Document:

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                                                                   EXHIBIT 10.14

                            BILL BARRETT CORPORATION

                             2003 STOCK OPTION PLAN

                       As Adopted As Of December 11, 2003

      This 2003 Stock Option (the "Plan") is adopted by Bill Barrett Corporation
(the "Company") effective as of December 11, 2003.

      1.    Definitions.

      Unless otherwise indicated or required by the particular context, the
terms used in this Plan shall have the following meanings:

      Board: The Board Of Directors of the Company.

      Change in Control: A "Change in Control" shall mean any of the following
events: (i) for so long as the Stockholders' Agreement remains in effect, the
consummation of any transaction effected pursuant to Section 3.10 of the
Stockholders' Agreement, and (ii) for so long as any shares of Series B
Preferred Stock of the Company are outstanding, any event or the consummation of
any transaction that constitutes a Liquidation Event pursuant to the terms of
such Series B Preferred Stock. In all cases, if the Optionee is an employee of
the Company and the Optionee's employment is terminated within 30 days prior to
a Change in Control and the Optionee reasonably demonstrates that such
termination (x) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control and
who effectuates a Change in Control (a "Third Party") or (y) otherwise occurred
in connection with, or in anticipation of, a Change in Control which actually
occurs, then the date of a Change in Control with respect to such Optionee shall
mean the date immediately prior to the date of such termination of such
Optionee's employment.

      Code: The Internal Revenue Code of 1986, as amended.

      Common Stock: The $.001 par value common stock of the Company.

      Company: Bill Barrett Corporation, a corporation incorporated under the
laws of Delaware, any current or future wholly owned subsidiaries of the
Company, and any successors in interest by merger, operation of law, assignment
or purchase of all or substantially all of the property, assets or business of
the Company.

      Date Of Grant: The date on which an Option, as defined below, is granted
under the Plan.

      Fair Market Value: The Fair Market Value of the Option Shares as of any
date shall be either (i) if there is a public market for the Common Stock, the
last reported sale price for the Common Stock on that date (or on the preceding
stock market business day if such date is a Saturday, Sunday or a holiday) on
the New York Stock Exchange ("NYSE"), American Stock Exchange ("AMEX"), or the
Nasdaq Stock Exchange ("Nasdaq"), as reported by such exchange or market, as the
case may be, or, if not reported by such exchange or market, as reported in The
Wall Street Journal, or if not reported in The Wall Street Journal, as reported
in The Denver Post,

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Denver, Colorado or, if no last sale price for the NYSE, AMEX or Nasdaq is
available, then the last reported sale price on either another stock exchange or
on a national or local over-the-counter market, as reported by such exchange or
market or, if not reported by such exchange or market, as reported by The Wall
Street Journal, or if not available there, in The Denver Post; provided, that if
no such published last sale price is available and a published bid price is
available from one of those sources, then Fair Market Value shall be determined
by such last reported bid price for the Common Stock, and if no such published
bid price is available, then Fair Market Value shall be determined by the
average of the bid prices quoted as of the close of business by any two
independent persons or entities making a market for the Common Stock, such
persons or entities to be selected by the Option Committee, or (ii) if there is
no public market for the Common Stock, as determined by the unanimous resolution
of all the members of the Option Committee; provided, that if the Option
Committee does not or is unable to make such a determination, Fair Market Value
shall be made by an investment banking firm of recognized national standing
selected by the Option Committee (or, if shares of Series B Preferred Stock are
then outstanding, selected by a majority of the persons nominated or appointed
to the Board by the holders of Series B Preferred Stock, which firm shall be
reasonably acceptable to a majority of the directors of the Board), which firm
shall be engaged and paid by the Company and the determination of Fair Market
Value of such investment banking firm (or, if such investment bank determines a
range of fair market values, the mid-point of such range) shall be final and
binding on all parties.

      Incentive Options: "Incentive stock options" as that term is defined in
Section 422 of the Code or the successor to that Section.

      Key Employee: A person designated by the Option Committee who is an
employee of the Company and whose continued employment is considered to be in
the best interests of the Company; provided, however, that Key Employees shall
not include those members of the Board who are not employees of the Company.
Employee means any person who is employed by the Company or a subsidiary
thereof, and whose wages are reported on a Form W-2. The Company's
classification as to who is an employee shall be determinative for purposes of
an individual's eligibility under the Plan.

      Key Individual: A person, other than an employee of the Company, who is
committed to the interests of the Company; provided, however, that Key
Individuals shall not include those members of the Board who are not employees
of the Company.

      Non-Employee Director: A director of the Company who (a) is not currently
an officer of the Company or a parent or subsidiary of the Company, or otherwise
currently employed by the Company or a parent or subsidiary of the Company, (b)
does not receive compensation, either directly or indirectly, from the Company
or a parent or subsidiary of the Company, for services rendered as a consultant
or in any capacity other than as a director, except for an amount that does not
exceed the dollar amount for which disclosure would be required pursuant to
Regulation S-K, Item 404(a), promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), (c) does not possess an interest in any other
transaction for which disclosure by the Company would be required pursuant to
Regulation S-K, Item 404(a), and (d) is not engaged in a business relationship
for which disclosure by the Company would be required pursuant to Regulation
S-K, Item 404(a).

      Non-Qualified Options: Options that are not intended to qualify, or
otherwise do not qualify, as Incentive Options. To the extent that Options that
are designated by the Option Committee as Incentive Options do not qualify as
"incentive stock options" under Section 422 of

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the Code or the successor to that Section, those Options shall be treated as
Non-Qualified Options.

      Option: The rights to purchase Common Stock granted pursuant to the terms
and conditions of an Option Agreement (defined below).

      Option Agreement: The written agreement (including any amendments or
supplements thereto) between the Company and either a Key Employee or a Key
Individual designating the terms and conditions of an Option.

      Option Committee: The Plan shall be administered by an Option Committee
("Option Committee") composed of the Board or by a committee of at least two
directors selected by the Board; provided, however, that (a) if the Option
Committee consists of less than the entire Board, each member shall be a
Non-Employee Director and (b) to the extent necessary for any Option intended to
qualify as Performance-Based Compensation to so qualify, each member of the
Option Committee, whether or not it consists of the entire Board, shall be an
Outside Director. For purposes of the proviso to the preceding sentence (the
"Proviso"), if one or more members of the Committee is not, in the case of
clause (a) of the Proviso, a Non-Employee Director, or, in the case of clause
(b) of the Proviso, an Outside Director, and, in either case, recuses himself or
herself or abstains from voting with respect to a particular action taken by the
Option Committee, then the Option Committee, with respect to that action, shall
be deemed to consist only of the members of the Option Committee who have not
recused themselves or abstained from voting.

      Option Shares: The shares of Common Stock underlying an Option granted
pursuant to this Plan.

      Optionee: A Key Employee or Key Individual who has been granted an Option.

      Outside Director: "Outside Director" shall have the meaning set forth in
Section 162 of the Code or the successor to that Section and any regulations
promulgated under that or the successor to that Section.

      Performance-Based Compensation: "Performance-Based Compensation" means any
Option that is intended to constitute "performance-based compensation" within
the meaning of Section 162(m)(4)(C) of the Code and the regulations promulgated
thereunder.

      Permitted Transferee: A Permitted Transferee means, with respect to any
Optionee, (i) the spouse of the Optionee, (ii) a trust, or family partnership,
the sole beneficiary of which is the Optionee, the spouse of, or any person
related by blood or adoption to, the Optionee; provided, that any such transfers
to a Permitted Transferee do not conflict with or constitute a violation of
state or federal securities laws.

      Stockholders' Agreement: The Bill Barrett Corporation Stockholders'
Agreement, dated as of March 28, 2002, among the Company and the stockholders of
the Company whose names appear on the signature pages thereto, as amended from
time to time.

