title Files                                                    16
     6.2   Other Files                                                    17
     6.3   Confidentiality Agreement                                      17
     6.4   Inspections                                                    17
     6.5   Title and Environmental Defects - Notice, Adjustments
           and Termination                                                17
     6.6   Interest Additions                                             18
     6.7   Change in Condition                                            19

ARTICLE VII   TITLE AND OTHER MATTERS                                     19
     7.1   Limitation of Warranties and Representations                   19
     7.2   Buyer's Title Review                                           20
</TABLE>

<PAGE>   6
<TABLE>
<S>                                                                        <C>
ARTICLE VIII  PREFERENTIAL PURCHASE RIGHTS AND CONSENTS                    20
     8.1   Commercially Reasonable Efforts                                 20
     8.2   Preferential Purchase Rights and Consents                       20

ARTICLE IX    COVENANTS OF SELLER                                          21
     9.1   Covenants of Seller Pending Closing                             21
     9.2   Covenants Following Closing                                     22
     9.3   Radio Frequency                                                 22

ARTICLE X     CLOSING CONDITIONS                                           22
     10.1  Seller's Closing Conditions                                     22
     10.2  Buyer's Closing Conditions                                      24
     10.3  General Closing Conditions                                      25
     10.4  Condition                                                       25

ARTICLE XI    CLOSING                                                      25
     11.1  Closing                                                         25
     11.2  Seller's Closing Obligations                                    26
     11.3  Buyer's Closing Obligations                                     28
     11.4  Joint Closing Obligations                                       30
     11.5  Failure to Close                                                30

ARTICLE XII   EFFECT OF CLOSING                                            30
     12.1  Buyer's Rights After Closing                                    30
     12.2  Buyer's Obligations After Closing                               31
     12.3  Seller's Obligations After Closing                              32
     12.4  Plugging and Abandonment Obligations                            33
     12.5  Environmental Obligations                                       34
     12.6  Revenues and Expenses                                           36
     12.7  Seller Operated Properties                                      37

ARTICLE XIII  INDEMNITIES                                                  37
     13.1  Definition of Claims                                            37
     13.2  Application of Indemnities                                      37
     13.3  Buyer's Indemnity                                               38
     13.4  Seller's Indemnity                                              39
     13.5  Notices and Defense of Indemnified Claims                       39
     13.6  Pending Litigation and Claims                                   39
     13.7  Waiver of Consequential and Punitive Damages                    40
</TABLE>

<PAGE>   7

<TABLE>
<S>                                                                        <C>
ARTICLE XIV   LIMITATIONS OF WARRANTIES AND REMEDIES                       40
     14.1   Limitations                                                    40
     14.2   NORM                                                           41
     14.3   Assignment Disclaimers                                         41
     14.4   Survival                                                       41

ARTICLE XV    CASUALTY LOSS AND CONDEMNATION                               41
     15.1   Casualty Loss                                                  41
     15.2   Limitation                                                     42

ARTICLE XVI   DEFAULT AND REMEDIES                                         42
     16.1   Seller's Remedies                                              42
     16.2   Buyer's Remedies                                               42
     16.3   Effect of Termination                                          43
     16.4   Other Remedies                                                 43

ARTICLE XVII  MISCELLANEOUS                                                43
     17.1   Certain Governmental Approvals                                 43
     17.2   Bonding and Trust Account                                      44
     17.3   Public Announcements                                           45
     17.4   Filing and Recording of Assignments, etc.                      45
     17.5   Further Assurances and Records                                 45
     17.6   Notices                                                        46
     17.7   Incidental Expenses                                            47
     17.8   Entire Agreement                                               47
     17.9   Governing Law                                                  47
     17.10  Exhibits                                                       48
     17.11  Audits Access to Assets                                        48
     17.12  Counterparts                                                   48
     17.13  Waiver                                                         48
     17.14  Binding Effect: Assignment                                     48
     17.15  Taxes                                                          49
     17.16  Gas Transportation\Processing                                  49
     17.17  Mediation and Arbitration                                      49
     17.18  No Third Party Beneficiaries                                   51
     17.19  Employee Matters                                               52

ARTICLE XVIII REDHIBITION WAIVERS                                          52
     18.1   Waiver of Louisiana Rights in Redhibition                      52
     18.2   Buyer's Acknowledgment                                         52
</TABLE>

<PAGE>   8

                           PURCHASE AND SALE AGREEMENT

         THIS AGREEMENT dated as of the 26th day of January, 2000, is made by
and between Ocean Energy, Inc., a Louisiana corporation ("Seller"), and Energy
Partners, Ltd.., a Delaware corporation ("Buyer"). Seller and Buyer are
sometimes referred to herein individually as "Party" and together as "Parties."

                                   WITNESSETH:

         WHEREAS, Seller owns certain oil and gas leasehold and other interests
as to the South Pass 24, South Pass 27 and South Pass 39 Field areas situated
onshore and offshore the State of Louisiana, as described in Exhibits "A-1" and
"A-2" attached hereto;

         WHEREAS, Seller desires to sell and assign the aforementioned leasehold
and other interests and associated assets, contractual rights and obligations to
Buyer, and Buyer desires to purchase, pay for, assume and acquire Seller's
interest therein on the terms and conditions set forth in this Agreement;

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, Seller and Buyer hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

         In this Agreement, the following terms shall have the following
meanings:

1.1 "Agreement" means this Purchase and Sale Agreement between Seller and Buyer,
including Exhibits "A" through "N" thereto.

1.2 "Assets" means the following described interests, rights, contracts, assets,
and properties (except to the extent constituting Excluded Assets):

         1.2.1 The Leases;

         1.2.2 The Personal Property and Other Interests; and

         1.2.3 The Inventory Hydrocarbons.

1.3 "BLM" means the United States Department of Interior, Bureau of Land
Management.

<PAGE>   9

1.4 "Burdens" means royalties (including both lessors' royalties and
nonparticipating royalty interests), overriding royalties, net profits
interests, reversionary interests, production payments, and other similar
obligations and burdens payable out of production.

1.5 "Business Day" means a day on which the banks are open for business in New
Orleans, Louisiana, U.S.A.

1.6 "Buyer" means Energy Partners, Ltd., a Delaware corporation.

1.7 "Buyer's Assumed Obligations" shall be as defined in Section 12.2.1.

1.8 "Buyer's Credits" shall be as defined in Section 3.2.2.

1.9 "Casualty Loss" shall be as defined in Section 15.1.

1.10 "Claims" shall be as defined in Section 13.1.

1.11 "Closing" shall be as defined in Section 11.1.

1.12 "Closing Date" shall be as defined in Section 11.1.

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

1.14 "DEQ" means the Department of Environmental Quality of the State of
Louisiana.

1.15 "DOC" means the Office of Conservation of the Department of Natural
Resources of the State of Louisiana.

1.16 "Defects" shall be as defined in Section 6.5.1.

1.17 "Effective Time" means 7:00 a.m. Lafayette, Louisiana time, on January 1,
2000.

1.18 "Environment" means navigable waters, ocean waters, natural resources,
coastal waters, surface waters, ground water, drinking water supply, land
surface, subsurface strata, ambient air, both inside and outside of buildings
and structures, wildlife, aquatic species, vegetation and the marine, coastal or
human environment.

1.19 "Environmental Defect" shall mean any contamination or condition on, in,
intrinsic to or below the Assets that is the result of any Release, production,
storage or treatment of Hazardous Materials on, in or below the Assets that
requires remediation at the Effective Time pursuant to any Environmental and
Conservation Laws in effect as of the Effective Time.

                                       2
<PAGE>   10

1.20 "Environmental and Conservation Laws" means all federal, state and local
laws, statutes, ordinances, now or hereafter in effect, and in each case as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
the regulation of Hazardous Materials; the protection of human health, safety or
the Environment; and the conservation of natural resources, including, without
limitation, laws and regulations relating to Releases or threatened Releases of
Hazardous Materials or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials. Environmental and Conservation Laws include, but are not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Federal Insecticide, Fungicide, and
Rodenticide Act, as amended; the Resource Conservation and Recovery Act, as
amended; the Toxic Substances Control Act, as amended; the Clean Air Act, as
amended; the Federal Water Pollution Control Act, as amended; the Clean Water
Act, as amended; the Oil Pollution Control Act, as amended; the Oil Pollution
Act of 1990, as amended; the Endangered Species Act, as amended; the Wild and
Scenic Rivers Act, as amended; the Rivers and Harbors Act of 1899, as amended;
the National Historic Preservation Act of 1966, as amended; the Natural Gas
Pipeline Safety Act of 1968, as amended; and the Safe Drinking Water Act, as
amended; the Solid Waste Disposal Act, as amended; the Hazardous Liquids
Pipeline Safety Act, as amended; the Outer Continental Shelf Lands Act, as
amended; the Occupational Safety and Health Act of 1970, as amended; the Coastal
Zone Management Act of 1972, as amended; the Marine Mammal Protection Act of
1972, as amended; the National Environmental Policy Act of 1969, as amended; the
Emergency Planning and Community Right-to-Know Act of 1986, as amended, and
their state and local counterparts or equivalents, including, without
limitation, the environmental and conservation statutes included in Titles 30
and 49 of the Louisiana Revised Statutes.

1.21 "Environmental Obligations" shall be as defined in Section 12.5.1.

1.22 "Excluded Assets" means the following:

         1.22.1 (i) All trade credits, accounts receivable, notes receivable and
other receivables attributable to Seller's interest in the Assets with respect
to any period of time prior to the Effective Time; (ii) all deposits, cash,
checks in process of collection, cash equivalents and funds attributable to
Seller's interest in the Assets with respect to any period of time prior to the
Effective Time; and (iii) all deposits, cash, checks in the process of
collection, cash equivalents and funds attributable to Seller's interest in the
Assets which were received by Seller after the Effective Time and which are
attributable to the period prior to the Effective Time under generally accepted
accounting principles.

         1.22.2 All corporate, financial, and tax records of Seller, and those
records subject to the attorney/client privilege; however, Buyer shall be
entitled to receive copies of any non-privileged financial, environmental, and
tax records which directly relate to the Assets or Buyer's Assumed Obligations,
or which are necessary for Buyer's ownership, administration, or operation of
the Assets.

                                       3
<PAGE>   11

         1.22.3 Except as otherwise provided in Section 15.1, all Claims and
causes of action of Seller (i) arising from acts, omissions or events, or damage
to or destruction of the Assets, occurring prior to the Effective Time, or (ii)
with respect to any of the Excluded Assets.

         1.22.4 Except as otherwise provided in Section 15.1, all rights,
titles, claims and interests of Seller arising prior to the Effective Time (i)
under any policy or agreement of insurance or indemnity, (ii) under any bond, or
(iii) to any insurance or condemnation proceeds or awards.

         1.22.5 All Hydrocarbons produced from or attributable to the Assets
with respect to all periods prior to the Effective Time, together with all
proceeds from or of such Hydrocarbons, except the Inventory Hydrocarbons.

         1.22.6 Claims of Seller for refund of or loss carry forwards with
respect to (i) production, windfall profit, severance, ad valorem or any other
taxes attributable to any period prior to the Effective Time, (ii) income or
franchise taxes, or (iii) any taxes attributable to the Excluded Assets.

         1.22.7 All amounts due or payable to Seller as adjustments or refunds
under any contracts or agreements (including take-or-pay Claims), affecting the
Assets, respecting periods prior to the Effective Time, including any pending or
future audit claims arising out of any of the Leases or contracts listed in
Exhibit "A".

         1.22.8 All amounts due or payable to Seller as adjustments to insurance
premiums related to the Assets with respect to any period prior to the Effective
Time.

         1.22.9 All proceeds, benefits, income or revenues accruing (and any
security or other deposits made) with respect to (i) the Assets prior to the
Effective Time; (ii) all accounts receivable attributable to the Assets for the
period of time from the Effective Time until Closing, it being recognized and
agreed that Buyer will receive full credit therefor pursuant to the provisions
of Section 3.2 hereof; or (iii) any Excluded Assets.

         1.22.10 All of Seller's intellectual property including but not limited
to licensed 3-D seismic data and interpretations, patents, trade secrets,
copyrights, names, marks, and logos and proprietary SCADA computer software,
which proprietary SCADA computer software shall be licensed to Buyer for Buyer's
use solely with respect to operation of the Assets.

         1.22.11 All of Seller's offshore service agreements and charter party
agreements, whether or not services thereunder are or were utilized in
connection with the Assets.

         1.22.12 All seismic, geological, and geophysical information and data
covering or affecting the Assets that is not proprietary in Seller or that is
licensed from third parties, to the extent that Seller is contractually
prohibited from transferring same to Buyer, together with Seller's proprietary
interpretations of same.

                                       4
<PAGE>   12

         1.22.13 All rights, obligations, benefits, awards, judgments, and
settlements, if any, applicable to the litigation and proceedings listed under
"Seller's Responsibility" of Exhibit "H".

         1.22.14 All pipelines and other facilities that may be located on the
Leases, surface leases, areas and lands described in "A-1" which (i) were not
used in the past or (ii) are not used or held for use in connection with the
development or operation of the Leases or the production, treatment, storage,
compression, or transportation of Hydrocarbons from or in the Leases and which
are identified on Exhibit M.

         1.22.15 All rights, obligations, benefits, proceeds, Claims, awards,
judgments, and settlements for any imbalances which may exist as of the
Effective Time with third Persons with respect to production or processing of
Hydrocarbons attributable to Seller's interest in and ownership of Hydrocarbons
produced from the Assets prior to the Effective Time.

         1.22.16 Seller's radio communication frequency 173.25000 and call sign
KKB200.

1.23 "Final Settlement" shall be as defined in Section 3.3.

1.24 "Final Settlement Statement" shall be as defined in Section 3.3.

1.25 "Governmental Body" means any federal, state, county, municipal, or other
federal, state or local governmental authority or judicial or regulatory agency,
board, body, department, bureau, commission, instrumentality, court, tribunal or
quasi-governmental authority in any jurisdiction (domestic or foreign) having
jurisdiction over any Assets or Person or any property of any of them.

1.26 "Hazardous Materials" means any material (including naturally occurring
radioactive materials), the emission, discharge, transportation, use, presence
or disposal of which is regulated by or which must be remediated under any
Environmental and Conservation Laws, and shall include, but not be limited to,
any material defined as "hazardous" under the Resource Recovery and Conservation
Act of 1980, as amended, or the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.

1.27 "Hydrocarbons" means crude oil, natural gas, casinghead gas, condensate,
sulphur, natural gas liquids and other liquid or gaseous hydrocarbons (including
CO2), and shall also refer to all other minerals of every kind and character
which may be covered by or included in the Leases and Assets.

1.28 "Interim Period" shall be as defined in Section 3.2.1(b).

1.29 "Inventory Hydrocarbons" means all merchantable oil and condensate, natural
gas liquids and other liquid hydrocarbons (including CO2) produced from or
attributable to the Leases prior to the Effective Time which have not been sold
or taken by Seller for its own account and are in storage on the Leases or
onshore at the Effective Time.

                                       5
<PAGE>   13

1.30 [Intentionally omitted]

1.31 "Leases" means all right, title, and interest of Seller in and to the oil
and gas leases covering lands and water bottoms located offshore and onshore
Louisiana, as set forth on Exhibit "A-1." Although net revenue and working
interests with respect to the Leases are shown on Exhibit "A-1," it is
understood and agreed that Seller makes no representations or warranties with
respect to title to such interests, except as otherwise provided in Section 7.1
and Exhibit "B," or as to the completeness or accuracy of such information.

1.32 "MMS" means the Minerals Management Service of the United States Department
of the Interior.

1.33 "NORM" shall be as defined in Section 12.4.1(e).

1.34 "Party" and "Parties" mean Seller or Buyer individually or collectively, as
indicated by the context.

1.35 "Performance Deposit" shall be as defined in Section 2.2.

1.36 "Person" means an individual, corporation, limited liability company,
association, joint stock company, trust, partnership, joint venture,
unincorporated organization, a government or any department or agency thereof,
or any other legal entity.

1.37 "Personal Property and Other Interests" means all right, title and interest
of Seller in and to or derived from the following, insofar as the same do not
constitute Excluded Assets and are transferrable or assignable by Seller and
attributable to, appurtenant to, incidental to, or used for the ownership or
operation of the Leases, including, but not limited to:

         1.37.1 All oil, gas and condensate wells (whether producing, not
producing or abandoned), water source, water injection and other injection or
disposal wells and systems located on the Assets;

         1.37.2 All easements, rights-of-way, surface leases, permits, licenses,
servitudes, surface fee and other surface interests insofar as the same relate
solely and exclusively to the Assets (to the exclusion of all other properties
owned or operated by Seller);

         1.37.3 All improvements situated upon the Leases, all equipment and
other personal or movable property, inventory, facilities, spare parts, tools,
fixtures, compressors, tanks, wellheads, production units, heaters, separators,
dehydrators, pumps, pipelines, flowlines, platforms, injection wells, tank
batteries, abandoned property and junk, and appurtenances held for use in
connection with and dedicated to the development or operation of the Leases or
the production, treatment, storage, compression, or transportation of
Hydrocarbons from or in the Leases;

                                       6
<PAGE>   14

         1.37.4 A copy of Seller's proprietary seismic, geological and
geophysical information and data and all licensed 3-D seismic data (and Seller's
interpretations thereof) to the extent that Seller is not contractually
prohibited from transferring a copy of such licensed data to Buyer which copies
of information and data are identified on Exhibit "L";

         1.37.5 All contracts, agreements, title instruments, and permits to the
extent attributable to and affecting the Assets (except offshore service
agreements and charter party agreements) in existence at Closing, including all
Hydrocarbon gathering, treating, separation, transportation and storage
contracts, production and cost sharing agreements, pooling and unitization
agreements and joint operating agreements;

         1.37.6 Copies of all lease files, land files, well files, shallow
hazard surveys, division order files, abstracts, title opinions, and all other
books, files and records, information and data and all rights thereto of Seller
insofar as the same are directly related to and necessary to the realization of
value by Buyer of the Assets and to the extent the transfer thereof is not
prohibited by existing contractual obligations (excluding any joint operating
agreements applicable to the Leases) with third parties. Buyer shall be entitled
to receive copies of any non-privileged financial, environmental, and tax
records which directly relate to the Assets or Buyer's Assumed Obligations, or
which are necessary for Buyer's ownership, administration, or operation of the
Assets;

         1.37.7 All computer software and personal computer hardware directly
associated with or used in connection with the Assets, provided, however, that
with respect to Seller's proprietary SCADA software system, Seller shall grant
to Buyer a license only for Buyer's use of said proprietary SCADA computer
software system for Buyer's operation of the Assets.

The Personal Property and Other Interests include, but are not necessarily
limited to, the contracts and agreements listed on Exhibit "A-1" (other than the
Leases) and on Exhibit "A-2" which are attributable to and affect the Assets. It
is understood and agreed, however, that, Seller makes no representations or
warranties as to the completeness or accuracy of Exhibits "A-1" and "A-2."

1.38 "Plugging and Abandonment Obligations" shall be as defined in Section
12.4.1.

1.39 "Preliminary Settlement Statement" shall be as defined in Section 3.3.

1.40 "Production Handling Agreement" means the Production Handling Agreement
attached hereto as Exhibit "I" providing for the handling by Buyer of Seller's
(and Seller's partners) hydrocarbon production from South Pass Blocks 31 and 32,
Offshore Plaquemines Parish, Louisiana.

1.41 "Property Taxes" shall be as defined in Section 17.5.1.

1.42 "Purchase Price" shall be as defined in Section 3.1.

1.43 "Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
Environment or into or out of any property,

                                       7
<PAGE>   15

including the movement of Hazardous Materials through or in the air, soil,
surface water, ground water or property.

1.44 "Seller" means Ocean Energy, Inc., a Louisiana corporation.

1.45 "Seller's Bond" shall be as defined in Section 17.2.2.

1.46 "Seller's Credits" shall be as defined in Section 3.2.1.

1.47 "Seller's Retained Obligations" shall be as defined in Section 12.3.1.

1.48 "Shell Trust Agreement" shall mean the Pledge of Production Proceeds and
Trust Agreement dated May 12, 1993 between and among Shell Offshore Inc., Flores
& Rucks, Inc. (now Seller) and First National Bank of Commerce, New Orleans,
Louisiana, as amended.

1.49 "SMB" means the State Mineral Board of the State of Louisiana.

1.50 "Tax Period" shall be as defined in Section 17.15.1.

1.51 "Title Defect" shall mean a material deficiency in one or more of the
following respects, provided that the non-transferability requirement in any
license, permit, right-of-way, pipeline franchise or easement affecting the
Assets shall not constitute a Title Defect:

         1.51.1 Seller's title at the Effective Time and at Closing, as to one
or more of the Assets, is subject to an outstanding mortgage, deed of trust,
lien or encumbrance or other adverse claim not shown on Exhibits "A" or "G";

         1.51.2 Seller's net revenue interest in any of the Leases is less than
the net revenue interest which is set forth on Exhibit "A" for such Leases, or
Seller's working interest in any of the Leases is greater than the working
interest shown in Exhibit "A" for such Leases without a corresponding
proportionate increase in the net revenue interest for such Leases;

         1.51.3 Seller is in default under some material provision of a Lease or
other material agreement affecting the Assets not reflected on Exhibit "G";

         1.51.4 Seller's rights and interests set forth on Exhibit "A" are
subject to being reduced by virtue of the exercise by a third party of a
reversionary, back-in or similar right not reflected or provided for in any of
the agreements or other materials set forth in Exhibits "A" or "G";

         1.51.5 During the period of Seller's ownership of the Assets, Seller
has failed to timely and properly pay on or before the due dates thereof all
royalties, rentals, and other payments due under the Leases necessary to
maintain the Leases.

1.52 "Transfer Taxes" shall be as defined in Section 17.15.2.

                                       8
<PAGE>   16

1.53 "Trust Agreement" shall be as defined in Section 17.2.3.

                                   ARTICLE II
                                PURCHASE AND SALE

         2.1 Sale and Purchase. Subject to the terms and conditions of this
Agreement, and the elections of Seller or Buyer under Section 2.3 hereof, Seller
agrees to sell and convey the Assets to Buyer, and Buyer agrees to purchase and
pay the Purchase Price for the Assets and to assume Buyer's Assumed Obligations.

         2.2 Performance Deposit. Upon execution of this Agreement, Buyer shall
pay by wire transfer to Seller (U.S. $8,600,000.00), being ten (10%) percent of
the Purchase Price (U.S. $86,000,000.00) in good and immediately available
funds, as a performance deposit ("Performance Deposit") on the Assets to be
transferred to Buyer hereunder. Said Performance Deposit is to be made by Buyer
to the following account:

                               Wells Fargo Bank
                               Houston, Texas
                               ABA# 112000248
                               Acct. Name: Ocean Energy, Inc.
                               Acct. No. 4375681020
                               Reference:  East Bay Deposit

This Performance Deposit is solely to assure the performance of Buyer pursuant
to the terms and conditions of this Agreement. If Buyer, fails, refuses or is
unable for any reason (including failure to obtain financing) to close the
transaction in accordance with the terms hereof, Seller shall have the remedies
specified in Article XVI, including, but not limited to the right, at its sole
option, retain the Performance Deposit as agreed liquidated damages and not as a
penalty. However, if this Agreement is terminated pursuant to the provisions of
Sections 6.5 (Title and Environmental Defects), 8.2 (Preferential Purchase
Rights and Consents), 15.1 (Casualty Loss) or 16.2 (Buyer's Remedies) hereof,
Seller shall return the Performance Deposit to Buyer with five percent (5%) per
annum simple interest from the date of this Agreement within three (3) Business
Days of receipt of the notice of termination.

         2.3 Qualified Intermediary. Seller and Buyer hereby agree that Buyer,
in lieu of the purchase of the Assets from Seller for the cash consideration
provided herein, shall have the right at any time prior to Closing to assign all
or a portion of its rights under this Agreement to a Qualified Intermediary (as
that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury
Regulations) in order to accomplish the transaction in a manner that will
comply, either in whole or in part, with the requirements of a like-kind
exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended, ("Code"). Likewise, Seller shall have the right at any time prior to
Closing to assign all or a portion of its rights under this Agreement to a
Qualified Intermediary for the same

                                       9
<PAGE>   17

purpose. In the event either Party assigns its rights under this Agreement
pursuant to this Section 2.3, such Party agrees to notify the other Party in
writing of such assignment at or before Closing. If Seller assigns its rights
under this Agreement for this purpose, Buyer agrees to (i) consent to Seller's
assignment of its rights in this Agreement in form attached hereto as Exhibit
"K-1", and (ii) pay the Purchase Price (as may be adjusted under the terms of
this Agreement) for the Assets into a qualified escrow or qualified trust
account at Closing as directed in writing. If Buyer assigns its rights under
this Agreement for this purpose, Seller agrees to (i) consent to Buyer's
assignment of its rights in this Agreement in the form of Exhibit "K-2", (ii)
accept the Purchase Price (as may be adjusted under the terms of this
Agreement)for the Assets from the qualified escrow or qualified trust account at
Closing, and (iii) at Closing, convey and assign directly to Buyer the Assets
which are the subject of this Agreement upon satisfaction of the other
conditions to Closing and other terms and conditions hereof. Seller and Buyer
acknowledge and agree that any assignment of this Agreement to a Qualified
Intermediary shall not release either Party from any of their respective
liabilities and obligations to each other under this Agreement, and that neither
Party represents to the other that any particular tax treatment will be given to
either Party as a result thereof.

                                   ARTICLE III
                           PURCHASE PRICE AND PAYMENT

         3.1 Purchase Price. Subject to adjustment as set forth below, the price
(the "Purchase Price") for the Assets shall be EIGHTY SIX MILLION DOLLARS (U. S.
$86,000,000.00). In addition to paying the Purchase Price, and as additional
cause and consideration for the sale and conveyance of the Assets to Buyer,
Buyer agrees to assume Buyer's Assumed Obligations and perform the covenants
contained herein. For purposes of this Agreement and for federal income tax
purposes, twelve and one-half (12.5%) percent of the Purchase Price is allocated
to depreciables and eighty-seven and one-half (87.5%) percent of the Purchase
Price is allocated to depletables.

         3.2 Adjustments to Purchase Price. The Purchase Price shall be adjusted
at Closing and upon Final Settlement, under the procedure provided in Section
3.3, by an amount equal to the difference between the Buyer's Credits (as
hereinafter defined) and Seller's Credits (as hereinafter defined).

         3.2.1 "Seller's Credits" shall equal the sum of the following:

         (a)      Seller's share of the value of (i) all Inventory Hydrocarbons,
                  such value to be based upon Platt's published price for Heavy
                  Louisiana Sweet (HLS) as of the Effective Time, less taxes and
                  transportation fees deducted by the purchaser of such oil,
                  such oil to be measured at the Effective Time by the operators
                  of the Assets, and (ii) the market value of the unsold
                  inventory of gas plant products, if any, attributable to the
                  Leases at the Effective Time allocable to Seller's ownership.

         (b)      Seller's share of the amount of all direct production and
                  operating expenses (including overhead charged in the same
                  manner as provided in any

                                       10
<PAGE>   18

                  applicable joint operating agreement) and capital expenditures
                  incurred by Seller and approved by Buyer pursuant to Section
                  9.1.1 attributable to the operation of the Assets after the
                  Effective Time and prior to the Closing ("Interim Period") in
                  accordance with generally accepted accounting principles. Such
                  expenses and expenditures shall include, without limitation,
                  royalties, rentals and other similar charges, ad valorem,
                  property, production, excise, severance, and any other taxes
                  (except income or franchise taxes) based upon or measured by
                  the ownership of property or the production of Hydrocarbons or
                  the receipt of proceeds therefrom.

         (c)      An administrative overhead charge of $500,000.00 per month for
                  each month after the Effective Time through Closing. In the
                  event Closing occurs during a month, the overhead charge will
                  be prorated for the month in which Closing occurs through the
                  date of Closing.

         (d)      An amount equal to any upward adjustment in the Purchase Price
                  provided elsewhere in this Agreement.

         3.2.2    "Buyer's Credits" shall equal the sum of the following:

         (a)      Seller's share of the total sales value (before deduction of
                  any royalties under the applicable pricing provisions of any
                  oil, gas and gas plant liquids sales and processing
                  agreements) of all Hydrocarbons produced and/or sold during
                  the Interim Period which are attributable to the Assets and
                  allocable to Seller's ownership, and any other monies
                  applicable to purchase or sales from the Assets on any wells
                  during the Interim Period, but excepting interest income and
                  income for overhead charged in the same manner as provided in
                  the applicable joint operating agreement, regardless of
                  whether or not payment has been received by Seller;

         (b)      Seller's share of the amount of all unpaid ad valorem,
                  property, production, severance and similar taxes and
                  assessments (but not including income or franchise taxes)
                  based upon or measured by the ownership of property or the
                  production of Hydrocarbons or the receipt of proceeds
                  therefrom which taxes and assessments become due and payable
                  or accrue to the Assets prior to the Effective Time, which
                  amount shall, where possible, be computed based upon the tax
                  rate and values applicable to the tax period in question;
                  otherwise, the amount of the adjustment under this paragraph
                  shall be computed based upon such tax assessed against the
                  applicable portion of the Assets for the immediately preceding
                  tax period just ended; and

         (c)      an amount equal to the sum of any downward adjustments in the
                  Purchase Price provided elsewhere in this Agreement.

                                       11
<PAGE>   19

         3.3 Seller's Preliminary and Final Settlement Statements. Five (5)
Business Days prior to Closing, Seller shall furnish Buyer with a good faith
estimated accounting ("Preliminary Settlement Statement") prepared in a manner
consistent with Seller's past accounting practices showing the estimated amount
of Seller's Credits and the estimated amount of Buyer's Credits, subject to
being finally adjusted within 180 days after the Closing as hereinafter
provided. Within 120 days after Closing, Seller shall provide to Buyer, for
Buyer's concurrence, an accounting ("Final Settlement Statement") of the actual
amounts of Seller's and Buyer's Credits for the adjustments as set out in
Section 3.2. Buyer shall have the right for 60 days after receipt of the Final
Settlement Statement to audit and take exceptions to such adjustments. If Buyer
does not object to such Final Settlement Statement in writing within 60 days
after receipt, such accounting shall become final. Those Seller's Credits and
Buyer's Credits agreed upon by Buyer and Seller shall be netted and the final
settlement amount shall be paid as directed in writing by the receiving Party,
on final adjustment by the Party owing it ("Final Settlement"). Any
disagreements shall be resolved on a best efforts basis by Seller and Buyer. Any
disputes over the Final Settlement shall be resolved under the dispute
resolution provisions of Section 17.17.

                                   ARTICLE IV
                     SELLERS' REPRESENTATIONS AND WARRANTIES

         4.1 Seller's Representations and Warranties. Seller represents and
warrants to Buyer as of the date hereof and the Closing Date that:

             4.1.1 Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the state of Louisiana, and is duly qualified
to carry on its business in Louisiana, and in the Outer Continental Shelf of the
Gulf of Mexico.

             4.1.2 Seller has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement and the other
documents and agreements contemplated hereby, and to perform its obligations
under this Agreement and the other documents and agreements contemplated hereby.
The consummation of the transactions contemplated by this Agreement will not
violate, nor be in conflict with (i) any provision of its articles of
incorporation, bylaws or other governing documents, (ii) to Seller's knowledge,
any judgment, decree, order, statute, rule, or regulation applicable to Seller,
or (iii) any agreement or instrument to which Seller is a party or by which
Seller is bound except those relating to (a) the preferential right to purchase
all or any portion of the Assets, (b) required consents to transfer and related
provisions, and (c) any other third-party approvals or consents contemplated
herein or in any judgment, decree, order, statute, rule, or regulation
applicable to Seller.

             4.1.3 This Agreement constitutes, and all documents and instruments
required hereunder to be executed and delivered by Seller at Closing constitute,
legal, valid and binding obligations of Seller in accordance with their
respective terms, subject to applicable bankruptcy and other similar laws of
general application with respect to creditors.

                                       12
<PAGE>   20

             4.1.4 There are no bankruptcy, reorganization or receivership
proceedings pending, being contemplated by, or to the actual knowledge of Seller
threatened against Seller.

             4.1.5 Except as set out on Exhibit "G", there exist no pending
suits or proceedings against Seller or affecting the Assets and Seller has
received no written notification of any claim or investigation which could have
a material and adverse effect upon the Assets or the value or operation thereof,
and to the best of Seller's knowledge no such suits or proceedings, claims or
investigations are threatened or contemplated.

             4.1.6 Seller is not a non-resident, alien, foreign corporation,
foreign partnership, or foreign estate as those terms are defined in the Code
and applicable income tax regulations.