      Subsequent Change In Control: A "Subsequent Change In Control" shall mean,
at any time that both (x) the Stockholders' Agreement is not in effect and (y)
no shares of Series B Preferred Stock of the Company are outstanding, any of the
following events:

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            (a)   An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) immediately after which
such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent or more of the combined
voting power of the Company's then outstanding Voting Securities; provided,
however, that in determining whether a Subsequent Change in Control has
occurred, Voting Securities which are acquired in a "Non-Control Acquisition"
(as hereinafter defined) shall not constitute an acquisition which would cause a
Subsequent Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (1) an employee benefit plan (or a trust forming a part thereof)
maintained by (x) the Company or (y) any corporation or other Person of which a
majority of its voting power or its equity securities or equity interest is
owned directly or indirectly by the Company (a "Subsidiary"), (2) the Company or
any Subsidiary, (3) any Person in connection with a "Non-Control Transaction" as
defined in paragraph (c) below, or (4) any of Warburg Pincus Private Equity
VIII, L.P., GS Capital Partners 2000, L.P., J.P. Morgan Partners (BHCA), L.P.
(collectively, the "Purchasers"), or any of their affiliates pursuant to the
Stock Purchase Agreement dated as of March 28, 2002 among the Company and the
Purchasers or any other agreement between the Company and any of the Purchasers
entered into at any time prior to the time that both (x) the Stockholders'
Agreement is not in effect and (y) no shares of Series B Preferred Stock of the
Company are outstanding.

            (b)   The individuals who, as of the date that the Stockholders'
Agreement is no longer in effect, are members of the Board (the "Incumbent
Board"), cease for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for election by the
Company's stockholders, of any new director was approved by a vote of at least
two-thirds of the then Incumbent Board, such new director shall, for purposes of
this Plan, be considered as a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (defined as any solicitation subject to Rules
14a-1 to 14a-10 promulgated under the Exchange Act by any person or group of
persons for the purpose of opposing a solicitation subject to Rules 14a-1 to
14a-10 by any other person or group of persons with respect to the election or
removal of directors at any annual or special meeting of stockholders of the
Company) or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or

            (c)   Consummation of:

                  (1)   A merger, consolidation or reorganization involving the
Company, unless

                        (i)   the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own, directly or
indirectly, immediately following such merger, consolidation or reorganization,
a majority of the combined voting power of the outstanding Voting Securities of
the corporation resulting from such merger or consolidation or reorganization
(the "Surviving Corporation") or a corporation beneficially owning, directly or
indirectly, a majority of the Voting Securities of the Surviving Corporation (a
"Parent Corporation") in substantially the same proportion as their ownership of
the Voting Securities immediately before such merger, consolidation or
reorganization, and

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                        (ii)  the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute a majority of the members of
the board of directors of either the Surviving Corporation or a Parent
Corporation, and

                        (iii) no Person (other than the Company, any Subsidiary,
any employee benefit plan (or any trust forming a part thereof) maintained by
the Company, the Surviving Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of thirty percent or more of the then outstanding Voting Securities)
owns, directly or indirectly, thirty percent or more of the combined voting
power of the Surviving Corporation's then outstanding voting securities (unless
there is a Parent Corporation, in which event of the Parent Corporation's then
outstanding voting securities), and

                        (iv)  a transaction described in the immediately
preceding clauses (i) through (iii) shall herein be referred to as a
"Non-Control Transaction";

                  (2)   A complete liquidation or dissolution of the Company; or

                  (3)   The sale or other disposition of all or substantially
all of the assets of the Company to any Person (other than a transfer to a
Subsidiary).

            (d)   Notwithstanding subclauses (a), (b) or (c) above, a Subsequent
Change in Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the permitted
amount of the outstanding Voting Securities as a result of the acquisition of
Voting Securities by the Company which, by reducing the number of Voting
Securities outstanding, increases the proportionate number of shares
Beneficially Owned by the Subject Person, provided that if a Subsequent Change
in Control would occur (but for the operation of this sentence) as a result of
the acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Subsequent Change in Control shall occur.

      In all cases, if the Optionee is an employee of the Company and the
Optionee's employment is terminated within 30 days prior to a Subsequent Change
in Control and the Optionee reasonably demonstrates that such termination (i)
was at the request of a Third Party (as defined in the definition of Change in
Control) or (ii) otherwise occurred in connection with, or in anticipation of, a
Subsequent Change in Control which actually occurs, then the date of a
Subsequent Change in Control with respect to such Optionee shall mean the date
immediately prior to the date of such termination of such Optionee's employment.

      2.    Purpose And Scope.

            (a)   The purpose of the Plan is to advance the interests of the
Company and its stockholders by affording Key Employees and Key Individuals,
upon whose initiative and efforts, in the aggregate, the Company is largely
dependent for the successful conduct of its business, an opportunity for
investment in the Company and the incentive advantages inherent in stock
ownership in the Company.

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            (b)   This Plan authorizes the Option Committee to grant Incentive
Options to Key Employees and to grant Non-Qualified Options to Key Employees and
Key Individuals, selected by the Option Committee while considering criteria
such as employment position or other relationship with the Company, duties and
responsibilities, ability, productivity, length of service or association,
morale, interest in the Company, recommendations by supervisors, the interests
of the Company, and other matters.

      3.    Administration Of The Plan.

            (a)   The Plan shall be administered by the Option Committee. The
Option Committee shall have the authority granted to it under this Section and
under each other section of the Plan.

            (b)   In accordance with and subject to the provisions of the Plan,
the Option Committee shall select the Optionees and shall determine (i) the
number of shares of Common Stock to be subject to each Incentive Option and
Non-Qualified Option, (ii) the date on which each Incentive Option and
Non-Qualified Option is to be granted, (iii) whether an Incentive Option and
Non-Qualified Option shall be granted in exchange for the cancellation and
termination of a previously granted option or options under the Plan or
otherwise, (iv) subject to Sections 4(b), 6 and 18, the exercise price for the
Incentive Option and Non-Qualified Option Shares, provided that the exercise
price shall be a fixed, and cannot be a fluctuating, price, (v) subject to
Section 8, the option period, including provisions for the termination of the
Option prior to the expiration of the exercise period upon the occurrence of
certain events, (vi) subject to Sections 7, 8 and 20, the manner in which the
Incentive Option and Non-Qualified Option vests and becomes exercisable,
including whether portions or all of the Incentive Option and Non-Qualified
Option vest and become exercisable at different times and including determining
that, at any time, the unvested portion that is not yet exercisable shall become
vested and exercisable upon the occurrence of certain events, (vii) subject to
Section 9, the acceptable methods of payment of the purchase price for each
Incentive Option and Non-Qualified Option, and (viii) such other terms and
conditions as the Option Committee may deem necessary or desirable; provided,
however, that no Option may be repriced, replaced, regranted through
cancellation, or modified without stockholder approval (except in connection
with a change in the Company's capitalization), if the effect would be to reduce
the exercise price for the shares underlying such Option. The Option Committee
shall determine the form of Option Agreement to evidence each Option and may
amend the terms of any Option (subject to Section 3(d) below). All Options are
subject to the terms, conditions, restrictions and privileges of the Plan in
addition to the terms, conditions, restrictions and privileges contained in the
Option Agreement. No Option granted under this Plan shall be effective unless
memorialized in writing by the Option Committee in an Option Agreement delivered
to and signed by the Optionee.

            (c)   The Option Committee from time to time may adopt such rules
and regulations for carrying out the purposes of the Plan as it may deem proper
and in the best interests of the Company. The Option Committee shall keep
minutes of its meetings and those minutes shall be distributed to every member
of the Board.

            (d)   The Board from time to time may make such changes in and
additions to the Plan as it may deem proper and in the best interests of the
Company; provided, that no such change or addition shall impair any Option
previously granted under the Plan unless the change or addition is consented to
by the holder of the previously granted Option; and provided, further, that no
change which under applicable law requires the approval of stockholders may be
made without such approval; and provided, further, that if shares of Series B
Preferred Stock are then

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outstanding, no change may be made without the approval of a majority of the
persons nominated or appointed to the Board by the holders of Series B Preferred
Stock.

            (e)   Each determination, interpretation or other action made or
taken by the Option Committee shall be final, conclusive and binding on all
persons, including without limitation, the Company, the stockholders, directors,
officers and employees of the Company, and the Optionees and their respective
successors in interest. No member of the Option Committee shall be personally
liable for any action, determination, or interpretation made in good faith with
respect to the Plan, and all members of the Option Committee shall be, in
addition to rights they may have as directors of the Company, fully protected by
the Company with respect to any such action, determination or interpretation.