             4.1.7 To Seller's knowledge, as of the Effective Time, Seller has
not violated any applicable laws or statutes, or any applicable regulations,
rules or orders promulgated by the Federal Energy Regulatory Commission, the
MMS, the BLM, the SMB, the DOC, the DEQ or any other federal or state regulatory
agencies, or any of their predecessor agencies, which would have a material and
adverse effect upon the value of the Assets or the production of Hydrocarbons
from the Assets.

             4.1.8 To Seller's knowledge, all of the wells drilled by Seller
have been drilled, completed and operated within the boundaries of the Leases or
within the limits otherwise permitted by contract, pooling or unit agreement,
and by law and in compliance with all applicable rules, regulations, permits,
judgments, orders and decrees of any court or the federal and state regulatory
authorities having jurisdiction thereof.

             4.1.9 To Seller's knowledge (i) all contracts or agreements which
are included on Exhibits "A-1" or "A-2" and which materially affect the right of
Seller to own and operate the Assets which have not previously expired or been
terminated by mutual agreement are in full force and effect, and (ii) neither
Seller nor any other party to any such material agreement has given, or
threatened to give, written notice of any action to cancel, rescind or procure a
judicial reformation of any such contract or agreement or any provision thereof.

             4.1.10 Prior to Closing, Seller shall have made available to Buyer
for inspection all material governmental permits in the possession of Seller
affecting or relating to the Assets and any governmental permits in the
possession of Seller affecting or relating to the Assets which are requested in
writing by Buyer fifteen (15) days prior to Closing.

             4.1.11 To Seller's knowledge, Seller's operation of the Assets is
not the subject of any pending regulatory compliance or enforcement actions.

             4.1.12 Except with respect to the severance tax and royalty
litigation involving the State of Louisiana listed on Exhibit "G", to Seller's
knowledge, no fact or circumstance exists which would preclude or inhibit
approval of Seller's assignment of the Assets to the Buyer by the SMB, BLM or
MMS.

                                       13
<PAGE>   21

             4.1.13 Except for files and other information that would reasonably
be considered as confidential, privileged or proprietary, and subject to the
destruction of documents pursuant to Seller's standard record-retention
policies, to Seller's knowledge, all files relating to the Assets in the
possession of Seller shall have been made available to Buyer for Buyer's review
prior to Closing.

             4.1.14 Except as reflected in the documents and agreements listed
in Exhibits "A-1" or "A-2", to Seller's knowledge, (i) no amount of Seller's
Hydrocarbons produced from the Assets and marketed by others is subject to a
sales or processing contract (except for contracts terminable without penalty by
Seller on notice or not more than thirty days after notice), and no person has
any call upon, option to purchase or similar rights under any agreement with
respect to the Assets or to the production therefrom, (ii) Seller has not in any
respect collected, nor will Seller in any respect collect, any proceeds from the
sale of Hydrocarbons produced from the Assets that are subject to refund by
Buyer, and (iii) Seller has not been nor will Seller be obligated by virtue of
any prepayment made under any gas transportation, production sales contract or
any other contract containing a "take-or-pay" clause, or under any gas
balancing, deferred production or similar arrangement to deliver oil, gas or
other minerals produced from or allocated to any of the Assets at some future
time without receiving full payment therefor at the time of delivery.

             4.1.15 To Seller's knowledge, during the period of Seller's
ownership of the Assets all ad valorem, property, production, excise, severance,
windfall profit and similar taxes and assessments payable with respect to the
Assets and based on or measured by the ownership of property or the production
or removal of Hydrocarbons or the receipt of proceeds therefrom have been and
will be timely paid as of the Effective Time in all respects. However, the State
of Louisiana has asserted severance tax claims in the litigation reflected on
Exhibit "G".

         4.2 Seller's Notice. Seller shall use all reasonable efforts to assure
that the warranties and representations herein contained with respect to Seller
are true and correct as of Closing and will give prompt written notice to Buyer
after execution of this Agreement and before Closing of any matter which affects
any warranty or representation herein contained or which renders such warranty
or representation untrue. The phrase "to Seller's knowledge" as used in Section
4.1 shall mean only that Seller has made commercially reasonable efforts to
ascertain the truth of the statement in which it is utilized.

         4.3 Corrective Action. Upon Buyer's discovery of any breach by Seller
of Seller's representation in Section 4.1.7, Buyer shall immediately notify
Seller upon discovery, but in no event later than seven (7) days prior to the
Closing Date, specifying the breach, corrective action reasonably necessary to
correct said breach ("Corrective Action") and Buyer's good faith estimate of the
cost of said Corrective Action. If Buyer fails to timely notify Seller, or if
the cumulative costs reasonably associated with any identified Corrective
Actions are less than Five Hundred Thousand Dollars ($500,000), (a) the
Corrective Action shall be waived, (b) the Purchase Price shall not be adjusted
on account thereof, (c) the Parties shall proceed with Closing, (d) Buyer shall
assume all liability associated with the Corrective Action, and (e) Seller shall
be released from all liability associated with the Corrective Action, including
but not limited to any liability of Seller for breach of Seller's representation
contained in Section 4.1.7. If Buyer timely notifies Seller of Corrective

                                       14
<PAGE>   22

Actions with reasonably associated cumulative costs of Five Hundred Thousand
Dollars ($500,000) or more, Seller may, but shall be under no obligation to
undertake the identified Corrective Action prior to the Closing Date. If Seller
fails to undertake any non-waived Corrective Action prior to Closing, Buyer
shall be entitled to a reduction in the Purchase Price equal to the costs
reasonably associated with the Corrective Action; provided, however, that if the
costs reasonably associated with the Corrective Action exceed ten percent (10%)
of the Purchase Price, either Buyer or Seller shall have the right to terminate
this Agreement by so notifying the other Party in writing. Upon such
termination, Seller shall return the Performance Deposit to Buyer with simple
interest at the rate of five percent (5%) per annum from the date of this
Agreement within three (3) Business Days of receipt of notice of termination.
This Section 4.3 includes Buyer's sole and only remedies for any breach of the
representation of Seller in Section 4.1.7.

                                    ARTICLE V
                     BUYER'S REPRESENTATIONS AND WARRANTIES

         5.1 Buyer's Representations and Warranties. Buyer represents and
warrants to Seller as of the date hereof and the Closing Date that:

             5.1.1 Buyer is a corporation duly organized, validly existing, and
in good standing under the laws of the state of Delaware and is duly qualified
to carry on its business in Louisiana, and in the Outer Continental Shelf of the
Gulf of Mexico.

             5.1.2 Buyer has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement and the other
documents and agreements contemplated hereby, to purchase the Assets on the
terms described in this Agreement, and to perform its obligations under this
Agreement and the other documents and agreements contemplated hereby.

             5.1.3 The consummation of the transactions contemplated by this
Agreement will not violate, nor be in conflict with, any provision of Buyer's
charter, bylaws or governing documents, or any material agreement or instrument
to which Buyer is a party or by which it is bound, or any judgment, decree,
order, statute, rule or regulation applicable to Buyer; the execution, delivery
and performance of this Agreement and the transactions contemplated hereunder
have been duly and validly authorized by all requisite corporate action on the
part of Buyer.

             5.1.4 This Agreement constitutes, and all documents and instruments
required hereunder to be executed and delivered by Buyer at Closing will
constitute, legal, valid and binding obligations of Buyer in accordance with
their respective terms, subject to bankruptcy and other similar laws of general
application with respect to creditors.

             5.1.5 There are no bankruptcy, reorganization or receivership
proceedings pending, being contemplated by, or to its actual knowledge,
threatened against Buyer.

                                       15
<PAGE>   23

             5.1.6 Buyer is an experienced and knowledgeable investor and
operator in the oil and gas business. Prior to entering into this Agreement,
Buyer was advised by and has relied solely on its own expertise and legal, tax,
engineering, and other professional counsel concerning this Agreement, the
Assets and the value thereof.

             5.1.7 Buyer will have arranged to have available by the Closing
Date sufficient funds to enable the payment to Seller by wire transfer of the
Purchase Price in accordance with Section 11.3, and otherwise to perform Buyer's
obligations under this Agreement.

             5.1.8 Buyer is acquiring the Assets for its own account and not
with a view to, or for offer of resale in connection with, a distribution
thereof, within the meaning of the Securities Act of 1933, 15 U.S.C. Section 77a
et seq., and any other rules, regulations, and laws pertaining to the
distribution of securities. Except for traditional mortgage financing from
reputable financial institutions or reputable energy industry capital providers,
Buyer has not sought or solicited, nor is Buyer participating with, investors,
partners or other third parties in order to fund the Purchase Price or the
Performance Deposit and to close this transaction, and all funds used by Buyer
in connection with this transaction are Buyer's own funds.

             5.l.9 Buyer is unaware of any fact or circumstance which would
preclude or inhibit unconditional approval of Seller's assignment of the Assets
to Buyer by the SMB, BLM, or MMS, including meeting existing or increased
area-wide bonding or any other bonding requirements of the MMS.

             5.1.10 Buyer is unaware of any fact or circumstance which would
preclude or inhibit Buyer's qualification to operate the federal oil, gas and
mineral leases and pipeline(s) subject hereto in the outer continental shelf of
the Gulf of Mexico, including meeting the existing or increased area-wide
bonding or any other bonding or supplemental security requirements of the MMS.

         5.2 Buyer's Notice. Buyer shall use all reasonable efforts to assure
that the warranties and representations herein contained with respect to Buyer
are true and correct as of Closing and will give prompt written notice to Seller
after the execution of this Agreement and before Closing of any matter which
affects any warranty or representation herein contained or which renders such
warranty or representation untrue.

                                   ARTICLE VI
                      ACCESS TO INFORMATION AND INSPECTION

         6.1 Title Files. Promptly after the execution of this Agreement and
until the Closing Date, Seller will permit Buyer to review at Seller's offices
in Lafayette, Louisiana, or other locations upon reasonable request, all
available title files, ownership maps, lease files, assignments, division
orders, payout statements, agreements, and accounting and other information
pertaining to the Assets.

                                       16
<PAGE>   24

         6.2 Other Files. Prior to Closing Seller shall make available to Buyer
for its inspection all production and engineering books, records and data in
possession of Seller which are directly related to or constitute a portion of
the Assets, and all other files, records, and data pertaining to the Assets,
except (i) those subject to attorney/client privilege, (ii) all seismic,
geological and geophysical data, and (iii) that which Seller is prevented from
disclosing by contractual obligations (other than the joint operating agreements
applicable to the Leases) with third Persons.

         6.3 Confidentiality Agreement. All such information made available to
Buyer shall be maintained confidential by Buyer until Closing. Any
confidentiality agreements Buyer has previously executed with Seller with
respect to the Assets shall continue in force until Closing, at which time such
agreements shall terminate. Buyer shall further take whatever reasonable steps
which may be necessary to ensure that Buyer's employees, consultants and agents
comply with the provisions of this Section 6.3.

         6.4 Inspections. Promptly after the execution of this Agreement and
until Closing, Seller, subject to any necessary third-party operator approval,
shall permit Buyer and its representatives at reasonable times and at their sole
risk, cost and expense, to conduct reasonable inspections of the Assets,
including, without limitation, the employment of on-site sampling, equipment
testing and soil borings; provided, however, Buyer shall repair any damage to
the Assets resulting from such inspections, Buyer and each of Buyer's
representatives accessing the Assets shall execute Seller's release/boarding
agreement, and any such inspection shall be covered by Buyer's indemnity
provided in Section 13.3.6.

         6.5 Title and Environmental Defects - Notice, Adjustments and
Termination.

             6.5.1 Upon execution of and pursuant to the terms of this
Agreement, Buyer shall have the right, at reasonable times during normal
business hours, to conduct its investigation into the status of the title of the
Assets and the physical and environmental condition of the Assets. If, in the
course of conducting such investigation or any inspection pursuant to Section
6.4, Buyer discovers significant Environmental Defects or Title Defects (the
"Defects") materially affecting the Assets, Buyer shall, upon discovery of such
Defects, but in no event later than seven (7) days prior to the Closing Date,
notify Seller in writing specifying such Defects, the Assets affected thereby,
and Buyer's good faith estimate of the net reduction in value of the Assets
affected by such Defects. Except for a claim excluded from Buyer's Environmental
Obligations pursuant to Section 12.5.2 and for which Seller owes Buyer indemnity
pursuant to Section 13.4.1, any Defect which is not disclosed to Seller within
seven (7) days prior to Closing shall conclusively be deemed waived by Buyer for
all purposes.

             6.5.2 Subject to Seller's special warranty of title as provided in
Section 7.1 and the assignments and bills of sale which comprise Exhibit "B", if
(i) Buyer fails to timely notify Seller of any Defect as provided in Section
6.5.1, or (ii) any Defect is valued at $50,000.00 or less then (a) any claims of
Buyer against Seller with respect to such Defects will be deemed waived, (b) the
Purchase Price shall not be adjusted for such Defects, (c) Seller shall be
released from any liability therefor, (d) the Parties shall proceed with
Closing, (e) Seller shall be under no obligation to correct

                                       17
<PAGE>   25

such Defects, and (f) Buyer shall assume all risks, liability and obligations
associated with such Defects. If Buyer notifies Seller of the Defects no later
than seven (7) days prior to Closing and if such Defects are in Seller's opinion
capable of being corrected prior to the Closing Date, Seller may, but shall be
under no obligation to, correct at its own cost and expense such Defects on or
before the Closing Date.

             6.5.3 If Seller fails to correct any non-waived Defects prior to
Closing and Buyer's good faith estimate of the net reduction in value of the
Assets affected by such Defects, including the value of any previously waived
Defects valued at $50,000.00 or less, exceeds ten (10%) percent of the Purchase
Price, either Buyer or Seller shall have the right to terminate this Agreement
by so notifying the other Party in writing. Upon such termination, Seller shall
return the Performance Deposit to Buyer with five percent (5%) per annum simple
interest from the date of this Agreement within three (3) Business Days of
receipt of the notice of termination. Otherwise, Closing shall occur and Seller
shall make a reasonable effort to correct any uncured, non-waived Title Defects
within one hundred eighty (180) days of Closing. At the end of said one hundred
eighty (180) day period, Seller shall refund to Buyer an amount that is mutually
agreed by the Parties to be the net reduction in value of the Assets affected by
all uncured Defects; provided that Buyer shall only receive a refund to the
extent that the cumulative amount of the value of all non-waived Defects exceeds
one percent (1%) of the Purchase Price. Seller's previous non-consent elections
and the contracts listed on Exhibits "A-1" and "A-2" shall not be considered
Title Defects under this Agreement.

             6.5.4 The remedies set forth in this Section 6.5 are the exclusive
remedies under this Agreement for all Defects, title defect matters and any
environmental matter for which Buyer has given Seller notice, and Seller shall
have no other liability therefor. If the Parties are unable to agree on the
value of any Defect for which Buyer has given Seller notice, then the dispute
shall be resolved under the dispute resolution provisions of Section 17.17.

         6.6 Interest Additions. In the event it is determined prior to Closing
that Seller actually owns a net revenue interest in any of the Leases that is
greater than the net revenue interest set forth in Exhibit "A-1", the Parties
shall use their best efforts to reach mutual agreement regarding an upward
adjustment to the Purchase Price at Closing for the Leases on account of the
greater interest. Seller shall be entitled to an upward adjustment pursuant to
this Section 6.6 only to the extent that an adjustment to a net revenue interest
increases the value of an Asset by more than $50,000.00 and only to the extent
that the cumulative amount of the value of all such net revenue interest
adjustments valued at $50,000.00 or more exceeds one percent (1%) of the
Purchase Price. If Seller's good faith estimate of the total value of the net
revenue interest adjustments plus the value of any net revenue interest
increases which are valued at $50,000.00 or less exceeds ten percent (10%) of
the Purchase Price, either Buyer or Seller shall have the right to terminate
this Agreement by so notifying the other Party in writing. Upon such
termination, Seller shall return the Performance Deposit to Buyer with five
percent (5%) per annum simple interest from the date of this Agreement within
three (3) Business Days of receipt of the notice of termination. If the Parties
are unable to agree on the amount of the upward adjustment prior to Closing,
Closing shall nevertheless occur and the dispute shall be resolved under the
dispute resolution provisions of Section 17.17.

                                       18
<PAGE>   26

         6.7 Change in Condition. Except as specifically provided in Section
15.1 with respect to Casualty Losses, Buyer shall assume all risk of loss with
respect to any change in the condition of the Assets from the date of execution
of this Agreement until Closing and Seller shall have no liability as operator
of the Assets or otherwise for losses or damages sustained with respect to the
condition of the Assets during the Interim Period except such as may result from
Seller's gross negligence or willful misconduct.