      4.    The Common Stock.

            (a)   The aggregate number of shares of Common Stock which may be
issued pursuant to Options granted pursuant to this Plan shall be 200,000 shares
of Common Stock, either treasury or authorized and unissued, or the number and
kind of shares of stock or other securities which in accordance with Section 10
shall be substituted for the 200,000 shares or into which such 200,000 shares
shall be adjusted. All or any unsold shares subject to an Option, that for any
reason expires or otherwise terminates before it has been exercised (including
Options converted as payment of the purchase price for Options), again may be
made subject to Options under the Plan. No one person may be granted during any
two-year period Options under the Plan to purchase more than 100,000 shares.

            (b)   At no time prior to the date that the Stockholders' Agreement
is no longer in effect may any Option be granted pursuant to this Plan with a
purchase price of less than $1.00 per share (as appropriately adjusted for any
stock splits, stock dividends, recapitalizations, combinations, or similar
transactions with respect to shares of Common Stock).

      5.    Eligibility.

            Incentive Options may be granted only to Key Employees.
Non-Qualified Options may be granted both to Key Employees and to Key
Individuals. Key Employees and Key Individuals may hold more than one Option
under the Plan and may hold Options under the Plan as well as options granted
pursuant to other plans or otherwise.

      6.    Option Price.

            Subject to Section 4(b), the Option Committee shall determine the
purchase price for the Option Shares; provided, that with respect to Option
Shares underlying Incentive Options (a) the purchase price shall not be less
than 100 percent of the Fair Market Value of the Option Shares on the Date Of
Grant and (b) the purchase price shall be a fixed, and cannot be a fluctuating,
price.

      7.    Exercise Period.

            (a)   Except as provided in Section 16, the option period shall
commence on the Date Of Grant or other date or dates determined by the Option
Committee and shall continue for the period designated by the Option Committee
up to a maximum of ten years from the Date Of Grant.

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            (b)   No portion of any Option may be exercised earlier than the
following schedule:

<TABLE>
<CAPTION>
            Date                              Portion Exercisable
            ----                              -------------------
<S>                                           <C>
First Anniversary of Date of Grant                    25%
Second Anniversary of Date of Grant                   50%
Third Anniversary of Date of Grant                    75%
Fourth Anniversary of Date of Grant                  100%
</TABLE>

            (c)   Subject to the restrictions set forth above, the Option
Agreement for each Option shall set forth the dates on which portions of such
Option may be exercised. Notwithstanding Section 7(b), the date on which all or
any portion of an Option may be exercised may be accelerated upon a Change in
Control to the extent set forth in the related Option Agreement or as otherwise
provided in Section 20.

      8.    Exercise Of Options.

            (a)   Each Option shall be exercised in whole or in part by
delivering to the office of the Treasurer of the Company written notice of the
number of shares with respect to which the Option is to be exercised and by
paying in full the purchase price for the Option Shares purchased as set forth
in Section 9 herein; provided, that an Option may not be exercised in part
unless the purchase price for the Option Shares purchased is at least $1,000.

            (b)   During the lifetime of an Optionee, an Option held by such
Optionee shall be exercisable only by such Optionee; provided, that in the event
of the death of such Optionee, the personal representative or estate of such
Optionee may exercise any Option held by such Optionee; provided, further, that
in the event of the legal disability of such Optionee, the guardian or personal
representative of such Optionee may exercise any Incentive Option held by such
Optionee if such guardian or personal representative obtains a ruling from the
Internal Revenue Service or an opinion of counsel to the effect that neither the
grant nor the exercise of such power is violative of Section 422(b)(5), or its
successor provision, of the Code. Any opinion of counsel must be acceptable to
the Option Committee both with respect to the counsel rendering the opinion and
with respect to the form of opinion.

            (c)   (1)   If for any reason (other than the termination of an
Optionee's employment because of such Optionee's death or legal disability or
the termination of such Optionee's employment by the Company for Cause), any
Optionee ceases to be employed by the Company, then any Options held by such
Optionee may be exercised within three (3) months after such termination of the
Optionee's employment or, if the Optionee dies during the three-month period
immediately following such termination, within one year after Optionee's death,
but, in each case, only to the extent that (A) such Options were exercisable in
accordance with their terms on the date of termination of such Optionee's
employment, and (B) the period for exercise of such Options, as set forth in the
related Option Agreement, has not terminated as of the date of exercise. Upon
termination of the respective periods set forth in the previous sentence, any
unexercised portion of an Option shall expire.

                  (2)   If an Optionee's employment with the Company is
terminated because of such Optionee's death or legal disability, any Option held
by such Optionee may be exercised within one (1) year after termination, but
only to the extent that (A) such Option was exercisable in accordance with their
terms on the date of termination of such Optionee's

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employment, and (B) the period for exercise of such Option, as set forth in the
related Option Agreement, has not terminated as of the date of exercise. Upon
termination of the respective periods set forth in the previous sentence, any
unexercised portion of an Option shall expire.

                  (3)   If an Optionee's employment by the Company is terminated
for Cause, (A) all Options held by such Optionee shall expire upon delivery to
such Optionee of notice of termination, which may be oral or in writing, and all
rights to purchase shares pursuant to such Options shall terminate immediately,
and (B) at the Company's option, all Option Shares acquired by such Optionee
shall be immediately forfeit without any action on the part of such Optionee,
and the Company shall promptly reimburse such Optionee the aggregate purchase
price actually paid by such Optionee for such Option Shares. As used in herein,
"Cause" means discharge by the Company on any of the following grounds:

                        (i) An Optionee's conviction or plea of nolo contendere
in a court of law of any crime or offense, excluding traffic violations and
other minor offenses;

                        (ii)  Willful misconduct which materially adversely
affects the reputation or business activities of the Company and which continues
after written notice thereof from the Board to such Optionee stating with
specificity the alleged misconduct and, if requested by Optionee within 10 days
thereafter, such Optionee is afforded a reasonable opportunity to be heard
before the Board;

                        (iii) Substance abuse, including abuse of alcohol or use
of illegal narcotics, and other drugs or substances, for which such Optionee
fails to undertake and maintain treatment after 15 days after requested by the
Company;

                        (iv)  Misappropriation of funds or other material acts
of dishonesty involving the Company;

                        (v)   Such Optionee's continuing material failure or
refusal to perform the Optionee's duties or to carry out in all material
respects the lawful directives of the Board.

            (d)   No Option may be exercised until the Plan is approved by the
stockholders of the Company as provided in Section 16 below.

      9.    Payment For Option Shares. If payment for the exercise of an Option
is made other than by a method described in Sections 9(a) or 9(b), the purchase
price shall be paid in cash, certified funds, or Optionee's check. Payment shall
be considered made when the Treasurer of the Company receives delivery of the
payment at the Company's address, provided that a payment made by check is
honored when first presented to the Optionee's bank. Beginning 180 days after
the consummation of any firm commitment underwritten offering of Common Stock to
the public pursuant to an effective registration statement under the Securities
Act (i) for which the aggregate gross proceeds to the Company are not less than
fifty million dollars ($50,000,000), (ii) in which each outstanding share of
Series B Preferred Stock of the Company converts pursuant to the terms thereof
into shares of Common Stock that have an aggregate value, based on the price to
public in such offering, of at least $7.50 per share, and (iii) pursuant to
which shares of Common Stock are authorized and approved for listing on the New
York Stock Exchange or admitted to trading and quoted in the Nasdaq National
Market system (a "Qualified Public Offering"), payment for the exercise of an
Option may be made pursuant to the following methods:

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            (a)   If the Option Committee, in its sole discretion on a
case-by-case basis, agrees to permit the proposed form of payment described in
this Section 9(a), an Optionee may deliver shares of Common Stock as part of the
purchase price for Option Shares. If the purchase price of the Option Shares
purchased by any Optionee at one time exceeds $1,000, all or part of the
purchase price for the Option Shares may be paid by delivery to the Company for
cancellation shares of the Common Stock previously owned by the Optionee
("Previously Owned Shares") with a Fair Market Value as of the date of the
payment equal to the portion of the purchase price for the Option Shares that
the Optionee does not pay in cash. Notwithstanding the above, an Optionee shall
be permitted to exercise the Optionee's Option by delivering Previously Owned
Shares only if (i) the Optionee has held, and provides appropriate evidence of
such, the Previously Owned Shares for more than six months prior to the date of
exercise (or such lesser period as the Option Committee may permit), or (ii) the
Previously Owned Shares were acquired by the Optionee in an arm's-length,
open-market transaction, or (iii) the Previously Owned Shares consist of a
combination of shares meeting the criteria described in either of the
immediately preceding clauses (i) and (ii). The period described in clause (i)
of the preceding sentence (the "Holding Period") may be extended by the Option
Committee acting in its sole discretion as is necessary, in the opinion of the
Option Committee, so that, under generally accepted accounting principles, no
compensation shall be considered to have been or to be paid to the Optionee as a
result of the exercise of the Option in this manner. At the time the Option is
exercised, the Optionee shall provide an affidavit, and such other evidence and
documents as the Option Committee shall request, to establish, as applicable,
that the requirements of subsection (i), (ii) or (iii) of this Section 9(a) have
been satisfied.