                                   ARTICLE VII
                             TITLE AND OTHER MATTERS

         7.1 Limitation of Warranties and Representations. SELLER SHALL CONVEY
SELLER'S INTERESTS IN AND TO THE ASSETS TO BUYER WITHOUT ANY WARRANTY OF TITLE,
EXPRESS OR IMPLIED, NOT EVEN TO THE EXTENT OF THE RETURN OF THE PURCHASE PRICE,
EXCEPT SEPARATELY AS TO TITLE CLAIMS TO THE LEASES ARISING BY, THROUGH AND UNDER
SELLER (BUT NOT OTHERWISE), AS PROVIDED IN THE FORMS OF ASSIGNMENT ATTACHED AS
EXHIBIT "B" HERETO. EXCEPT FOR THE WARRANTIES AND REPRESENTATIONS PROVIDED IN
ARTICLE IV, SELLER DOES NOT MAKE OR PROVIDE (AND SELLER HEREBY EXPRESSLY
DISCLAIMS), AND BUYER HEREBY WAIVES, ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT TO THE ACCURACY, COMPLETENESS OR MATERIALITY OF THE
INFORMATION, REPORTS, PROJECTIONS, MATERIALS, RECORDS, AND DATA NOW, HERETOFORE,
OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS
OR THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS,
WORKING INTERESTS OR NET REVENUE INTERESTS, QUALITY OR QUANTITY OF HYDROCARBON
RESERVES (IF ANY), PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES,
PRICING ASSUMPTIONS, ABILITY OR POTENTIAL FOR PRODUCTION OF HYDROCARBONS FROM
THE LEASES, ENVIRONMENTAL CONDITION OF THE ASSETS, OR ANY OTHER MATTERS
CONTAINED IN ANY OTHER MATERIAL FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER
OR BY SELLER'S AGENTS OR REPRESENTATIVES). ANY AND ALL SUCH INFORMATION,
REPORTS, PROJECTIONS, MATERIALS, RECORDS, AND DATA NOW, HERETOFORE OR HEREAFTER
FURNISHED BY SELLER IS PROVIDED AS A CONVENIENCE ONLY AND ANY RELIANCE ON OR USE
OF SAME IS AT BUYER'S SOLE RISK. WITH RESPECT TO THE SURFACE LEASES, EASEMENTS,
RIGHTS-OF-WAY AND PERMITS FOR ANY PIPELINES OR FACILITIES COMPRISING A PORTION
OF THE ASSETS, SELLER EXPRESSLY DISCLAIMS, AND BUYER HEREBY WAIVES, ALL
WARRANTIES AND REPRESENTATIONS THAT SELLER OWNS THE SURFACE LEASES, EASEMENTS,
RIGHTS-OF-WAY AND PERMITS; THAT THEY ARE IN FORCE AND EFFECT; THAT THEY MAY BE
ASSIGNED; THAT THEY ARE CONTIGUOUS; THAT THE PIPELINES LIE WITHIN THE EASEMENTS,
RIGHTS-OF-WAY AND PERMITS; OR THAT THEY GRANT THE RIGHT TO LAY, MAINTAIN,
REPAIR, REPLACE, OPERATE, CONSTRUCT, OR REMOVE ANY PIPELINES. SELLER EXPRESSLY
DISCLAIMS, AND BUYER HEREBY WAIVES, ALL WARRANTIES AND

                                       19
<PAGE>   27

REPRESENTATIONS THAT THERE ARE ANY SURFACE LEASES, EASEMENTS, RIGHTS-OF-WAY, OR
PERMITS IN FORCE AND EFFECT WITH RESPECT TO ANY PIPELINES OR FACILITIES. If
necessary, Buyer shall secure its own rights and permits to operate and maintain
any pipelines or facilities comprising a portion of the Assets on the land of
others at its own expense. If any consents or approvals of third Persons,
including any Governmental Body, are required to assign the surface leases,
easements, rights-of-way, permits, or other agreements with respect to the
pipelines or facilities and are not secured prior to Closing, Buyer shall secure
any necessary consents to assign and approvals at its own expense, provided,
however, Seller shall provide such assistance to Buyer to secure the consents
and approvals as may reasonably be required. THERE ARE NO WARRANTIES THAT EXTEND
BEYOND THE FACE OF THIS AGREEMENT. BUYER ACKNOWLEDGES THAT THIS WAIVER IS
CONSPICUOUS.

         7.2 Buyer's Title Review. Buyer acknowledges that prior to Closing,
Buyer will have reviewed the provisions of each of the Leases and related title
material made available to Buyer for inspection by Seller and will have examined
the status of title of the Leases to be assigned. Buyer acknowledges that prior
to Closing it will have conducted all necessary due diligence with respect to
title matters, including examination of the records of the State of Louisiana,
the MMS, the BLM, the SMB, the Louisiana parishes and any other appropriate
Governmental Body. Upon Closing Buyer agrees to accept Seller's title AS IS,
WHERE IS and without any title warranties express or implied, except as provided
in Section 7.1 and in the forms of assignment attached as Exhibit "B".

                                  ARTICLE VIII
                    PREFERENTIAL PURCHASE RIGHTS AND CONSENTS

         8.1 Commercially Reasonable Efforts. Seller and Buyer agree to use all
commercially reasonable efforts to take or cause to be taken all such
commercially reasonable action as may be necessary to consummate and make
effective the purchase and sale as set forth by this Agreement and to assure
that Seller or Buyer will not be under any material corporate, legal, or
contractual restriction that would prohibit or delay the timely consummation of
such purchase and sale.

         8.2 Preferential Purchase Rights and Consents. Although Seller makes no
warranty or representation with respect to the accuracy or completeness of
Exhibits "A-1" and "A-2", certain preferential purchase rights or rights of
approval or consent may exist with respect to the Leases under the agreements
and Leases shown on Exhibits "A-1" and "A-2." Except with respect to
Governmental Body approvals and other consents routinely acquired after a
transfer, including the non-transferability requirement of any license, permit,
right-of-way, franchise or easement, Seller shall use reasonable efforts to
notify all holders of (i) preferential rights, (ii) rights of consent to the
assignment of the Assets (other than governmental consents, which are to be
handled pursuant to Sections 17.1 and 17.2), or (iii) rights of approval of the
assignment of the Assets, of its intention to sell the portion of the Assets
affected thereby, and, if necessary, the terms and conditions of this Agreement.
Seller will not be liable to Buyer if any preferential rights are exercised, or
any consents are denied, except as expressly provided in this Section 8.2.
Seller shall promptly notify Buyer if any preferential rights are exercised, any
consents or approvals denied, or if the requisite period has

                                       20
<PAGE>   28

elapsed without said rights having been exercised or consents or approvals
having been received. If prior to Closing, any such preferential rights are
timely and properly exercised, or Seller is unable to obtain a necessary consent
or approval with respect to the Leases prior to Closing (other than governmental
consents, which are to be handled pursuant to Sections 17.1 and 17.2, or
approvals and other consents routinely acquired after a transfer, including the
non-transferability requirement of any license, permit, right-of-way, franchise
or easement) the interest or part thereof so affected shall be eliminated from
the Assets and the Purchase Price reduced by the value of the eliminated Asset;
provided, however, in the event the value of the eliminated Assets exceeds ten
percent (10 %) of the Purchase Price, then, at Buyer's option and upon written
notification to Seller, this Agreement shall be terminated, the transaction
shall not close and Seller shall return the Performance Deposit to Buyer with
five percent (5%) per annum simple interest from the date of this Agreement
within three (3) Business Days of receipt of the notice of termination, and
thereafter except as set forth in Article XVI, neither Buyer nor Seller shall
have any liability or further obligations to the other hereunder. If any
additional third party preferential purchase rights are discovered after
Closing, or if a third party preferential rights holder alleges improper notice,
then Buyer agrees to cooperate with Seller in giving effect to any such valid
third party preferential purchase rights. In the event any such valid third
party preferential purchase rights are validly exercised after Closing, Buyer's
sole remedy against Seller shall be the return by Seller to Buyer of that
portion of the Purchase Price (without interest) which the Parties allocate to
the Assets on which such rights are exercised and lost by Buyer to such third
party. If the Parties cannot agree on the value of an eliminated Asset or the
portion of the Purchase Price to be returned to Buyer in the event an Asset is
lost to a third party, then the value shall be established under the dispute
resolution provisions of Section 17.17.

                                   ARTICLE IX
                               COVENANTS OF SELLER

         9.1 Covenants of Seller Pending Closing.

             9.1.1 From and after the date of execution of this Agreement and
until the Closing, except as otherwise consented to by Buyer in writing and
subject to Section 9.2 below and the constraints of applicable operating and
other agreements, Seller shall operate, manage, and administer the Assets in
good and workmanlike manner consistent with its practices. Seller shall use
reasonable efforts to preserve in full force and effect all Leases, operating
agreements, easements, rights-of-way, permits, licenses, and agreements which
relate to the Assets, and shall use reasonable efforts to perform all
obligations of Seller in or under all such agreements relating to the Assets.
Seller shall, except for emergency action taken in the face of serious risk to
life, property, or the environment (i) submit to Buyer, for prior written
approval, all operating or capital expenditures which would ordinarily require
the submission of an authority for expenditure under the terms of standard
operating agreements, and all proposed contracts and agreements relating to the
Assets which involve individual commitments of more than $100,000; (ii) consult
with, inform, and advise Buyer regarding all material matters concerning the
operation, management, and administration of the Assets, and (iii) obtain
Buyer's written approval prior to voting under any operating unit, joint
venture, partnership, or similar agreement. Seller shall have no liability as

                                       21
<PAGE>   29

operator of the Assets or otherwise for losses with respect to the Assets
during the Interim Period except such as may result from Seller's gross
negligence or willful misconduct.

             9.1.2 Prior to Closing, Seller shall promptly notify Buyer of any
suit, lessor demand, action, or other proceeding before any Governmental Body
and any cause of action or any threat of any such suit, demand, action, claim,
investigation, notice of noncompliance, proceeding or cause of action which
relates to the Assets or which might result in impairment or loss of Seller's
interest in any portion of the Assets or which might hinder or impede the
operation of the Assets.

             9.1.3 Upon execution of this Agreement, each Party shall furnish to
the other Party appropriate corporate resolutions satisfactory to the other
Party executed by the secretary or assistant secretary of the Party furnishing
the resolutions reflecting the final corporate approval of this Agreement by the
appropriate levels of its management and board of directors.

         9.2 Covenants Following Closing. Seller shall pay the lessor's royalty
with respect to production of Hydrocarbons through the last day of the calendar
month in which Closing occurs and shall file all applicable reports with respect
to such production and the payment of royalty. For a period of ninety (90) days
after Closing, Seller will assist Buyer in the transition of ownership and
operation of the Assets and will provide a reasonable amount of consultation, if
requested by Buyer.

         9.3 Radio Frequency. Buyer shall have reasonable, non-exclusive access
to Seller's radio communication frequency 173.25000 for a period of ninety (90)
days after Closing.

                                    ARTICLE X
                               CLOSING CONDITIONS

         10.1 Seller's Closing Conditions. The obligations of Seller under this
Agreement are subject, at the option of Seller, to the satisfaction of Seller,
in its sole opinion, at or prior to the Closing of the following conditions:

             10.1.1 All representations and warranties of Buyer contained in
this Agreement shall be true in all material respects at and as of the Closing
as if such representations and warranties were made at and as of the Closing,
and Buyer shall have performed and satisfied all agreements required by this
Agreement to be performed and satisfied by Buyer at or prior to the Closing.

             10.1.2 The execution, delivery, and performance of this Agreement
and the transactions contemplated thereby have been duly and validly authorized
by all necessary action, corporate or otherwise, on the part of Buyer.

             10.1.3 Except for approvals covered by Sections 17.1 and 17.2
hereof, all necessary consents of and filings with any Governmental Body
relating to the consummation of the transactions contemplated by this Agreement
shall have been obtained, accomplished or waived.

                                       22
<PAGE>   30

             10.1.4 As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by Seller) shall be pending or threatened
before any court or governmental agency seeking to restrain Seller or prohibit
the Closing or seeking damages against Seller as a result of the consummation of
this Agreement.

             10.1.5 Buyer has insurance providing the following minimum
insurance coverages with limits of liability of not less than those set out
below and has caused Seller to be named as an additional insured on its
insurance policies for such insurance coverages:

             (a)    Insurance which shall comply with all applicable Workers'
                    Compensation and Occupational Disease Laws and which shall
                    cover all of the Buyer's employees performing any work or
                    activities as to oil and gas leasehold interests subject to
                    this Agreement. Buyer shall carry insurance for all work
                    performed offshore, including insurance to cover Claims
                    under the United States Longshoremen's and Harbor Workers'
                    Act extended to include the Outer Continental Shelf;

             (b)    Commercial General Liability Insurance (including
                    contractual liability coverage) with a combined bodily
                    injury and property damage limit of not less than
                    $25,000,000 for each occurrence and Pollution Liability
                    Insurance with a coverage of not less than $25,000,000 for
                    each occurrence. Such insurance shall include coverage for
                    all liability assumed by Buyer under the terms of this
                    Agreement with limits not less than those set out above.

             10.1.6 Buyer shall furnish Seller with certificates of insurance on
forms reasonably acceptable to Seller, listing all such insurance policies, and
naming Seller as an additional insured. Buyer shall ensure that its insurers
waive all rights of recovery or subrogation against Seller, its parent,
subsidiaries, affiliates, co-lessees, co-venturers, and all of their agents,
directors, officers, employees or servants, with respect to this Agreement and
the Assets. Neither failure to comply, nor full compliance with, the insurance
provisions of this Agreement shall limit or relieve Buyer from holding Seller
harmless in accordance with this Agreement.

             10.1.7 Buyer shall furnish the Seller's Bond or such other security
for the benefit of Seller as required in Section 17.2.2.

             10.1.8 Buyer shall furnish evidence satisfactory to Seller and its
counsel that Buyer has complied with all MMS requirements for holding title to
OCS leases (qualification card), Oil Spill Financial Responsibility and
Supplemental Bonding, and any other required security for Governmental Agencies.

             10.1.9 At or prior to Closing, Buyer will furnish all bonding or
other security required by the SMB in order to own or operate leases of the
State of Louisiana.

                                       23
<PAGE>   31

         10.2 Buyer's Closing Conditions. The obligations of Buyer under this
Agreement are subject, at the option of Buyer, to the satisfaction of Buyer, in
its sole opinion, at or prior to the Closing of the following conditions:

             10.2.1 All representations and warranties of Seller contained in
this Agreement shall be true in all material respects at and as of the Closing
as if such representations and warranties were made at and as of the Closing,
and Seller shall have performed and satisfied all agreements required by this
Agreement to be performed and satisfied by Seller at or prior to the Closing.

             10.2.2 The execution, delivery, and performance of this Agreement
and the transactions contemplated thereby have been duly and validly authorized
by all necessary action, corporate or otherwise, on the part of Seller.

             10.2.3 Except for the approvals covered by Sections 17.1 and 17.2
hereof, all necessary consents of and filings with any Governmental Body
relating to the consummation of the transactions contemplated by this Agreement
shall have been obtained, accomplished or waived.

             10.2.4 As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by Buyer) shall be pending or threatened
before any court or governmental agency seeking to restrain Buyer or prohibit
the Closing or seeking damages against Buyer as a result of the consummation of
this Agreement.

             10.2.5 Seller has insurance, covering Seller during the Interim
Period, providing the following minimum insurance coverages with limits of
liability of not less than those set out below and has caused Buyer to be named
as an additional insured on its insurance policies for such insurance coverage
during the Interim Period:

             (a)    Insurance which shall comply with all applicable Worker's
                    Compensation and Occupational Disease Laws and which shall
                    cover all of the Seller's employees performing any work or
                    activities as to oil and gas leasehold interests subject to
                    this Agreement. Seller shall carry insurance for all work
                    performed offshore, including insurance to cover Claims
                    under the United States Longshoremen's and Harbor Workers'
                    Act extended to include the Outer Continental Shelf;

             (b)    Commercial General Liability Insurance (including
                    contractual liability coverage) with a combined bodily
                    injury and property damage limit of not less than
                    $25,000,000.00 for each occurrence and Pollution Liability
                    Insurance with a coverage of not less than $25,000,000.00
                    for each occurrence. Such insurance shall include coverage
                    for all liability assumed by Seller under the terms of this
                    Agreement with limits not less than those set out above.

                                       24
<PAGE>   32

             (c)    Onshore/Offshore Energy Package including physical damage
                    coverage for onshore/offshore properties and Assets, removal
                    of wreck and debris, care, custody and control, operator's
                    extra expense, protection and indemnity, collision, business
                    interruption, and excess liability.

             10.2.6 Seller shall furnish Buyer with certificates of insurance on
forms reasonably acceptable to Buyer, listing all such insurance policies
required in Section 10.2.5 during the Interim Period. Seller shall ensure that
its insurers waive all rights of recovery or subrogation against Buyer, its
parent, subsidiaries, affiliates, co-lessees, co-venturers, and all of their
agents, directors, officers, employees or servants, with respect to this
Agreement and the Assets. Neither failure to comply nor full compliance with,
the insurance provisions of this Agreement shall limit or relieve Seller from
holding Buyer harmless in accordance with this Agreement.

         10.3 General Closing Conditions. The obligations of Buyer and Seller to
close under this Agreement, as provided in Article XI, are specifically
conditioned upon the receipt of all material waivers, consents, approvals,
permits, waivers of preferential purchase rights and authorizations and actions
of third parties (other than the governmental consents which are to be handled
pursuant to Sections 17.1 and 17.2 and approvals and other consents routinely
acquired after a transfer, including the non-transferability requirement of any
license, permit, right-of-way, franchise or easement and other consents and
approvals that by federal, state, or local law, rules, regulation, agreement or
by their inherent nature are required to be obtained to complete the purchase
and sale contemplated herein.

         10.4 Conditions. The inclusion in this Agreement of conditions to
Seller's and Buyer's obligations at Closing shall not, in and of itself,
constitute a covenant of either Seller or Buyer to satisfy the conditions to the
other Party's obligations at Closing.

                                   ARTICLE XI
                                     CLOSING

         11.1 Closing. The actions and events described in this Article XI are
the "Closing" of this transaction which shall be held beginning at 10:00 a.m.
local time at Seller's offices located at 3861 Ambassador Caffery Parkway, Suite
100, Lafayette, Louisiana, 70503, on March 31, 2000, or on such earlier or later
date or at such other place as the Parties agree in writing ("Closing Date").
Time is of the essence and the Closing Date shall not be extended unless by
written agreement of the Parties. All events of Closing shall each be deemed to
have occurred simultaneously with the other, regardless of when actually
occurring, and each shall be a condition precedent to the other. If the Closing
occurs, all conditions of Closing shall be deemed to have been satisfied or
waived.

                                       25
<PAGE>   33

         11.2 Seller's Closing Obligations.

              11.2.1 At Closing, except to the extent comprising the Excluded
Assets, Seller shall execute and deliver to Buyer the following:

              (a)   Assignment and conveyance of lease(s), and such other
                    documents as may be reasonably necessary to convey Seller's
                    interest in the Assets to Buyer and for Buyer to assume all
                    obligations thereunder in accordance with the provisions
                    hereof, including the following:

                    (i)    Assignment and Conveyance of OCS Leases,
                           substantially in the form of Exhibit "B-1";

                    (ii)   Assignment and Conveyance of Louisiana State Mineral
                           Board Leases, substantially in the form of Exhibit
                           "B-2";

                    (iii)  Assignment and Conveyance of private landowner oil,
                           gas and mineral leases, substantially in the form of
                           Exhibit "B-3";

                    (iv)   Assignment and Conveyance of BLM Lease, substantially
                           in the form of Exhibit "B-4";

                    (v)    Assignment and Conveyance of OCS pipeline
                           rights-of-way, substantially in the form of Exhibit
                           "B-5";

                    (vi)   Assignment and Conveyance of State of Louisiana
                           pipeline rights-of-way, substantially in the form of
                           Exhibit "B-6";

                    (vii)  Assignment and Conveyance of State of Louisiana
                           surface leases, substantially in the form of Exhibit
                           "B-7";

                    (viii) Assignment and Conveyance of private landowner
                           surface leases, substantially in the form of Exhibit
                           "B-8";

                    (ix)   Assignment of Subsurface Agreements, substantially in
                           the form of Exhibit "B-10".

              (b)   The Assignment and Assumption of Contracts, substantially in
                    the form of Exhibit "C," under which Buyer is assigned and
                    transferred Seller's rights and interests in all contracts
                    and agreements included in the Assets and Buyer assumes all
                    obligations thereunder in accordance with the provisions
                    hereof, including, but not limited to, the operating
                    agreements and other agreements and contracts described on
                    Exhibit "A-2" whether or not of record or on file;

              (c)   A Bill of Sale, substantially in the form of Exhibit "D,"
                    for the wells,

                                       26
<PAGE>   34

                    platforms, facilities, pipelines, and other fixtures,
                    equipment and movables included in the Assets;

              (d)   Such other appropriate assignments, bills of sale, deeds or
                    instruments necessary to transfer the Assets to Buyer or to
                    effect and support this transaction including without
                    limitation any conveyances on official forms and related
                    documentation necessary to transfer the Assets to Buyer in
                    accordance with requirements of governmental regulations;

              (e)   If necessary, letters-in-lieu of transfer orders,
                    substantially in the form of Exhibit "E," directing all
                    purchasers of production to pay Buyer the proceeds of
                    production produced from the Assets from and after the
                    Effective Time;

              (f)   A non-foreign affidavit, substantially in the form of
                    Exhibit "F";

              (g)   Such designation of operator forms as are necessary to
                    transfer operations to Buyer for those Assets that are
                    operated by Seller which will be operated by Buyer;

              (h)   The Production Handling Agreement; and,

              (i)   The Trust Agreement.

              11.2.2   At Closing, Seller shall deliver to Buyer the following:

              (a)   Incumbency certificates and copies of the powers of attorney
                    or other authorization for the representatives of Seller
                    executing this Agreement and the instruments delivered at
                    Closing, or other evidence of the authority of Seller to
                    enter into this Agreement and close the transaction
                    contemplated hereby in a form and having content
                    satisfactory to Buyer and its counsel;

              (b)   Seller's arrangements to deliver to Buyer the following
                    (except to the extent constituting Excluded Assets):

                    (i)    Copies of all of the files, contracts, and documents
                           affecting  title to the Leases to which Seller has
                           access and to which Buyer is entitled;

                    (ii)   Copies of all books, records, production records,
                           information, and engineering data relating to the
                           Assets to which Buyer is entitled, except insofar as
                           Seller is prevented from transferring same by
                           contractual obligations to third parties, or which
                           constitute Excluded Assets and;

                    (iii)  Copies of all other files, data, and records
                           pertaining to the Assets to which Buyer is entitled.

                                       27
<PAGE>   35

              (c)   Certificates of insurance confirming the existence of the
                    insurance coverages by Seller pursuant to Sections 10.2.5
                    and 10.2.6 confirming that Buyer is named as an additional
                    insured thereunder;

         11.3 Buyer's Closing Obligations.

              11.3.1.  At Closing, Buyer shall execute and deliver to Seller:

              (a)   Assignment and Conveyance of OCS Leases, substantially in
                    the form of Exhibit "B-1";

              (b)   Assignment and Conveyance of Louisiana State Mineral Board
                    Leases, substantially in the form of Exhibit "B-2";

              (c)   Assignment and Conveyance of private landowner oil, gas and
                    mineral leases, substantially in the form of Exhibit "B-3";

              (d)   Assignment and Conveyance of BLM Lease, substantially in the
                    form of Exhibit "B-4";

              (e)   Assignment and Conveyance of OCS pipeline rights-of-way,
                    substantially in the form of Exhibit "B-5";

              (f)   Assignment and Conveyance of State of Louisiana pipeline
                    rights-of-way, substantially in the form of Exhibit "B-6";

              (g)   Assignment and Conveyance of State of Louisiana surface
                    leases, substantially in the form of Exhibit "B-7";

              (h)   Assignment and Conveyance of private landowner surface
                    leases, substantially in the form of Exhibit "B-8";

              (i)   Assignment of Overriding Royalty to fund the trust account
                    pursuant to the Trust Agreement, substantially in the form
                    of Exhibit "B-9";

              (j)   The Assignment and Assumption of Contracts, substantially in
                    the form of Exhibit "C" under which Buyer is assigned and
                    transferred Seller's rights and interests in all contracts
                    and agreements included in the Assets and Buyer assumes
                    Seller's obligations thereunder, including but not limited
                    to the operating agreements and other agreements and
                    contracts described on Exhibit "A-2" whether or not of
                    record or on file;

              (k)   [Intentionally omitted];

                                       28
<PAGE>   36

              (l)   The Production Handling Agreement substantially in the form
                    of Exhibit "I";

              (m)   The Trust Agreement as required in Section 17.2.3
                    substantially in the form of Exhibit "J";

              (n)   Such designation of operator forms as are necessary to
                    transfer operations to Buyer for those Assets that are
                    operated by Seller which will be operated by Buyer;

              (o)   Assignment of Subsurface Agreements, substantially in the
                    form of Exhibit "B-10".

              11.3.2. At Closing, Buyer shall deliver to Seller:

              (a)   The Purchase Price, as adjusted by the amount shown on the
                    Preliminary Settlement Statement, less the Performance
                    Deposit which shall be retained by Seller and credited
                    towards the Purchase Price, by wire transfer in immediately
                    available funds to:

                    Wells Fargo Bank
                    Houston, Texas
                    ABA# 112000248
                    Acct. Name: Ocean Energy, Inc.
                    Acct. No. 4375681020
                    Reference:  East Bay Purchase

              (b)   Evidence acceptable to Seller that Buyer is qualified to
                    hold title to the Leases with the MMS and the BLM and to
                    operate (should Buyer become the operator of the Assets or a
                    portion thereof) the platforms, wells, pipelines and
                    facilities associated therewith;

              (c)   Certificate(s) of insurance confirming the existence of the
                    insurance coverages by Buyer pursuant to Sections 10.1.5 and
                    10.1.6 confirming that Seller is named as an additional
                    insured thereunder;

              (d)   Incumbency certificates and copies of the powers of attorney
                    or other authorization for the representatives of Buyer
                    executing this Agreement and the instruments delivered at
                    Closing, or other evidence of the authority of Buyer to
                    enter into this Agreement and close the

                                       29
<PAGE>   37

                    transaction contemplated hereby in a form and having content
                    satisfactory to Seller and its counsel;

              (e)   The Seller's Bond designating Seller as obligee or such
                    other security satisfactory to Seller as required in Section
                    17.2.2.

              (f)   Buyer's list of employees as required in Section 17.19.

         11.4 Joint Closing Obligations. Both Parties at Closing shall execute a
Settlement Statement evidencing the amounts actually wire transferred into such
accounts as are designated above or by the receiving Party in writing prior to
Closing. Seller and Buyer shall also execute, acknowledge (if necessary) and
exchange, as applicable, any applications necessary to transfer governmental or
regulatory permits to which the Assets are subject, and which Seller has agreed
to transfer under this Agreement.

         11.5 Failure to Close. If Closing does not occur for any reason other
than the failure of Buyer to perform the obligations to be performed by it prior
to and on the Closing Date, as such Closing Date may be extended in accordance
herewith, then Seller shall return the Performance Deposit to Buyer with five
percent (5%) per annum simple interest from the date of this Agreement within
three (3) Business Days of receipt of the notice of termination by wire transfer
in immediately available funds to:

                          ---------------------------

                          ---------------------------

                          ---------------------------

                          ---------------------------

                          ---------------------------

                          ---------------------------

                                   ARTICLE XII
                                EFFECT OF CLOSING
                   ASSUMED AND RETAINED RIGHTS AND OBLIGATIONS

         12.1 Buyer's Rights After Closing. Upon and after Closing, Buyer will
receive all of Seller's right, title and interest in the Assets, with effect as
of the Effective Time.

                                       30
<PAGE>   38

         12.2 Buyer's Obligations After Closing.

              12.2.1 Description of Obligations. Upon and after Closing, Buyer
will assume, pay and perform (i) the Plugging and Abandonment Obligations (as
defined in Section 12.4), (ii) the Environmental Obligations (as defined in
Section 12.5), (iii) all the obligations, liabilities and duties with respect to
the ownership and (if applicable) operation of the Assets that are attributable
to periods at and after the Effective Time, whether or not the required
governmental consents and approvals described in Sections 17.1 and 17.2 are
obtained; and, (iv) all other obligations assumed by Buyer under this Agreement,
(collectively, "Buyer's Assumed Obligations"). The Buyer's Assumed Obligations
include without limitation:

              (a)   Responsibility for payment of all operating expenses and
                    capital expenditures related to the Assets and attributable
                    to the period at and after the Effective Time;

              (b)   Responsibility for performance of all express and implied
                    obligations and covenants under the terms of the Leases,
                    other instruments in the chain of title, the contracts and
                    agreements listed on Exhibits "A-1" and "A-2", and all other
                    orders and contracts to which the Assets are subject arising
                    at and after the Effective Time;

              (c)   Responsibility for payment of all Burdens, rentals, shut-in
                    payments and other burdens, charges or encumbrances to which
                    the Assets are subject that are attributable to periods at
                    and after the Effective Time;

              (d)   Responsibility for proper accounting for and disbursement of
                    production proceeds from the Assets attributable to periods
                    at and after the Effective Time;

              (e)   Responsibility for compliance with all applicable laws,
                    ordinances, rules and regulations pertaining to the Assets,
                    and the procurement and maintenance of all permits required
                    by any Governmental Body or other public authorities in
                    connection with the Assets at and after the Effective Time;

              (f)   Responsibility for all obligations for imbalances which may
                    occur with respect to third parties for production or
                    processing of Hydrocarbons attributable to Seller's interest
                    (prior to Closing, and Buyer's interest after Closing) in
                    and ownership of Hydrocarbons produced from the Assets after
                    the Effective Time;

                                       31
<PAGE>   39

              (g)   Responsibility for any and all Claims for personal injury,
                    death or damage to movable property arising directly or
                    indirectly from or incident to the use, occupation,
                    ownership, operation or maintenance of the Assets or the
                    condition thereof on, prior to or after the Effective Time,
                    except to the extent that such Claims arise from Seller's
                    ownership or operation of the Assets and are asserted by
                    third parties in writing against Seller or Buyer within one
                    (1) year of the Closing Date.

              12.2.2 Non-Operator's Obligations. Buyer assumes full
responsibility and liability for Buyer's Assumed Obligations without regard to
whether the obligation (i) relates to an Asset as to which Buyer is not the duly
elected operator or which is a non-operating interest or (ii) relates to a
period of time during which Seller was not the owner or operator of the Asset.

         12.3 Seller's Obligations After Closing.

              12.3.1 Description of Obligations. After Closing, Seller will
retain responsibility for all liabilities, obligations and duties with respect
to the ownership and (if applicable) operation of the Assets that are
attributable to periods before the Effective Time, except as otherwise
specifically provided in this Agreement ("Seller's Retained Obligations"). The
Seller's Retained Obligations include without limitation:

              (a)   Responsibility for the payment of all operating expenses and
                    capital expenditures related to the Assets and attributable
                    to the period prior to the Effective Time;

              (b)   Responsibility for performance of all express and implied
                    obligations and covenants under the terms of the Leases,
                    other instruments in the chain of title, the contracts and
                    agreements listed on Exhibits "A-1" and "A-2", and all other
                    orders and contracts to which the Assets are subject arising
                    before the Effective Time;

              (c)   Responsibility for payment of all Burdens, rentals, shut-in
                    payments and encumbrances to which the Assets are subject
                    that are attributable to periods before the Effective Time;

              (d)   Responsibility for proper accounting for and disbursement of
                    production proceeds from the Assets attributable to periods
                    before the Effective Time;

                                       32
<PAGE>   40

              (e)   Responsibility for the exclusions from the Environmental
                    Obligations described in Section 12.5.2;

              (f)   Responsibility for all obligations for imbalances which may
                    exist at the Effective Time with respect to third parties
                    for production or processing of Hydrocarbons attributable to
                    Seller's interest in and ownership of Hydrocarbons produced
                    from the Assets prior to the Effective Time;

              (g)   Responsibility for any and all claims for personal injury,
                    death or damage to movable property arising directly or
                    indirectly from or incident to the use, occupation,
                    ownership, operation or maintenance of the Assets or the
                    condition thereof prior to the Effective Time to the extent
                    that such claims are (i) asserted in writing against Seller
                    or Buyer within one (1) year of the Closing Date, and (ii)
                    arise from Seller's ownership or operation of the Assets;
                    and,

              (h)   Responsibility for any offsite storage and disposal, prior
                    to the Effective Time by Seller of Hazardous Materials
                    produced from the Assets, and stored or disposed of, on, in
                    or below any property which does not form a part of the
                    Assets, for which and to the extent that remediation is
                    required by any Environmental or Conservation Law in effect
                    as of the Effective Time.