            (b)   An Optionee also may pay the purchase price for Option Shares
by delivering to the Company and to a broker-dealer, which broker-dealer shall
be subject to approval by the Option Committee at the Option Committee's sole
discretion, a written notice of exercise, in the form prescribed by the Option
Committee, together with the Optionee's irrevocable instructions to the
broker-dealer to promptly deliver to the Company certified funds representing
the purchase price, which certified funds may be the result of the
broker-dealer's sale of some or all of the Option Shares received upon exercise
or the result of a loan from the broker-dealer to the Optionee.

      10.   Change In Stock, Adjustments, Etc.

            Subject to Section 20, in the event that each of the outstanding
shares of Common Stock (other than shares held by dissenting stockholders which
are not changed or exchanged) should be changed into, or exchanged for, a
different number or kind of shares of stock or other securities of the Company,
or if further changes or exchanges of any stock or other securities into which
the Common Stock shall have been changed, or for which it shall have been
exchanged, shall be made (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividends, reclassification, split-up,
combination of shares or otherwise), then there shall be substituted for each
share of Common Stock that is subject to the Plan but not subject to an
outstanding Option hereunder, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock (other than shares
held by dissenting stockholders which are not changed or exchanged) shall be so
changed or for which each outstanding share of Common Stock (other than shares
held by dissenting stockholders) shall be so changed or for which each such
share shall be exchanged. Any securities so substituted shall be subject to
similar successive adjustments.

                                       10
<PAGE>

            In the event of any such changes or exchanges, (i) the Option
Committee shall determine whether an adjustment should be made in the number, or
kind, or purchase price of the shares or other securities that are then subject
to an Option or Options granted pursuant to the Plan, (ii) the Option Committee
shall make any such adjustment, and (iii) such adjustments shall be made and
shall be effective and binding for all purposes of the Plan.

      11.   Relationship To Employment Or Position.

            Nothing contained in the Plan, or in any Option or Option Share
granted pursuant to the Plan, (i) shall confer upon any Optionee any right with
respect to continuance of the Optionee's employment by, or position or
affiliation with, or relationship to, the Company, or (ii) shall interfere in
any way with the right of the Company at any time to terminate the Optionee's
employment by, position or affiliation with, or relationship to, the Company.

      12.   Nontransferability Of Option.

            No Option shall be transferable by the Optionee otherwise than by
will or by the laws of descent and distribution or, in the case of an Option
other than an Incentive Option, pursuant to a domestic relations order (within
the meaning of Rule 12a-12 promulgated under the Exchange Act), and Options
shall be exercisable during the lifetime of an Optionee only by the Optionee or
the Optionee's guardian or legal representative. Notwithstanding the foregoing,
the Committee may set forth in the Option Agreement (other than for an Incentive
Option) at the time of grant or thereafter, that the Option may be transferred
to Permitted Transferees of the Optionee, and for purposes of this Plan, a
Permitted Transferee of an Optionee shall be deemed to be the Optionee. The
terms of an Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee.

      13.   Rights As A Stockholder.

            No person shall have any rights as a stockholder with respect to any
share covered by an Option until that person shall become the holder of record
of such share and, except as provided in Section 10, no adjustments shall be
made for dividends or other distributions or other rights as to which there is
an earlier record date.

      14.   Securities Laws Requirements.

            No Option Shares shall be issued unless and until, in the opinion of
the Company, any applicable registration requirements of the Securities Act, any
applicable listing requirements of any securities exchange on which stock of the
same class is then listed, and any other requirement of law or of any regulatory
bodies having jurisdiction over such issuance and delivery, have been fully
complied with. Each Option Agreement and each Option Share certificate may be
imprinted with legends reflecting federal and state securities laws restrictions
and conditions, and the Company may comply therewith and issue "stop transfer"
instructions to its transfer agent and registrar in good faith without
liability.

      15.   Disposition Of Shares.

            To the extent reasonably requested by the Company, each Optionee, as
a condition of exercise, shall represent, warrant and agree, in a form of
written certificate approved by the Company, as follows: (a) that all Option
Shares are being acquired solely for the Optionee's own account and not on
behalf of any other person or entity; (b) that no Option

                                       11
<PAGE>

Shares will be sold or otherwise distributed in violation of the Securities Act
or any other applicable federal or state securities laws; (c) that the Optionee
will report all sales of Option Shares to the Company in writing on a form
prescribed by the Company; and (d) that if the Optionee is subject to reporting
requirements under Section 16(a) of the Exchange Act, (i) the Optionee will not
violate Section 16(b) of the Exchange Act, (ii) the Optionee will furnish the
Company with a copy of each Form 4 and Form 5 filed by him, and (iii) the
Optionee will timely file all reports required under the federal securities
laws.

            Each Optionee shall immediately notify the Company in writing of any
sale, transfer, assignment or other disposition (or action constituting a
disqualifying disposition within the meaning of Section 421 of the Code) of any
shares of Common Stock acquired through exercise of an Incentive Option, within
two (2) years after the grant of such Incentive Option or within one (1) year
after the acquisition of such shares, setting forth the date and manner of
disposition, the number of shares disposed of and the price at which such shares
were disposed. The Company shall be entitled to withhold from any compensation
or other payments then or thereafter due to the Optionee such amounts as may be
necessary to satisfy any withholding requirements of Federal or state law or
regulation and, further, to collect from the Optionee any additional amounts
which may be required for such purpose. The Company may, in its discretion,
require shares of Common Stock acquired by a Optionee upon exercise of an
Incentive Option to be held in an escrow arrangement for the purpose of enabling
compliance with the provisions of this section.

      16.   Effective Date Of Plan; Termination Date Of Plan.

            Subject to the approval of the Plan on or before December 10, 2004,
by the affirmative vote of the holders of a majority of the shares of Common
Stock and each other class of securities entitled to vote and represented at a
meeting duly held in accordance with the applicable laws of the state in which
the Company is then incorporated, the Plan shall be deemed effective as of
December 11, 2003. The Plan shall terminate at midnight on the date that is ten
years from that date, except as to Options previously granted and outstanding
under the Plan at that time. No Options shall be granted after the date on which
the Plan terminates. The Plan may be abandoned or terminated at any earlier time
by the Board, except with respect to any Options then outstanding under the
Plan.

      17.   Limitation On Amount Of Option.

            Notwithstanding any contrary provisions contained elsewhere in this
Plan and so long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Option is granted, of the
Common Stock with respect to which Incentive Options are exercisable for the
first time by the Optionee during any calendar year, under this Plan and stock
options that satisfy the requirements of Section 422 of the Code under any other
stock option plan or plans maintained by the Company, shall not exceed $100,000.
To the extent that the aggregate Fair Market Value of shares of Common Stock to
be received by the Optionee for the first time in any one year pursuant to the
exercise of an Incentive Option ("ISO Stock") exceeds $100,000 based on the Fair
Market Value of the Common Stock as of the date of the Incentive Option's grant,
such excess shall be treated as Common Stock received pursuant to the exercise
of a Non-Qualified Option ("NQSO Stock"). The Company shall designate which
shares of Common Stock to be received by the Optionee will be treated as ISO
Stock and which shares of Common Stock, if any, will be treated as NQSO Stock by
issuing separate share certificates identifying in the Company's share transfer
records which shares are ISO Stock. For purposes of the preceding sentence, the
Fair Market Value of the Shares

                                       12
<PAGE>

underlying any particular Incentive Option shall be determined as of the Date Of
Grant of that Incentive Option.