              12.3.2 Non-Operator's Obligations. Seller retains full
responsibility and liability for Seller's Retained Obligations without regard to
whether the obligation relates to (i) any periods of time before the Effective
Time during which Seller was not the owner or operator of the Assets, or (ii)
any non-operating interests in the Assets.

         12.4 Plugging and Abandonment Obligations.

              12.4.1 Buyer's Obligations. Upon and after Closing, Buyer assumes
full responsibility and liability for the following plugging and abandonment
obligations related to the Assets ("Plugging and Abandonment Obligations"),
regardless of whether they are attributable to the ownership or operation of the
Assets before or after the Effective Time:

              (a)   The necessary and proper plugging, replugging and
                    abandonment of all wells on the Assets, whether plugged and
                    abandoned before or after the Effective Time;

                                       33
<PAGE>   41

              (b)   The necessary and proper removal, abandonment, and disposal
                    of all platforms, structures, pipelines, equipment,
                    movables, immovables, abandoned property and junk located on
                    or comprising part of the Assets;

              (c)   The necessary and proper capping and burying of all
                    associated flow lines located on or comprising part of the
                    Assets;

              (d)   The necessary and proper restoration of the Assets, both
                    surface, sea floor and subsurface, to such condition as may
                    be required by applicable laws, regulation or contract;

              (e)   Any necessary clean-up or disposal of Assets contaminated by
                    naturally occurring radioactive material ("NORM") as may be
                    required by applicable laws, regulation or contract; and

              (f)   All obligations arising from contractual requirements and
                    demands made by authorized Governmental Bodies or parties
                    claiming a vested interest in the Assets.

              12.4.2 Standard of Operations. Buyer shall conduct all plugging,
replugging, abandonment, removal, disposal and restoration operations in a good
and workmanlike manner and in compliance with all applicable laws and
regulations.

              12.4.3 Buyer's Bonds and Seller's Remedies. Buyer's liability and
obligations under this Section 12.4 are included in the liabilities and
obligations to be secured by the bonds, supplemental or additional bonds, trust
account, and/or pledge of securities, as may be established pursuant to Sections
17.1 and 17.2. If Buyer defaults in the performance of its obligations pursuant
to this Section 12.4, Seller, at its option, and after reasonable notice, may
complete, or have completed, the plugging, replugging, abandonment, removal,
disposal, capping, burying, and restoration operations at Buyer's expense.
Exercise of Seller's rights hereunder shall in no way limit Seller's rights to
seek recovery for any uncompensated damages resulting from such default or to
exercise any other legal rights and remedies hereunder.

         12.5 Environmental Obligations.

              12.5.1 Buyer's Obligations. Except as provided in Section 12.5.2,
upon and after Closing, Buyer assumes full responsibility and liability for the
following conditions, occurrences, events and activities on or related to the
Assets ("Environmental Obligations"), regardless of whether arising from the
ownership or operation of the Assets before or after

                                       34
<PAGE>   42

the Effective Time, and regardless of whether resulting from any acts or
omissions of Seller or the condition of the Assets when acquired:

              (a)   Environmental pollution or contamination, including
                    pollution or contamination of the Assets, soil, sea,
                    groundwater, surface water, or air by Hazardous Materials,
                    Hydrocarbons, brine, NORM or otherwise;

              (b)   Underground injection activities and waste disposal;

              (c)   Clean-up responses, including, but not limited to, the cost
                    of investigation removal, remediation, control, assessment
                    or compliance with respect to surface, sea floor, and
                    subsurface pollution caused by spills, pits, ponds or
                    lagoons;

              (d)   Failure to comply with applicable land use, surface
                    disturbance, licensing or notification requirements;

              (e)   Disposal, Release or presence of any Hazardous Materials,
                    including, but not limited to, hazardous substances, wastes,
                    materials and products generated by or used in connection
                    with the ownership or operation of the Assets before or
                    after the Effective Time;

              (f)   Non-compliance with environmental or land use rules,
                    regulations, demands or orders of appropriate state or
                    federal regulatory agencies, including Environmental and
                    Conservation Laws;

              (g)   The presence of asbestos in, on or as part of the Assets
                    which require special methods of handling and special
                    methods of performing work.

              12.5.2 Exclusions from Buyer's Obligations. Buyer's Environmental
Obligations do not include:

              (a)   Claims for any civil or criminal fine or penalty that may be
                    levied against Seller or Buyer by any Governmental Body for
                    any violation of Environmental and Conservation Laws
                    resulting solely from Seller's ownership or operation of the
                    Assets before the Effective Time which are asserted within
                    one (1) year after Closing, all of which shall remain the
                    responsibility of Seller;

              (b)   Claims against Seller or Buyer by third Persons, including
                    any Governmental Body, of which Seller is notified in
                    writing by Buyer

                                       35
<PAGE>   43

                    within one (1) year after Closing, resulting from the
                    Environmental Obligations, which arose and are asserted
                    prior to the Effective Time and are attributable to the
                    ownership or operation of the Assets by Seller prior to the
                    Effective Time. Seller shall have no obligation to Buyer
                    under this Section 12.5.2(b) for any matter for which Seller
                    is not notified in writing by Buyer within one (1) year
                    after Closing. It is agreed and understood, moreover, that
                    this exclusion and Seller's indemnity obligations with
                    respect to the same under this Agreement shall be limited
                    only to Claims against Buyer by third Persons, including any
                    Governmental Body;

              (c)   For purposes of Sections 12.5.2(a) and (b), Claims shall be
                    deemed asserted at the time the order requiring payment of a
                    fine or penalty or requiring cleanup or remediation has been
                    issued in writing by the appropriate Governmental Body or
                    Seller or Buyer has been notified in writing that Seller or
                    Buyer is a potentially responsible party by a Governmental
                    Body;

              (d)   The indemnification obligation set forth in Section 13.4.1
                    in this Agreement with respect to the exclusions in Sections
                    12.5.2 (a) and (b) shall, after the Closing, be the sole and
                    exclusive remedies of Buyer with respect to the matters
                    addressed in this Sections 12.5.2 (a) and (b), regardless of
                    any of Seller's warranties or representations.

         12.6 Revenues and Expenses.

              12.6.1 Revenues. To the extent not accounted for in Buyer's and
Seller's Credits and adjustments under Section 3.2 hereof, all proceeds,
accounts receivable, income, revenues and other items included in or
attributable to the Excluded Assets and the Assets prior to the Effective Time
shall belong to and be retained or paid to Seller, and all other proceeds,
accounts receivable, income, revenues and other items included in or
attributable to the Assets after the Effective Time shall belong to and be paid
over to the Buyer.

              12.6.2 Expenses. To the extent not accounted for in Buyer's and
Seller's Credits and adjustments under Section 3.2 hereof, all accounts payable
and other costs and expenses with respect to the Excluded Assets and Seller's
interest in the Assets which are attributable under generally accepted
accounting principles to the period prior to the Effective Time shall be the
obligations of and be paid by Seller. Those accounts payable, costs and expenses
which are attributable to the period commencing after the Effective Time shall
be the obligation of and be paid and discharged by Buyer.

                                       36
<PAGE>   44

              12.6.3 Post Closing Obligations. If any funds are received by a
Party hereto, which belong to the other Party, the Party receiving such funds
shall immediately pay the funds over to the other Party entitled thereto. If an
invoice or other obligation to be discharged is under the terms of this
Agreement partially the obligation of Seller and partially the obligation of
Buyer, the Party receiving such invoice or request to discharge the obligation
shall promptly notify the other Party which shall promptly pay over its share
thereof after receipt of such notice.

         12.7 Seller Operated Properties. After Buyer assumes operations of the
Assets, Seller shall be granted access and reasonable ingress and egress onto
and across the Assets without any requirement of payment by Seller to Buyer but
otherwise at Seller's sole risk, cost and expense in order that Seller may
remove from the Assets the Excluded Assets, and any such access, ingress and
egress shall be covered by Seller's indemnity provided in Section 13.4.3. Seller
shall make its personnel available to Buyer as may be reasonably necessary to
assist in the transition of operations, and any such assistance shall be covered
by Buyer's indemnity provided in Section 13.3.2.

                                  ARTICLE XIII
                                   INDEMNITIES

         13.1 Definition of Claims. As used in this Agreement, the term "Claims"
means any and all losses, liabilities, damages, punitive damages, obligations,
expenses, fines, penalties, costs, claims, causes of action and judgments for:
(i) breaches of contract; (ii) loss or damage to property, injury to or death of
persons, and other tortuous injury; and (iii) violations of applicable laws,
rules, regulations, orders or any other legal right or duty actionable at law or
equity. The term "Claims" also includes reasonable attorneys fees, court costs,
and other reasonable costs of litigation resulting from the defense of any claim
or cause of action within the scope of the indemnities in this Agreement.

         13.2 Application of Indemnities.

              13.2.1 Covered Claims and Parties. All indemnities set forth in
this Agreement extend to the officers, directors, employees, parents,
subsidiaries and affiliates of the Party indemnified. Unless this Agreement
expressly provides to the contrary, the indemnities set forth in this Agreement
apply regardless of whether the indemnified Party (or its employees, agents,
contractors, successors or assigns) causes, in whole or part, an indemnified
Claim, including indemnified Claims arising out of or resulting, in whole or
part, from the condition of the Assets or the indemnified Party's (or its
employees', agents', contractors', successors' or assigns') sole or concurrent
negligence, strict liability or fault. However, the indemnities set forth in
this Agreement do not extend to any part of an indemnified Claim that (i) is the
result of the gross negligence, willful misconduct or fraud

                                       37
<PAGE>   45

of the indemnified Party, (ii) is the result of the imposition of punitive or
consequential damages on the indemnified Party arising from the acts of the
indemnified Party, or (iii) is the result of the imposition of civil or criminal
fines or penalties by any court or regulatory authority on the indemnified Party
due to the indemnified Party's failure to comply with applicable laws,
regulations or orders.

              13.2.2 Other Limitations. The indemnities of the indemnifying
Party in this Agreement do not cover or include any amounts that the indemnified
Party may legally recoup from other third party owners under applicable joint
operating agreements or other agreements, or for which the indemnified Party is
reimbursed by any third party. The indemnities in this Agreement do not relieve
the Parties to this Agreement from any obligations to third parties. The
indemnities of the Parties in this Agreement do not relieve the indemnified
Party from, or extend to cover, any obligations of the indemnified Party under
the terms of any operating agreement or other cost-sharing arrangement which is
applicable to any Claim. There will be no upward or downward adjustment in the
Purchase Price as a result of any matter for which Buyer or Seller is
indemnified under this Agreement.

         13.3 Buyer's Indemnity. Buyer shall indemnify, defend and hold Seller
harmless from and against any and all Claims caused by, resulting from, or
incidental to:

              13.3.1 Buyer's Assumed Obligations, including without limitation
the Plugging and Abandonment Obligations and the Environmental Obligations;

              13.3.2 Seller's operation of the Assets and any assistance in the
transition of ownership of operations under Section 9.2 of this Agreement (if
applicable), except to the extent caused by Seller's gross negligence or willful
misconduct;

              13.3.3 Any obligations for a brokerage or finder's fee or
commission incurred by Buyer in connection with its purchase of the Assets;

              13.3.4 Any violation by Buyer of state or federal securities laws,
or Buyer's dealings (including any dealings in breach of Buyer's warranties and
representations in Section 5.1.8) with its partners, investors, financial
institutions, assignees and other third parties in connection with the
transaction under this Agreement, or any subsequent sale or other disposition of
the Assets (or portion thereof) by Buyer, its affiliates or assignees;

              13.3.5 Buyer's ownership or operation of any portion of the Assets
that may be reconveyed or reassigned to Seller due to failure to obtain
requisite consents or government approvals, except to the extent any such Claim
is the direct result of Seller's ownership or operation of the Assets before the
Effective Time;

                                       38
<PAGE>   46

              13.3.6 Buyer's inspection of the Assets under Section 6.4 and any
other provisions of this Agreement, except to the extent caused by Seller's
gross negligence or willful misconduct; and,

              13.3.7 Buyer's calculation and payment of Burdens on the
Leases and the calculation and payment of severance taxes, if any, on the
production of Hydrocarbons from the Leases after the Effective Time.

         13.4 Seller's Indemnity. Seller shall indemnify, defend and hold Buyer
harmless from and against any and all Claims caused by, resulting from or
incidental to:

              13.4.1 Seller's Retained Obligations as defined in Section 12.3
and the exclusions from the Environmental Obligations assumed by Buyer in
Sections 12.5.2(a) and 12.5.2(b);

              13.4.2 Seller's operation of the Assets under Section 9.1.1 of
this Agreement (if applicable), to the extent caused by Seller's gross
negligence or willful misconduct; and

              13.4.3 Seller's access to the Assets after Closing for the
purposes described in Sections 12.7 (if applicable) and 17.11, except to the
extent caused by Buyer's gross negligence or willful misconduct.

         13.5 Notices and Defense of Indemnified Claims. Each Party shall
immediately notify the other Party of any Claim of which it becomes aware and
for which it is entitled to indemnification from the other Party under this
Agreement. The indemnifying Party shall be obligated to defend at the
indemnifying Party's sole expense any litigation or other administrative or
adversarial proceeding against the indemnified Party relating to any Claim for
which the indemnifying Party has agreed to indemnify and hold the indemnified
Party harmless under this Agreement. However, the indemnified Party shall have
the right to participate with the indemnifying Party in the defense of any such
Claim at its own expense. In the event it is necessary for either Party to
institute suit to enforce any right of defense and indemnity against the other
Party arising from or incidental to the indemnity obligations in this Agreement,
then the prevailing Party shall be entitled to recover reasonable attorney's
fees, court costs and expenses related thereto.

         13.6 Pending Litigation and Claims. Notwithstanding anything in this
Agreement to the contrary, Seller shall indemnify, defend and hold Buyer
harmless from and against any Claims resulting from the litigation and Claims
listed on Exhibit "G" under the section entitled "Seller Responsibility," except
as may otherwise be expressly provided in that Exhibit. Buyer shall indemnify,
defend and hold Seller harmless from and against any Claims resulting from the
litigation and Claims listed on Exhibit "G" under the section

                                       39
<PAGE>   47

entitled "Buyer Responsibility," except as may otherwise be expressly provided
in that Exhibit.

         13.7 Waiver of Consequential and Punitive Damages. Neither Buyer nor
Seller shall be entitled to recover from the other, respectively, for any
losses, costs, expenses, or damages arising under this Agreement or in
connection with or with respect to the transactions contemplated in this
Agreement any amount in excess of the actual compensatory damages, court costs
and reasonable attorney fees, suffered by such Party. Buyer and Seller both
waive any right to recover punitive, special, exemplary and consequential
damages arising in connection with or with respect to the transactions
contemplated in this Agreement.

                                   ARTICLE XIV
                     LIMITATIONS OF WARRANTIES AND REMEDIES

         14.1 Limitations. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT
LIMITATION ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY,
NATURE, CLASSIFICATION, VALUE OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR
OTHER HYDROCARBONS IN OR UNDER THE LEASES, OR THE ENVIRONMENTAL CONDITION OF THE
ASSETS. THE ITEMS OF PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND
APPURTENANCES CONVEYED AS PART OF THE ASSETS ARE SOLD HEREUNDER "AS IS, WHERE
IS", AND NO WARRANTIES OR REPRESENTATIONS WHATSOEVER OR OF ANY KIND OR
CHARACTER, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF CONDITION, QUALITY,
QUANTITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, OR FREEDOM FROM REDHIBITORY VICES OR DEFECTS,
ARE GIVEN BY OR ON BEHALF OF SELLER. IT IS UNDERSTOOD AND AGREED THAT PRIOR TO
CLOSING BUYER SHALL HAVE INSPECTED THE ASSETS FOR ALL PURPOSES AND HAVE FULLY
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE
AND SUBSURFACE, INCLUDING, BUT NOT LIMITED TO, CONDITIONS SPECIFICALLY RELATED
TO THE PRESENCE, RELEASE, DISPOSAL OR DISCHARGE OF HAZARDOUS MATERIALS, AND THE
CONDITION OF ANY WELL CASING, TUBING OR DOWNHOLE EQUIPMENT, AND THAT BUYER
ACCEPTS SAME IN ITS "AS IS, WHERE IS" CONDITION. THE WARRANTIES OF SELLER
CONTAINED IN THIS

                                       40
<PAGE>   48

AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
AND BUYER HEREBY WAIVES AND SELLER HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, FREEDOM FROM REDHIBITORY VICES OR
DEFECTS, OR CONFORMITY TO SAMPLES. THERE ARE NO WARRANTIES THAT EXTEND BEYOND
THE FACE OF THIS AGREEMENT.

         14.2 NORM. BUYER ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND
GAS PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL
(NORM). SCALE FORMATION OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON
EQUIPMENT AND OTHER ASSETS. SOME OR ALL OF THE EQUIPMENT, MATERIALS AND OTHER
ASSETS SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND
LEVELS. A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THIS EQUIPMENT, MATERIALS
AND OTHER ASSETS BY REASON THEREOF. THEREFORE, BUYER MAY NEED TO FOLLOW SAFETY
PROCEDURES WHEN HANDLING THIS EQUIPMENT, AND OTHER ASSETS.

         14.3 Assignment Disclaimers. The assignments and bills of sale, leases,
subleases, deeds and other documents of conveyance to be delivered at or after
Closing by Seller shall expressly include the disclaimers and waivers of
representations and warranties and limitations included in this Agreement and
shall expressly state that the Assets have been used for oil and gas drilling
and producing operations, related oilfield operations and the production
treatment, storage, compression and transportation of oil, gas and Hazardous
Materials.

         14.4 Survival. Except for the representations and warranties of Seller
provided in Sections 4.1.7, 4.1.8, 4.1.9, 4.1.10, 4.1.11, 4.1.13, 4.1.14 and
4.1.15 which shall terminate upon Closing, all representations, warranties,
covenants, indemnities, and agreements made herein shall survive the Closing and
shall not be merged into or superseded by any assignments or other documents
delivered at Closing.

                                   ARTICLE XV
                         CASUALTY LOSS AND CONDEMNATION

         15.1 Casualty Loss. If, prior to the Closing, any of the Assets are
substantially damaged or destroyed by fire or other casualty or, if any
substantial portion of the Assets are taken by condemnation or under the right
of eminent domain (all of which are herein called

                                       41
<PAGE>   49

"Casualty Loss" and are limited to property damage or taking only), Seller shall
notify Buyer promptly after Seller learns of such event. Seller shall have the
right, but not the obligation, to cure the Casualty Loss by repairing them with
equivalent items, no later than the Closing Date, all to Buyer's reasonable
satisfaction. If any uncured Casualty Loss exists at the Closing, Buyer shall
proceed to purchase the Assets affected thereby, and upon receipt thereof,
Seller shall pay to Buyer all sums paid to Seller by third parties by reason of
the damage or taking of such Assets, and to the extent Seller is not
contractually prohibited from doing so, Seller shall assign, transfer and set
over unto Buyer all of the right, title and interest of Seller in and to any
claims, unpaid proceeds or other payments from third parties arising out of such
damage or taking. Notwithstanding the foregoing, if the aggregate value in the
reduction of the Assets on account of such uncured Casualty Loss exceeds twelve
(12%) percent of more of the Purchase Price, either Buyer or Seller shall have
the right to terminate this agreement by so notifying the other party in writing
prior to Closing. Upon termination, Seller shall return the Performance Deposit
to Buyer with five percent (5%) per annum simple interest from the date of this
Agreement within three (3) Business Days of receipt of the notice of
termination.

         15.2 Limitation. Anything in this Agreement or in the documents to be
delivered at Closing to the contrary notwithstanding, Buyer shall only be
entitled to proceeds with respect to Seller's casualty insurance coverage
described in Section 10.2.5 or other sums paid to Seller by third parties (or an
assignment of claims related thereto) upon or after the Closing of the
transactions contemplated herein.

                                   ARTICLE XVI
                              DEFAULT AND REMEDIES

         16.1 Seller's Remedies. Upon failure of Buyer to perform the
obligations to be performed by it prior to and on the Closing Date, as such
Closing Date may be extended in accordance herewith, Seller, at its sole option,
may (i) enforce specific performance or (ii) terminate this Agreement and retain
the Performance Deposit as agreed liquidated damages and not as a penalty, as
Seller's sole and exclusive remedies for such default, all other remedies
(except as expressly retained in Section 16.3) being expressly waived by Seller.

         16.2 Buyer's Remedies. Upon failure of Seller to perform the
obligations to be performed by it by the Closing Date, as such Closing Date may
be extended in accordance herewith, Buyer, at its sole option, may (i) enforce
specific performance or (ii) Seller shall return the Performance Deposit to
Buyer with five percent (5%) per annum simple interest

                                       42
<PAGE>   50

from the date of this Agreement within three (3) Business Days of receipt of the
notice or termination as Buyer's sole and exclusive remedies for such default,
all other remedies (except as expressly retained in Section 16.3) being
expressly waived by Buyer.

         16.3 Effect of Termination. Anything herein to the contrary
notwithstanding, in the event of termination of this Agreement, the transaction
shall not close, and this Agreement shall become void and have no further effect
whatsoever, and neither Buyer nor Seller shall have any further right or duty to
the other hereunder, except as provided in Sections 16.1, 16.2 and 16.4.

         16.4 Other Remedies. Notwithstanding the provisions of Sections 16.1,
16.2 and 16.3 termination of this Agreement shall not prejudice or impair
Buyer's obligations under Sections 6.3 (and the confidentiality agreements
referenced therein) and 6.4 and such other portions of this Agreement as are
necessary to the enforcement and construction of Sections 6.3 and 6.4.

                                  ARTICLE XVII
                                  MISCELLANEOUS

         17.1 Certain Governmental Approvals. Seller shall cooperate with Buyer
and Buyer will use all commercially reasonable efforts after Closing to obtain
the unconditional approval by the MMS, the BLM and the SMB of the assignments
and conveyances of lease(s) attached hereto as Exhibits "B-1", "B-2", "B-4",
"B-5", "B-6" and "B-7". In the event Buyer operates or is elected successor
operator under the operating agreements applicable to any of the Leases, if
applicable, Buyer also obligates itself to make application to the MMS to
qualify or continue (if any further qualification is necessary or required by
MMS) as operator with respect to the Assets, as well as for a right of use and
easement as to the pipeline(s) and platforms included in the Assets. Buyer shall
take any actions reasonably required of Buyer by the MMS or any other regulatory
agencies or Governmental Body to obtain all requisite regulatory approvals,
including but not limited to, the purchase and posting of any and all bonds,
supplemental bonds or other securities which may be required of Buyer pursuant
to 30 CFR Parts 250 and 256 in excess of any existing lease, pipeline or
area-wide bond(s). Until all of the governmental approvals with respect to the
assignments described in this Section 17.1 are obtained, however, the following
shall occur:

              17.1.1 As necessary, Seller shall continue to hold record title to
the Assets as nominee for Buyer;

              17.1.2 Buyer's indemnity under Section 13.3.1 shall include any
and all Claims, costs and expenses of any kind or character relating to such
Assets accruing after Closing;

                                       43
<PAGE>   51

              17.1.3 Seller shall act as Buyer's nominee but shall be authorized
to act only upon and in accordance with Buyer's specific written instructions,
and Seller shall have no authority, responsibility or discretion to perform any
tasks or functions with respect to the Assets other than those which are purely
administrative or ministerial in nature, unless otherwise specifically requested
and authorized by Buyer in writing; and

              17.1.4 Buyer shall continue to maintain and provide at its cost
the insurance coverages with minimum limits of liability as set forth in Section
10.1.5 of this Agreement.

         17.2 Bonding and Trust Account.

              17.2.1 Adequacy of Supplemental Bonds or Arrangements for the
Pledge of Securities. Upon execution hereof, Buyer shall confer with the MMS
regarding the amounts and terms for the posting of supplemental bonds or pledge
of securities pursuant to the provisions of 30 CFR Parts 250 and 256, and within
thirty (30) days of any MMS determination pursuant to such regulations Buyer
shall satisfy the MMS requirements concerning same.

              17.2.2 Seller's Bond. Upon closing, Buyer shall post with Seller
and thereafter maintain additional irrevocable bonding in the face amount of
$50,000,000.00 (the "Seller's Bond"), subject to adjustment as provided in the
Trust Agreement, from a good and sufficient commercial surety included on the
list of acceptable sureties for Federal bonds as certified by the U.S.
Department of the Treasury (pursuant to Treasury Circular No. 570), and
acceptable to Seller, in its reasonable discretion, with Seller (and/or its
designee) named as obligee to secure all obligations of Buyer to be responsible
for and comply with all duties and obligations of Seller with respect to the
Assets, including any governmental request or requirement to plug, re-plug,
and/or abandon any well, platform, pipeline, structure, piling, foundation or
other related facility existing on the Assets, on or after the Effective Time,
of whatsoever type, status or classification, or to take any environmental
remediation, clean-up or other action with respect to the Assets, including the
removal of all or any structures, wells, foundations, platforms or pilings. The
Seller's Bond shall be in addition to any other bonding obligations which Buyer
may owe to the MMS, BLM, SMB or any other Person or Governmental Body and shall
relate solely and exclusively to the Assets to the exclusion of all other
properties owned or operated by Buyer. In satisfaction of up to $10,000,000.00
of the bonding required of Buyer under this Section 17.2.2, Seller will accept
an irrevocable letter of credit, in a form and content satisfactory to Seller,
in its sole discretion, from an acceptable federally insured banking institution
acceptable to Seller, in its sole discretion.

                                       44
<PAGE>   52

              17.2.3 Trust Account. Upon Closing, Buyer shall fund and
thereafter maintain a trust account as additional security for the Plugging and
Abandonment Obligations and the Environmental Obligations according to the terms
of the Trust Agreement (the "Trust Agreement") attached hereto as Exhibit "J"
and the Assignment of Overriding Royalty attached hereto as Exhibit "B-9."

              17.2.4 Shell Bond and Trust Account. Buyer agrees to cooperate
with Seller in Seller's effort to secure a release and termination of the Shell
Trust Agreement through the addition of Shell Offshore Inc. as an additional
beneficiary under the Trust Agreement and the substitution of Seller's Bond with
the designation of Shell Offshore Inc. as an additional obligee for the
performance bond presently posted with Shell Offshore Inc.

         17.3 Public Announcements. Buyer shall secure the prior written
approval of Seller of the text of any public announcement or statement to be
made solely by Buyer prior to making any public announcement or statement with
respect to the execution of this Agreement, or the pending or closing of the
transaction contemplated by this Agreement. Any other public announcement or
statement by Buyer concerning the Assets shall not reference Seller. Nothing
contained in this paragraph shall be construed to require either Party to obtain
approval of the other Party hereto to disclose information with respect to the
transaction contemplated by this Agreement to any state or federal governmental
authority or agency to the extent required by applicable law or by any
applicable rules, regulations or orders of any governmental authority or agency
having jurisdiction or necessary to comply with disclosure requirements of the
New York Stock Exchange and applicable securities laws.

         17.4 Filing and Recording of Assignments, etc. Buyer shall be solely
responsible for all filings and recording of assignments and other documents
(including change of operator filings) related to the Assets and for all fees
connected therewith, except as otherwise provided in this Agreement. Buyer shall
furnish Seller with copies of all filings made by it pursuant to this Agreement
and of the pertinent recording data pertaining to same. Seller shall not be
responsible for any loss to Buyer because of Buyer's failure to file or record
documents correctly or promptly. Buyer shall promptly file all appropriate forms
or declarations with the MMS, DOC, SMB, DEQ and BLM and any other applicable
Governmental Body relative to this Agreement and its assumption of the Leases
(and operations, if Buyer becomes the operator), and Seller shall cooperate with
Buyer in connection with such filings.

         17.5 Further Assurances and Records.

              17.5.1 After the Closing, each of the Parties will execute,
acknowledge and deliver to the other such further instruments, and take such
other action, as may be reasonably requested in order to more effectively assure
to said Party all of the respective properties, rights, titles, interests,
estates and privileges intended to be assigned, delivered or inuring to the
benefit of such party in consummation of the transactions contemplated hereby.

                                       45
<PAGE>   53

              17.5.2 Buyer agrees to maintain the files and records of Seller
that are acquired pursuant to this Agreement for a minimum of six (6) years
after expiration or termination of the last Lease to expire or terminate. Buyer
shall provide Seller and its representatives reasonable access to and the right
to copy such files and records for the purposes of (i) preparing and delivering
any accounting provided for under this Agreement and adjusting, prorating and
settling the charges and credits provided for in this Agreement, (ii) complying
with any contract or agreement, law, rule or regulation affecting Seller's
interest in the Assets prior to the Closing Date, (iii) preparing any audit of
the books and records of any third party relating to Seller's interest in the
Assets prior to the Closing Date, or responding to any audit prepared by such
third parties, (iv) preparing tax returns, (v) responding to or disputing any
tax audit, or (vi) asserting, defending or otherwise dealing with any Claim or
dispute under this Agreement. Buyer recognizes that Seller is required to
maintain certain files and records relating to the Assets pursuant to agreements
with a prior owner/operator. Buyer will undertake to secure a release of Seller
from such agreements or the right to substitute Buyer for Seller thereunder, in
which event Seller will deliver originals of the files described in Section
1.37.6 to Buyer upon Buyer's assumption of Seller's obligations with respect
thereto, reserving Seller's right to retain copies thereof.

              17.5.3 Buyer agrees that, as soon as practicable after the
Closing, it will remove or cause to be removed the names and marks (if any) used
by Seller and all variations and derivatives thereof and logos relating thereto
from the Assets and will not thereafter make any use whatsoever of such names,
marks and logos.

              17.5.4 To the extent not obtained or satisfied as of Closing,
Seller agrees to continue to use all reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer access to files, records and
data relating to the Assets in the possession of either Seller or third parties.

              17.5.5 Buyer shall comply with all current and subsequently
amended applicable laws, ordinances, rules, and regulations applicable to the
Assets and Buyer's ownership or operation thereof, and shall promptly obtain and
maintain all permits required by governmental authorities in connection with the
Assets.

         17.6 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and any communication or delivery hereunder shall be deemed to have been duly
given and received when actually delivered to the address set forth below of the
Party to be notified, addressed as follows or when a legible facsimile copy is
received, during ordinary business hours, by the Party's facsimile equipment at
the number shown below:

                  If to Seller:     Ocean Energy, Inc.
                                    3861 Ambassador Caffery Parkway
                                    Suite 100
                                    Lafayette, Louisiana  70503
                                    Telephone:  (318) 993-4300
                                    Fax:  (318) 993-4319
                                    Attention: Mr. Stephen T. Laperouse

                                       46
<PAGE>   54

                  with a copy to:   Mr. Daniel G. Fournerat
                                    Onebane, Bernard, Torian, Diaz,
                                    McNamara & Abell
                                    P. O. Box 3507
                                    Lafayette, LA  70502
                                    Telephone:  (318) 266-1158
                                    Fax:  (318) 266-1232

                  If to Buyer:      Energy Partners, Ltd.
                                    201 St. Charles Avenue
                                    Suite 3400
                                    New Orleans, LA  70170
                                    Telephone:  (504) 569-1875
                                    Fax:  (504) 569-1874
                                    Attention:  Mr. Richard A. Bachmann

Provided, however, that any notice required or permitted under this Agreement
will be effective if given verbally within the time provided, so long as such
verbal notice is followed by written notice thereof in the manner provided
herein within twenty-four (24) hours following the end of such time period. Any
Party may, by written notice so delivered to the other, change the address or
facsimile number to which delivery shall thereafter be made.

         17.7 Incidental Expenses. Buyer shall bear and pay (i) all state or
local government sales, transfer, gross proceeds, or similar taxes incident to
or caused by the transfer of the Assets to Buyer, (ii) all documentary, transfer
and other state and local government taxes incident to the transfer of the
Assets to Buyer, (iii) all filing, recording or registration fees for any
assignment or conveyance delivered hereunder, and (iv) all normal costs or fees
required to obtain consent to assign the Leases. Each Party shall bear its own
respective expenses incurred in connection with the negotiation and Closing of
this transaction, including its own consultants' fees, attorneys' fees,
accountants' fees, and other similar costs and expenses.

         17.8 Entire Agreement. Except for the confidentiality agreements
referenced in Section 6.3, this Agreement (including Exhibits "A" through "N")
embodies the entire agreement between the Parties (superseding all prior
agreements, arrangements and understandings related to the subject matter
hereof), and may be supplemented, altered, amended, modified or revoked by
writing only, signed by the Parties hereto. The headings herein are for
convenience only and shall have no significance in the interpretation hereof.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give to any person or entity (other than the Parties and their permitted
successors and assigns) any rights or remedies under or by reason of this
Agreement.