      18.   Ten Percent Stockholder Rule.

            No Incentive Option may be granted to a Key Employee who, at the
time the Incentive Option is granted, owns stock possessing more than 10 percent
of the total combined voting power of all classes of stock of the Company or of
any "parent corporation" or "subsidiary corporation", as those terms are defined
in Section 424, or its successor provision, of the Code, unless at the time the
Incentive Option is granted the purchase price for the Option Shares is at least
110 percent of the Fair Market Value of the Option Shares on the Date Of Grant
and the Incentive Option by its terms is not exercisable after the expiration of
five years from the Date Of Grant. For purposes of the preceding sentence, stock
ownership shall be determined as provided in Section 424, or its successor
provision, of the Code.

      19.   Withholding Taxes.

            The Company may withhold from any cash payment to be made to the
Optionee sufficient amounts to cover any applicable withholding and employment
taxes resulting from Options granted under this Plan, and if the amount of such
cash payments is insufficient, the Company may require the Optionee to pay to
the Company the amount required to be withheld as a condition to delivering the
shares acquired pursuant to an Option. The Company also may withhold or collect
amounts with respect to a disqualifying disposition of shares of Common Stock
acquired pursuant to exercise of an Incentive Option.

            The Option Committee is authorized to adopt rules, regulations or
procedures which provide for the satisfaction of a Optionee's tax withholding
obligation by the retention of shares of Common Stock to which the Optionee
otherwise would be entitled to or by the Optionee's delivery of previously-owned
shares of Common Stock or other property. However, if the Company adopts rules,
regulations or procedures which permit withholding obligations to be met by the
retention of Common Stock to which an Optionee otherwise would be entitled
pursuant to under the Plan, the Fair Market Value of the Common Stock retained
for such purpose shall not exceed the minimum required Federal, state and local
tax withholding due upon exercise of the Option.

      20.   Effect Of Change In Control; Subsequent Change In Control.

            (a)   In event of a Change In Control of the Company, the Option
Committee shall take all actions necessary to provide for each of the following:

                  (1)   An Optionee may exercise immediately prior to such
Change In Control (and subject to the consummation of such Change In Control)
all or any portion of the Options held by such Optionee to the extent that such
Options are then exercisable or become exercisable upon such Change In Control
pursuant to the applicable Option Agreement, so that such Optionee may
participate in such Change In Control as a holder of the Option Shares for which
such Options are so exercised; and

                  (2)   An Optionee may surrender an Option (or portion thereof)
and receive in exchange for each Option Share for which such Option is then
exercisable or becomes exercisable upon such Change In Control pursuant to the
applicable Option Agreement, an amount equal to the Option Share Transaction
Consideration, payable at the

                                       13
<PAGE>

election of the Company in cash or the same securities or property that is
payable or distributable with respect to shares of Common Stock in such Change
In Control. The "Option Share Transaction Consideration" shall equal the
difference between (a) the aggregate consideration from such Change In Control
paid or distributed with respect to one share of Common Stock (determined as if
the aggregate consideration from the Change In Control had been distributed by
the Company in complete liquidation pursuant to the rights and preferences set
forth in the Company's organic documents) and (2) the exercise price payable by
such Optionee for such Option Share pursuant to the related Option Agreement
(without regard for any net exercise or cashless exercise provisions thereof).
To the extent any Option is surrendered pursuant to this Subparagraph 20(a)(ii)
it shall be deemed to have been exercised for purposes of Section 4.

                  (3)   At the Company's election, all Options not exercised or
surrendered pursuant to Subparagraphs 20(a)(i) and 20(a)(ii) shall terminate in
full upon such Change in Control. The Company shall notify each Optionee of the
Company's election to have all Options terminate upon a Change in Control at
least two business days prior to such Change in Control.

            (b)   If a Subsequent Change in Control occurs, then no later than
(i) ten days after the approval by the stockholders of the Company of such
Subsequent Change in Control, or (ii) if no approval by the stockholders is
necessary for such Subsequent Change in Control, 30 days after such Subsequent
Change in Control, the Option Committee, acting in its sole discretion and
without the consent or approval of any Optionee, shall effect one or more of the
following alternatives, which alternatives may vary among individual Optionees
and which may vary among Options held by any individual Optionee:

                  (1)   Make any Options (or any portion thereof) then
outstanding exercisable upon such Subsequent Change in Control;

                  (2)   Accelerate the time at which some or all of the Options
(or any portion thereof) then outstanding may be exercised so that such Options
(or any portion thereof) may be exercised for a limited period of time on or
before a specified date (before or after such Subsequent Change in Control)
fixed by the Option Committee, after which specified date all unexercised
Options and all rights of Holders thereunder shall terminate;

                  (3)   Require the mandatory surrender to the Company by
selected Optionees of some or all of the outstanding Options (or any portion
thereof) held by such Optionees (irrespective of whether such Options (or any
portion thereof) are then exercisable under the provisions of the Plan) as of a
date, before or after such Subsequent Change in Control, specified by the Option
Committee, in which event the Option Committee shall thereupon cancel such
Options (or any portion thereof) and cause the Company to pay each Optionee an
amount of cash per share equal to the Option Share Transaction Consideration;

                  (4)   Make such adjustments to Options (or any portion
thereof) then outstanding as the Option Committee deems appropriate to reflect
such Subsequent Change in Control (provided, however, that the Committee may
determine in its sole discretion that no adjustment is necessary to one or more
Options (or any portion thereof) then outstanding); or

                  (5)   Provide that the number and class of shares of Common
Stock covered by an Option (or any portion thereof) theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock or other securities or

                                       14
<PAGE>

property (including, without limitation, cash) to which the Optionee would have
been entitled pursuant to the terms of the transaction giving rise to the
Subsequent Change in Control if the Optionee had been the holder of record of
the number of shares of Common Stock then covered by such Option.

      21.   Other Provisions.

            The following provisions are also in effect under the Plan:

            (a)   The use of a masculine gender in the Plan shall also include
within its meaning the feminine, and the singular may include the plural, and
the plural may include the singular, unless the context clearly indicates to the
contrary.

            (b)   Any expenses of administering the Plan shall be borne by the
Company.

            (c)   This Plan shall be construed to be in addition to any and all
other compensation plans or programs. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power or
authority of the Board to adopt such other additional incentive or other
compensation arrangements as the Board may deem necessary or desirable.

            (d)   The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and the rights of any and
all persons having or claiming to have an interest therein or thereunder shall
be governed by and determined exclusively and solely in accordance with the laws
of the state in which the Company is then incorporated.

                                    * * * * *

                                       15<PAGE>

                                                                   EXHIBIT 10.18

                           PURCHASE AND SALE AGREEMENT

                                      AMONG

                               CALPINE CORPORATION

                            CALPINE NATURAL GAS L.P.

                                       AND

                            BILL BARRETT CORPORATION

                              DATED AUGUST 17, 2004

                          EFFECTIVE DATE: JULY 1, 2004

<PAGE>

                                TABLE OF CONTENTS

<Table>
<S>                                                                                                                  <C>
PART ONE..............................................................................................................1

   SUBJECT MATTER, DEFINITIONS AND RULES OF CONSTRUCTION..............................................................1
      Section 1.1    Subject Matter...................................................................................1
      Section 1.2    Definitions......................................................................................1
         Actual Knowledge.............................................................................................1
         Affiliate....................................................................................................1
         Agreed Rate..................................................................................................1
         Agreement....................................................................................................2
         Applicable Law...............................................................................................2
         Asset........................................................................................................2
         Assumed Liabilities..........................................................................................2
         Beneficial Interests.........................................................................................2
         Burdens......................................................................................................3
         Business Day.................................................................................................3
         Closing......................................................................................................3
         Closing Date.................................................................................................3
         Code.........................................................................................................3
         Confidentiality Agreement....................................................................................3
         Contracts....................................................................................................3
         Corporate Documents..........................................................................................3
         Easements....................................................................................................3
         Effective Date...............................................................................................3
         Environmental Condition......................................................................................3
         Facilities...................................................................................................6
         Fee Interests................................................................................................6
         Governmental Body............................................................................................6
         Hydrocarbons.................................................................................................6
         Leases.......................................................................................................6
         Losses.......................................................................................................7
         Net Revenue Interest.........................................................................................7
         Party........................................................................................................7
         Permitted Encumbrances.......................................................................................7
         Person.......................................................................................................8
         Personal Property............................................................................................9
         Plugging and Abandonment.....................................................................................9
         Remediation.................................................................................................10
         Tax.........................................................................................................10
         Third Person................................................................................................10
         Title Defect................................................................................................10
         Wells.......................................................................................................11
      Section 1.3    Other Definitions in the Agreement..............................................................11
      Section 1.4    Rules of Construction...........................................................................12

PART TWO.............................................................................................................13

   SALE AND PURCHASE.................................................................................................13
</Table>

                                       i
<PAGE>

<Table>
<S>                                                                                                                  <C>
      Section 2.1    Assets..........................................................................................13
      Section 2.2    Purchase Price..................................................................................13
      Section 2.3    Allocation of Purchase Price....................................................................13
      Section 2.4    Performance Deposit and Liquidated Damages......................................................13
      Section 2.6    Method of Payment...............................................................................14

PART THREE...........................................................................................................14

   REPRESENTATIONS AND WARRANTIES....................................................................................14
      Section 3.1    Seller..........................................................................................14
      Section 3.2    Buyer...........................................................................................17
      Section 3.3.   Disclaimers and Notifications...................................................................18

PART FOUR............................................................................................................20

   COVENANTS.........................................................................................................20
      Section 4.1    Covenants of Seller.............................................................................20
      Section 4.2    Covenants of Buyer..............................................................................21
      Section 4.3    Covenants of Seller and Buyer...................................................................22

PART FIVE............................................................................................................28

   TAXES.............................................................................................................28
      Section 5.1    Payment and Apportionment of Real Property Taxes and Personal Property Taxes....................28
      Section 5.2    Sales Taxes.....................................................................................28
      Section 5.3    Other Taxes.....................................................................................29
      Section 5.4    Cooperation.....................................................................................29
      Section 5.5    Tax Proceedings.................................................................................29
      Section 5.6    Purchase Price Allocation.......................................................................29

PART SIX.............................................................................................................30

   ENVIRONMENTAL MATTERS.............................................................................................30
      Section 6.5    Covenant of Cooperation.........................................................................31
      Section 6.6    Selection and Performance of Remedies...........................................................32
      Section 6.10   Exclusive Remedies..............................................................................33

PART SEVEN...........................................................................................................33

   TITLE MATTERS.....................................................................................................33
      Section 7.1    Confidentiality Agreement.......................................................................33
      Section 7.2    Preferential Purchase Rights....................................................................33
      Section 7.3    Required Consents...............................................................................33
      Section 7.4    Title Defects...................................................................................34
      Section 7.5    Seller's Right to Cure..........................................................................34
      Section 7.6    Contested Title Defects.........................................................................35
      Section 7.7    Title Indemnity Payments........................................................................35
      Section 7.8    Interest Additions..............................................................................36
      Section 7.8    Reconveyance....................................................................................37

PART EIGHT...........................................................................................................37
</Table>

                                       ii
<PAGE>

<Table>
<S>                                                                                                                  <C>
   INDEMNITY.........................................................................................................37
      Section 8.1    General Indemnification.........................................................................37
      Section 8.2    Method of Asserting Claims, Etc.................................................................38
      Section 8.3    Payment.........................................................................................39
      Section 8.4    Disputed Claims.................................................................................40
      Section 8.5    Applicability of Part Eight.....................................................................40

PART NINE............................................................................................................40

   CONDITIONS PRECEDENT..............................................................................................40
      Section 9.1    Conditions Precedent of Seller..................................................................40
      Section 9.2    Conditions Precedent of Buyer...................................................................41

PART TEN.............................................................................................................43

   MISCELLANEOUS.....................................................................................................43
      Section 10.1   Notices.........................................................................................43
      Section 10.2   Modification....................................................................................44
      Section 10.3   Governing Law...................................................................................45
      Section 10.4   Exhibits........................................................................................45
      Section 10.5   Counterparts....................................................................................45
      Section 10.6   Invalidity......................................................................................45
      Section 10.7   Entire Agreement and Construction...............................................................45
      Section 10.8   Expenses........................................................................................45
      Section 10.9   Waivers and Amendments..........................................................................45
      Section 10.10  Binding Effect:  Assignment.....................................................................46
      Section 10.11  Survival of Representations and Covenants.......................................................46
      Section 10.12  Arbitration of Disputes.........................................................................46
      Section 10.13  Conflict........................................................................................48
</Table>

                                      iii
<PAGE>

                             SCHEDULES AND EXHIBITS

Schedules

         A.         Leases
                    A-1 Lease Plat
         B.         Fee Interests
         C.         Contracts
         D.         Beneficial Interests
         E.         Excluded Contracts
         F.         Assets Not Included
         G.         Permitted Encumbrances
         H.         Property
         2.3        Allocation of Purchase Price
         3.1(e)     Litigation
         3.1(f)     Seller's Consents Not Received
         3.1(g)     Environmental Claims
         3.1(h)     Current Commitments
         3.1(o)     Gas Imbalances
         7.2        Preferential Rights
         10.12      Dispute Resolution

Exhibits

         1.         Form of Assignment
         2.         Form of Deed
         3.         Form of Opinion Letter
         4.         Form of Certificates
         5.         Due Diligence Certificate

                                       iv
<PAGE>

                           PURCHASE AND SALE AGREEMENT

         The Agreement dated as of August 17, 2004, is made and entered into
between Calpine Corp., a Delaware corporation and Calpine Natural Gas L.P., a
Delaware limited partnership both having an office at 717 Texas Avenue, Suite
1000, Houston, Texas 77002, (collectively "Seller") and Bill Barrett
Corporation, a Delaware corporation, having an office at 1099 18th Street, Suite
2300, Denver, Colorado 80202 ("Buyer").

                                    PART ONE

              SUBJECT MATTER, DEFINITIONS AND RULES OF CONSTRUCTION

         Section 1.1 Subject Matter. The subject matter of the Agreement is the
sale, assignment, transfer or conveyance of Seller's interest in the Assets, the
purchase of the Assets and the assumption of the Assumed Liabilities by Buyer,
and the terms and conditions upon which the sale shall take place.

         Section 1.2 Definitions. For purposes of the Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the terms
defined in this Section 1.2 have the meanings herein assigned to them and the
capitalized terms defined elsewhere in the Agreement, by inclusion in quotation
marks and parentheses, shall have the meanings so ascribed to them.

         "Actual Knowledge" means actually known, after due inquiry by Hugo
         Cartaya (Director of Operations), Art Klavan (Sr. Vice President,
         Calpine Fuels Corp.), Ed Seeman (Director Reservoir Engineering), Bill
         Berilgen (President, Calpine Fuels Corp), Roxy Blu (Director of Land)
         or Bert Bates (Director, North America EH&S).

         "Affiliate" means, with respect to any specified Person, any other
         Person directly or indirectly controlling or controlled by or under
         direct or indirect common control with such specified Person. For the
         purposes of this definition, "control" means the power to direct the
         management and policies of such Person, directly or indirectly, whether
         through the ownership of voting securities, by contract or otherwise;
         and the terms "controlling" and "controlled" have meanings correlative
         to the foregoing, it being understood and agreed that with respect to a
         corporation, control shall mean a direct or indirect ownership of more
         than fifty percent (50%) of the voting stock.

         "Agreed Rate" means a rate per annum which is equal to the lesser of
         (i) a rate which is one percent (1%) above the prime rate of interest
         of J.P. Morgan Chase Bank, New York, New York, as announced or
         published by such bank from time to time (adjusted from time to time

                                       1
<PAGE>

         to reflect any changes in such rate determined hereunder), or (ii) the
         maximum rate from time to time permitted by Applicable Law.

         "Agreement" means this Purchase and Sale Agreement, including the
         Schedules and Exhibits.

         "Applicable Law" means any applicable law, order, regulation, permit,
         judgment or decree of any Governmental Body, including the common or
         civil law of any Governmental Body, including but not limited to those
         relating to occupational safety and health, consumer product safety,
         employee benefits, environmental laws, securities, or zoning laws or
         regulations.

         "Assets" mean the Fee Interests, Gathering System, Leases, Personal
         Property, Facilities, Easements, Contracts, and Beneficial Interests,
         but excluding the Excluded Assets.