         17.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.

                                       47
<PAGE>   55

         17.10 Exhibits. All Exhibits hereto, and the terms thereof, which are
referred to herein are hereby made a part hereof and incorporated herein by
reference.

         17.11 Audits Access to Assets. Seller shall have the right, during
reasonable business hours, to audit all records (excepting federal tax records
and records subject to the attorney/client privilege) of Buyer pertaining to the
Assets for a period of two years from Closing. Buyer shall have the right,
during reasonable business hours, to audit all records (excepting federal tax
records and records subject to the attorney/client privilege) of Seller
pertaining to the Assets for a period of two years from Closing. Seller at its
sole cost shall have the right at any time after Closing to reasonable access to
the Assets for the purpose of inspecting Buyer's compliance with the terms of
this Agreement; provided, however, Seller shall repair any damage to the Assets
resulting from such inspections and any such access shall be covered by Seller's
indemnity provided in Section 13.4.3.

         17.12 Counterparts. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one and the same Agreement.

         17.13 Waiver. Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived only by a written instrument
executed by the Party waiving compliance. Except as otherwise expressly provided
in this Agreement, the failure of any Party at any time or times to require
performance of any provisions hereof shall in no manner affect such Party's
right to enforce the same. No waiver by any Party of any condition, or of the
breach of any term, provision, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any such
condition or breach or waiver of any other condition or of the breach of any
other term, provision, covenant, representation or warranty.

         17.14 Binding Effect: Assignment. All the terms, provisions, covenants,
obligations, indemnities, representations, warranties and conditions of this
Agreement shall be enforceable by the Parties hereto and their respective
permitted successors and assigns. Neither this Agreement nor any obligation,
covenant, or liability hereunder may be assigned, transferred or delegated to
any other Person without the prior, express and written consent of the other
Party, and such consent may be withheld for any reason including convenience,
nor shall Buyer grant a security interest in its rights under this Agreement
without the prior, express and written consent of Seller. Any assignment,
transfer, or grant of security interest without consent shall be void ab initio.
In the event Buyer sells or assigns all or a portion of the Assets, (i) this
Agreement shall remain in effect between Buyer and Seller as to all the Assets
regardless of such assignment (and Buyer shall not be thereby released, but
shall remain obligated hereunder), and (ii) Buyer shall require its successors
and assigns expressly to assume its duties, responsibilities and obligations
under this Agreement, to the extent related or applicable to the Assets or the
portion thereof acquired by them, but such assumption shall not release Buyer
from any such assumed obligations.

                                       48
<PAGE>   56

         17.15 Taxes.

               17.15.1 Apportionment of Ad Valorem and Property Taxes. All ad
valorem, real property taxes and personal property taxes, including interest and
penalties, attributable thereto ("Property Taxes"), attributable to the Assets
with respect to the tax assessment period ("Tax Period") during which the
Effective Time occurs shall be apportioned as of the Effective Time between the
Buyer and the Seller, with the Seller paying a fraction thereof based upon the
number of days in the Tax Period prior to the Effective Time and the Buyer
paying the balance thereof. The owner of record on the assessment date shall
file or cause to be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to all the taxing authorities
all Property Taxes relating to the Tax Period during which the Effective Time
occurs. If the Seller is the owner of record on the assessment date, then the
Buyer shall pay to the Seller Buyer's pro rata portion of Property Taxes within
thirty (30) days after the receipt of the Seller's invoice therefor, except to
the extent taken into account as a Purchase Price adjustment pursuant to Section
3.2. If Buyer is the owner of record on the assessment date, then the Seller
shall pay to the Buyer Seller's pro rata portion of Property Taxes within thirty
(30) days after the receipt of the Buyer's invoice therefor, except to the
extent taken into account as a Purchase Price adjustment pursuant to Section
3.2.

               17.15.2 Sales Taxes. Buyer represents that the transactions
contemplated herein will result in a "casual sale" and no Louisiana sales or use
taxes shall be due as a result of such transactions. The Purchase Price provided
hereunder excludes and the Buyer shall be liable for, any Transfer Taxes (as
defined below) required to be paid in connection with the sale of the Assets
pursuant to the Agreement. As used here, the term "Transfer Taxes" shall mean
any sales, use, excise, stock, stamp, document, filing, recording, registration,
authorization, and similar taxes, fees and charges.

               17.15.3 Other Taxes. All other federal, state, and local taxes
(including interest and penalties attributable thereto) on the ownership or
operation of the Assets which are imposed with respect to period or portions of
periods prior to the Effective Time shall be paid by the Seller and all such
taxes imposed with respect to periods or portions of periods beginning on or
after the Effective Time shall be paid by the Buyer.

               17.15.4 IRS Form 8594. If the Buyer and the Seller mutually agree
that the filing of IRS Form 8594 is required, the Parties will confer and
cooperate in the preparation and filing of their respective forms to reflect a
consistent reporting of the agreed upon allocation of the value of the Assets.

         17.16 Gas Transportation\Processing. Following Closing, Buyer shall be
responsible for the transportation and processing of Hydrocarbons produced from
the Assets.

         17.17 Mediation and Arbitration. Compliance with this Section 17.17
shall constitute a condition precedent to either Party seeking judicial
enforcement of any provisions of this Agreement. Any dispute concerning this
Agreement (other than claims by a third party under which a Party hereto is
claiming indemnity, and such third party claim is in litigation) shall be
resolved under the mediation and binding arbitration procedures of this Section
17.17. Buyer and Seller will first

                                       49
<PAGE>   57

attempt in good faith to resolve all disputes by negotiations between management
level persons who have authority to settle the controversy. If either Party
believes further negotiations are futile, such Party may initiate the mediation
process by so notifying the other Party in writing. Both Parties shall then
attempt in good faith to resolve the dispute by mediation in Lafayette,
Louisiana, employing management level persons with authority to settle the
dispute, in accordance with the Center for Public Resources Model Procedure for
Mediation of Business Disputes, as such procedure may be modified by agreement
of the Parties. If the dispute has not been resolved pursuant to mediation
within sixty (60) days after initiating the mediation process, the dispute shall
be finally resolved through binding arbitration, as follows:

               17.17.1 If any dispute or controversy shall arise between the
Parties out of this Agreement, the alleged breach thereof or any tort in
connection therewith, or out of the refusal to perform the whole or any part
thereof, and the Parties shall be unable to agree with respect to the matter or
matters in dispute or controversy, the same shall be submitted to arbitration
before a panel of arbitrators in accordance with the Louisiana Arbitration Law,
(La. R.S. 9.4201, et seq.) and the provisions in this Section 17.17. The panel
of arbitrators shall be chosen as follows: Upon the written demand of either
Party and within ten (10) working days from the date of such demand, each Party
shall name an arbitrator and these two so named shall promptly thereafter choose
a third. If either Party shall fail to name an arbitrator within ten (10)
working days from such demand, the other Party shall name the second arbitrator
as well as the first, or if the two arbitrators shall fail within ten (10)
working days from their appointment to agree upon and appoint the third
arbitrator, then upon written application by either Party such third arbitrator
may be appointed by the senior Judge in active service of the United States
District Court for the Southern District of Texas, Houston Division; and if said
Judge shall fail to act, then such third arbitrator shall be appointed by the
President of the Center for Public Resources, Inc. The arbitrators selected to
act hereunder shall be qualified by education, experience, and training to pass
upon the particular matter or matters in dispute.

               17.17.2 The panel of arbitrators so chosen shall proceed promptly
to hear and determine the matter or matters in dispute, after giving the Parties
due notice of hearing and a reasonable opportunity to be heard. The procedure of
the arbitration proceedings shall be in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, as may be
modified by the panel of arbitrators. Unless otherwise determined by the
arbitrators, the hearing and presentations of the Parties shall not exceed two
days cumulative. The location of all arbitration proceedings hereunder shall be
Houston, Harris County, Texas, unless the panel of arbitrators determines that
another venue is more appropriate. The award of the panel of arbitrators or a
majority thereof shall be made within forty-five (45) days after the appointment
of the third arbitrator, subject to any reasonable delay due to unforeseen
circumstances. In the event of the panel or a majority thereof failing to make
an award within sixty (60) days after the appointment of the third arbitrator,
new arbitrators may at the election of either Party be chosen in like manner as
if none had been previously selected.

               17.17.3 The award of the arbitrators, or a majority thereof,
shall be in writing, determined in accordance with the substantive law of the
State of Louisiana, and shall be final and

                                       50
<PAGE>   58

binding on the Parties as to the question or questions submitted, and the
Parties shall abide by such award and perform the conditions thereof. The award
of the arbitrators shall be based on the applicable law and facts, the merits of
the Parties' positions in the controversy or dispute, and the arbitrators'
assessment of the fairness and reasonableness of any settlement proposal of any
Party. The award shall not provide or create any rights or benefits in any
person or entity which is not a Party to this Agreement, as this Agreement and
any arbitration thereunder shall not be construed as a third party beneficiary
contract. Unless otherwise determined by the arbitrators, all expenses in
connection with such arbitration shall be divided equally between the Parties
thereto, except that the expenses of counsel, witnesses, and employees of each
Party shall be borne solely by the Party incurring them, and the compensation of
any arbitrator named by a Party shall be borne solely by such Party; provided
that if court proceedings to stay litigation or compel arbitration are
necessary, the Party who unsuccessfully opposes such proceedings shall pay all
reasonable associated costs, expenses and attorney's fees of such court
proceedings.

               17.17.4 The arbitrators may but shall not be required to explain
reasons for the award. No transcript or other recording shall be made of the
arbitration proceedings. Except (i) in connection with a suit for enforcement of
the award, (ii) as required by law, court order or regulation, (iii) when
reasonably necessary to explain the terms and conditions of the award to outside
attorneys, auditors, and insurers, or (iv) as part of good faith compliance with
disclosure obligations under applicable law, the arbitration proceedings, the
award, and the Parties' actions in connection with the arbitration are
confidential and shall not be disclosed to third parties, and no disclosure of
or reference to the arbitration, the award, or of the parties' statements or
actions in connection with the arbitration shall be made to any third party. All
offers, promises, conduct, statements, and evidence, whether oral or written,
made in the course of the arbitration by any of the Parties, their agents,
employees, experts, or attorneys are confidential. Such offers, promises,
conduct, statements, and evidence shall be considered inadmissible under Rule
408 of the Federal Rules of Evidence and any similar state provisions, and shall
be inadmissible for any purpose, including impeachment. However, evidence that
is otherwise admissible shall not be rendered inadmissible as a result of its
use in the arbitration.

               17.17.5 The award of the panel of arbitrators and the obligation
to abide by same and perform the conditions thereof shall be enforceable in the
Louisiana state district courts in Lafayette Parish, Louisiana, the Texas state
district courts in Harris County, Texas, or in any federal court having
jurisdiction. Each Party shall bear its own attorneys' fees in connection with
any appeal of an arbitration award, or in any other court litigation arising out
of this Agreement.

               17.17.6 The provisions of this Section 17.17 shall not limit the
obligation of a Party to defend, indemnify of hold harmless another Party
against court proceedings or other claims, losses, damages or expenses as
provided in Article XIII.

         17.18 No Third Party Beneficiaries. It is expressly intended that there
shall be no third party beneficiaries of the covenants, agreements,
representations, warranties, obligations or indemnities herein contained.

                                       51
<PAGE>   59

         17.19 Employee Matters. Buyer may offer employment, to be effective
upon the Closing, to those employees of Seller and/or its affiliates that are
primarily involved in the operations of the Assets and that are listed on
Exhibit N hereto (the "Employees"). Prior to Closing, Buyer shall provide to
Seller a written list of those Employees to whom Buyer has made offers of
employment. Except as hereinafter provided, Buyer shall have full discretion in
determining the terms, conditions and benefits relating to such employment. At
Buyer's sole option, Buyer shall provide severance benefits to each Employee
employed by Buyer or its affiliates (i) who is a Covered Employee (as such term
is defined in the Ocean Energy, Inc. 1999 Change of Control Severance Plan, as
amended, previously provided to Buyer by Seller, such plan being hereinafter
referred to as the "Severance Plan") as of Closing, and (ii) whose employment is
subject to an Involuntary Termination (as such term is defined in the Severance
Plan) prior to April 1, 2001 equal to the severance benefits such Employee would
have received under the Severance Plan (as in effect as of Closing); provided,
however, that Seller shall reimburse Buyer for the cost of any severance
benefits provided to such Employee which Buyer is obligated to provide to said
employee prior to April 1, 2001. Buyer agrees that in the event that Buyer, or
its contract operator of the Assets, hires, within twelve (12) months after
Closing, any Employee not on the list provided by Buyer under Section 11.3.2(f)
who received severance benefits from Seller pursuant to the Severance Plan,
Buyer shall immediately reimburse Seller for the cost of any severance benefits
provided.

                                  ARTICLE XVIII
                               REDHIBITION WAIVERS

         18.1 Waiver of Louisiana Rights in Redhibition. BUYER EXPRESSLY WAIVES
THE WARRANTY OF FITNESS FOR INTENDED PURPOSES OR GUARANTEE AGAINST HIDDEN OR
LATENT REDHIBITORY VICES UNDER LOUISIANA LAW, INCLUDING LOUISIANA CIVIL CODE
ARTICLES 2520 (1870) THROUGH 2548 (1870), AND THE WARRANTY IMPOSED BY LOUISIANA
CIVIL CODE ARTICLES 2476; WAIVES ALL RIGHTS IN REDHIBITION PURSUANT TO LOUISIANA
CIVIL CODE ARTICLE 2520, ET SEQ.; ACKNOWLEDGES THAT THIS EXPRESS WAIVER SHALL BE
CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS SALE AND THE CONSIDERATION
THEREOF; AND ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO THE ATTENTION OF
BUYER AND EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY AND KNOWINGLY
CONSENTED TO THIS WAIVER OF WARRANTY OF FITNESS AND/OR WARRANTY AGAINST
REDHIBITORY VICES AND DEFECTS FOR THE ASSETS.

         18.2 Buyer's Acknowledgment. BUYER ACKNOWLEDGES THAT THE WAIVERS IN
THIS ARTICLE XVIII ARE CONSPICUOUS.

                                       52
<PAGE>   60

         IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.

WITNESSES:                              SELLER:
                                        OCEAN ENERGY, INC.

/s/ Witness                         By: /s/ RICHARD G. ZEPERNICK, JR.
-------------------------------            -------------------------------------
                                        Name:   Richard G. Zepernick, Jr.
                                        Title:  Senior Vice President - Gulf of
                                                Mexico
/s/ Witness                         TIN:    72-1210660
-------------------------------

WITNESSES:                              BUYER:
                                        ENERGY PARTNERS, LTD.

/s/ JEAN M. STALLARD                    By: /s/ RICHARD A. BACHMANN
-------------------------------            -------------------------------------
                                        Name:   Richard A. Bachmann
                                        Title:  Chairman, President and
/s/ Witness                                 Chief Executive Officer
-------------------------------         TIN:    72-1409562

                                       53
<PAGE>   61

                                 ACKNOWLEDGMENTS

STATE OF LOUISIANA     )
                       )
PARISH OF LAFAYETTE    )

         On this the __ day of January, 2000, before me the undersigned officer,
personally appeared Richard G. Zepernick, Jr. known to me (or satisfactorily
proven) to be the person whose name is subscribed as Senior Vice President -
Gulf of Mexico for Ocean Energy, Inc., a Louisiana corporation, and acknowledged
that he, as such Senior Vice President - Gulf of Mexico, being authorized so to
do, executed the foregoing instrument as the act of his principal for the
purposes therein contained, by signing the name of the corporation by himself as
Senior Vice President - Gulf of Mexico.

         In witness whereof, I hereunto set my hand and official seal.

                                 -----------------------------------------------
                                 Notary Public in and for the State of Louisiana
                                 My Commission is for Life

STATE OF LOUISIANA      )
                        )
PARISH OF ORLEANS       )

         On this the __ day of January, 2000, before me the undersigned officer,
personally appeared Richard A. Bachmann, known to me (or satisfactorily proven)
to be the Chairman, President and Chief Executive Officer of Energy Partners,
Ltd., a Delaware corporation, and acknowledged that he, as such Chairman,
President and Chief Executive Officer, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself as Chairman, President and Chief Executive Officer.

         In witness whereof, I hereunto set my hand and official seal.

                                 -----------------------------------------------
                                 Notary Public in and for the State of Louisiana
                                 My Commission is for Life

                                       54

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