         "Assumed Liabilities" means:

                  (a) all liabilities, duties, and obligations that accrue on
         and after the Effective Date from ownership or operation of the Assets;

                  (b) all liabilities and obligations with respect to Plugging
         and Abandonment;

                  (c) all duties, liabilities and obligations that accrue on and
         after the Effective Date under the Contracts, Fee Interests, Leases,
         Easements and Beneficial Interests, including, without limitation, all
         obligations with respect to gas imbalances associated with the Assets
         as set forth in Section 4.3(o);

                  (d) all liabilities and obligations with respect to funds
         attributable to Third Persons but suspended or impounded by Seller
         prior to the Effective Date but only to the extent of the amount of
         such suspended or impounded funds.

                  (e) all other duties, liabilities, and obligations assumed by
         Buyer under the Agreement.

         "Beneficial Interests" means any and all rights, titles and interests
         owned by Seller in, under or derived from all of the presently existing
         pooling, unitization and communitization agreements or other operating
         agreements and the units created thereby (including without limitation,
         all units formed under orders, regulations, rules or other official
         acts of any Governmental Body having jurisdiction) insofar and only
         insofar as they relate to any of the Leases or Fee Interests or to the
         production of Hydrocarbons from or attributable to such Leases or Fee
         Interests as set forth on Schedule D.

                                       2
<PAGE>

         "Burdens" means royalties (including both lessor royalties and
         nonparticipating royalty interests), overriding royalties, production
         payments, and other similar obligations payable out of production.

         "Business Day" means any day when commercial banks are generally open
         for regular business in the State of Colorado.

         "Closing" means the closing of the transactions contemplated by the
         Agreement at 10:00 a.m., at Seller's offices at 717 Texas Ave., Suite
         1000, Houston, Texas 77002, on the Closing Date or at such other time
         or place as the Parties may mutually agree upon in writing.

         "Closing Date" means September 1, 2004, or such other date as the
         Parties may mutually agree upon in writing.

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

         "Confidentiality Agreement" means the Confidentiality Agreement between
         Seller and Buyer dated August 6, 2004.

         "Contracts" means all contracts and agreements whether recorded or
         unrecorded in existence at the Effective Date, which affect the Leases,
         Fee Interests, Personal Property, Beneficial Interests, Facilities and
         Easements, insofar and only insofar and only to the extent as they
         specifically relate to the Leases, Fee Interests, Personal Property,
         Beneficial Interests, Facilities and Easements, including but not
         limited to the contracts and agreements set forth on Schedule C, but
         specifically excluding the Easements, Leases, Beneficial Interests, and
         the contracts and agreements set forth on Schedule E.

         "Corporate Documents" means with respect to a Delaware corporation the
         Certificate of Incorporation and By-Laws or the equivalent documents of
         a corporation or other business entity organized under the laws of
         another jurisdiction.

         "Easements" means Seller's non-exclusive rights to the use and
         occupancy of the surface, including, without limitation, tenements,
         appurtenances, surface leases, easements, permits, licenses,
         franchises, servitudes and rights-of-way in any way appertaining,
         belonging, affixed or incidental to or used in connection with the
         ownership or operation of the Fee Interests, Leases, Facilities and
         Beneficial Interests, whether recorded or unrecorded;

         "Effective Date" means 7:00 a.m., MDT, July 1, 2004 at the location of
         the Assets.

         "Environmental Condition" means any condition existing prior to the
         Effective Date, and only to the extent in existence on the Effective
         Date with respect to the air, land, soil,

                                       3
<PAGE>

         surface, subsurface strata, surface water, ground water, or sediments
         which causes a Property to be subject to remediation under, or not in
         compliance with, an Environmental Law, Environmental Permit, a Lease or
         a Contract, but excluding the conditions associated with, or included
         in the definition of, Plugging and Abandonment.

         "Environmental Law" means any existing or future Applicable Law
         relating to pollution or the protection of the environment, health or
         safety including, without limitation, laws relating to air, water, land
         and the generation, storage, treatment, transportation, handling,
         release or disposal of waste materials including, without limitation,
         the Clean Air Act, as amended, the Federal Water Pollution Control Act,
         as amended, the Safe Drinking Water Act, as amended, the Comprehensive
         Environmental Response, Compensation and Liability Act ("CERCLA"), as
         amended, the Superfund Amendments and Reauthorization Act of 1986
         ("SARA"), as amended, the Resource Conservation and Recovery Act
         ("RCRA"), as amended, the Hazardous and Solid Waste Amendments Act of
         1984, as amended, the Toxic Substance Control Act, as amended, and the
         Occupational Safety and Health Act ("OSHA"), as amended but shall not
         include any Applicable Law associated with Plugging and Abandonment.

         "Environmental Permits" means any environmental and health and safety
         permits, licenses, approvals, consents, certificates and other
         authorizations necessary for the ownership or operation of the
         Properties.

         "Excluded Assets" means:

                  (a) all (i) trade credits, accounts receivable, notes
         receivables and other receivables attributable to Seller's interest in
         the Assets with respect to any period of time prior to the Effective
         Date; (ii) 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 Date.

                  (b) all corporate, financial, legal, personnel and Tax records
         of Seller; provided however that Seller shall provide reasonable access
         to such records that are related to the Assets to the extent that such
         records are not privileged or confidential;

                  (c) all claims and causes of action of Seller (i) arising from
         acts, omissions or events, or damage to or destruction of property,
         occurring prior to the Effective Date or (ii) affecting any of the
         excluded assets as set forth in (a) through (r) of this definition;

                  (d) all rights, titles, claims and interests of Seller (i)
         under any policy or agreement of insurance or indemnity; (ii) under any
         bond; or (iii) to any insurance or condemnation proceeds or awards;

                                       4
<PAGE>

                  (e) subject to the provisions of Section 4.3(p), all
         Hydrocarbons produced from or attributable to the Assets with respect
         to all periods prior to the Effective Date;

                  (f) claims of Seller for refunds of or loss carry forwards
         with respect to (i) Taxes attributable to any period prior to the
         Effective Date; (ii) Taxes attributable to any of the excluded assets
         as set forth in (a) through (r) of this definition; or (iii) any Tax
         credits accruing to the Assets prior to the Effective Date.

                  (g) all amounts due or payable to Seller as adjustments or
         refunds under any Contracts affecting the Assets, with respect to any
         period prior to the Effective Date including, without limitation,
         amounts recoverable from audits under operating agreements;

                  (h) 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 Date;

                  (i) all proceeds, benefits, income or revenues accruing (and
         any security or other deposits made) with respect to (i) the Assets
         prior to the Effective Date; and (ii) any of the excluded assets as set
         forth in (a) through (r) of this definition;

                  (j) all of Seller's seismic and geophysical information and
         data, together with all geological information and data, whether
         proprietary in Seller or licensed from Third Persons, and whether or
         not covering or affecting the Assets;

                  (k) all of Seller's interpretive data;

                  (l) the non-exclusive right reserved unto the Seller to use
         the Easements;

                  (m) all of Seller's intellectual property, including but not
         limited to computer software, patents, trade secrets, copyrights,
         names, marks, and logos;

                  (n) all of Seller's vehicles, trucks (including associated
         tools), boats, tools, pulling machines, warehouse stocks, microwave
         equipment, computer equipment and remote terminal units; equipment and
         material temporarily located on the Assets; and any pipelines,
         easements, fixtures, LACT units, tanks or equipment located on the
         Assets which belong to lessors or other Third Persons engaged in the
         business of purchasing, processing or transporting Hydrocarbons;

                                       5
<PAGE>

                  (o) all of Seller's interest in any lands or depths covered by
         the Leases, Fee Interests and Beneficial Interests which are
         specifically excluded from the descriptions set forth on Schedules A, B
         and C.

                  (p) records and documents subject to confidentiality
         provisions, claims of privilege, or other restrictions on access;

                  (q) all rights of ingress, egress and surface use retained by
         Seller in connection with its obligations under Part Six of this
         Agreement; and

                  (r) all other assets set forth on Schedule F.

         "Facilities" means facilities and equipment, whether active or
         inactive, that are customarily used directly in the production of
         Hydrocarbons, including, but not limited to injection facilities,
         disposal facilities, field separators, liquid extractors, compressors,
         LACT units, plants, tanks and the like.

         "Fee Interests" means all rights, titles and interests owned by Seller
         in all the fee and mineral fee interests described on Schedule B,
         insofar and only insofar as such Fee Interests cover the lands and
         depths set forth in Schedule B. The Fee Interests shall include all of
         Seller's right, title and interest to all depths unless specifically
         limited on Schedule B.

         "Gathering System" means the Gibson Gulch gas gathering system and all
         related pipelines, processing and compression facilities associated
         with the Properties.

         "Governmental Body" means any federal, state, Indian, 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 Asset or Party to this transaction, or any of the transactions
         contemplated by the Agreement.

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

         "Leases" means any and all rights, titles and interests owned by Seller
         in all of the oil, gas or mineral leases and other interests described
         on Schedule A insofar and only insofar as such Leases cover the lands
         and depths set forth in Schedule A. The Leases shall include all of
         Seller's right, title and interest to all depths unless specifically
         limited on Schedule A and shall include, whether or not specifically
         set forth on Schedule A any rights, titles and

                                       6
<PAGE>

         interests owned by Seller in all of the oil, gas or mineral leases
         owned by Seller as of the Effective Date within the area shown on
         Schedule A-1.

         "Losses" means any and all losses, liabilities, claims, demands,
         penalties, fines, assessments, settlements, damages and any related
         expenses of whatever kind or nature, known or contingent or otherwise,
         including, without limitation, legal, accounting, consulting and
         investigation expenses and litigation costs including without
         limitation, response, remedial or inspection costs or any cleanup and
         laboratory costs, but excluding consequential damages.

         "Net Revenue Interest" means Seller's share of production or revenue
         from (or where subject to a unit or pooling agreement, allocated under
         such agreement to) a Property, net of all Burdens related to such
         Property as set forth on Schedule H..

         "Party" means either Buyer or Seller.

         "Permitted Encumbrances" means

                  (a) Burdens to the extent that the aggregate effect of such
         Burdens do not reduce the Net Revenue Interest of a Property or Lease
         below that shown on Schedule H or Schedule 2.3, respectively;

                  (b) division orders and sales contracts;

                  (c) rights of reassignment which arise prior to abandonment,
         surrender or release of oil, gas or mineral leases;

                  (d) rights to consent by, required notices to, filings with,
         or other actions by, any Governmental Body in connection with the sale
         or conveyance of oil and gas leases or interests therein, or the
         assumption of operatorship, if they are customarily obtained subsequent
         to the sale or conveyance;

                  (e) easements, rights-of-way, servitudes, permits, surface
         leases and other rights relative to surface use and occupancy
         including, without limitation, pipeline operations, grazing, logging,
         canals, ditches, reservoirs and similar rights and conditions,
         covenants or other similar restrictions on and over the surface of the
         Leases, Easements, Beneficial Interests or Fee Interests provided that
         any unrecorded easements, rights-of-way, servitudes, permits, surface
         leases and such other rights do not materially interfere with the use
         or operation of the Leases, Easements, Beneficial Interests or Fee
         Interests;

                                       7
<PAGE>

                  (f) recorded easements for streets, alleys, highways,
         pipelines, telephone lines, power lines, railways and similar easements
         and rights-of-way, on, over or in respect to the Leases, Beneficial
         Interests, Easements or Fee Interests;

                  (g) all leases, operating agreements, operator liens and
         working interest owner liens, unit, communitization and pooling
         agreements, farmout and subleases and farmin agreements and all
         Contracts that do not affect the Net Revenue Interest;

                  (h) all Applicable Laws of any Governmental Body, and all
         rights reserved to or vested in any Governmental Body to control or
         regulate the Assets in any manner, including, without limitation, any
         adjustment in the Net Revenue Interest or Working Interest of a
         particular Property or Lease, caused by, or as the result of, any
         action of a Governmental Body which is not the result of any negligent
         act or omission of Seller;

                  (i) liens for Taxes or assessments not yet due and payable or
         not yet delinquent, or if delinquent, that are being contested in good
         faith by appropriate action brought in the normal course;

                  (j) reversionary interests arising under farmout and farmin
         agreements, subleases, and the non-consent provisions of applicable
         operating agreements;

                  (k) liens imposed by Applicable Law, such as carriers',
         warehousemen's and mechanics' liens and other similar liens arising in
         the ordinary course of business which secure payment of obligations not
         more than sixty (60) days past due or which are being contested in good
         faith or for which funds have been set aside;

                  (l) consents to assign that have been obtained or waived and
         preferential rights to purchase that have been waived or for which the
         time period to exercise has expired;

                  (m) defects that have been cured by possession under
         applicable statutes of limitation;

                  (n) other minor defects or irregularities generally waived by
         prudent purchasers of oil and gas properties and that do not materially
         impair the value, ownership or use of the affected Property or Lease;
         and

                  (o) others as set forth on Schedule G.

         "Person" means any individual, corporation, partnership, limited
         liability company, joint venture, association, joint stock company,
         trust, estate, unincorporated organization, other business entity or
         any Governmental Body.

                                       8
<PAGE>

         "Personal Property" means to the extent attributable to the Fee
         Interests, Leases, Easements, Contracts and Beneficial Interests, but
         excluding any personal property owned by any Third Person as described
         on Schedule F or any of Seller's Affiliates and subject to the
         limitations below, all of Seller's right, title and interest in and to:

                  (a) all Wells (whether plugged or unplugged), equipment,
         Facilities and personal property of any kind including, but not limited
         to, tubing, casing, wellheads, pumping units, production units,
         compressors, valves, meters, flowlines, tanks, heaters, separators,
         dehydrators, pumps, injection units, gates and fences, which are
         located on or connected with the Fee Interests, Gathering System,
         Leases, and Beneficial Interests and which are used solely and
         exclusively in connection with the production, separation, storage,
         treatment, gathering or transportation of Hydrocarbons from or
         attributable to the Fee Interests, Leases, and Beneficial Interests and
         that are not presently used in connection with any excluded assets;

                  (b) all licenses, authorizations, permits, variances and
         similar rights and interests related to the Fee Interests, Gathering
         System, Leases, Facilities, Easements, Contracts and Beneficial
         Interests and personal property defined in (a) above;

                  (c) all other rights, privileges, benefits and powers
         conferred upon the owner and holder of the Fee Interests, Gathering
         System, Leases, Facilities, Easements, Contracts and Beneficial
         Interests and personal property defined in (a) and (b) above; and

                  (d) copies of applicable general operating records, well files
         (including applicable well logs and production data), lease files, land
         files, environmental compliance files, regulatory reports and
         certificates, abstracts and title work pertaining to the Fee Interests,
         Leases, Easements, Facilities, Contracts and Beneficial Interests and
         personal property defined in (a) above, but excluding: records
         containing trade secrets unrelated to the Assets (copies of which
         records shall be made available to Buyer with information concerning
         trade secrets unrelated to the Assets being redacted by Seller), legal
         files, attorney-client communications or attorney work product
         materials and other similar documents covered by privilege, records and
         documents subject to confidentiality provisions and auditor's reports.

         "Plugging and Abandonment" means all plugging, replugging, abandonment,
         removal, disposal or restoration associated with the Assets, including,
         but not limited to, all plugging and abandonment, removal, surface
         restoration, site clearance and disposal of the wells, structures and
         Personal Property located on or associated with the Assets, the removal
         or capping and burying of all associated flowlines, the restoration of
         the surface in accordance with Applicable Laws or the terms and
         conditions of the applicable Leases or Contracts, whichever is more
         stringent, site clearance, as required by Applicable Laws, and any

                                       9
<PAGE>

         disposal of related waste materials, including naturally occurring
         radioactive material ("NORM") and asbestos, and shall include such
         Wells, structures, and Personal Property associated with any of the
         Assets, whether drilled or placed on a Lease, Fee Interest, or
         Beneficial Interest prior to, at, or after the Closing Date.

         "Property" means a Well, or a unitized or communitized area described
         on Schedule H.

         "Remediation" or "Remediate" means affirmative actions or remedial work
         taken to remove or otherwise remedy an Environmental Condition,
         including but not limited to any survey, site assessment, audit,
         investigation, inspection, sampling, analysis, removal, excavation,
         pump and treat, cleanup, disposal, storage, handling or treatment,
         excluding those actions associated with Plugging and Abandonment.

         "Tax" means any and all fees (including, without limitation,
         documentation, license, recording, filing and registration fees), taxes
         (including without limitation, production, gross receipts, ad valorem,
         value added, windfall profit tax, environmental tax, turnover, sales,
         use, personal property (tangible and intangible), stamp, leasing,
         lease, user, leasing use, excise, franchise, transfer, heating value,
         fuel, excess profits, occupational, interest equalization, lifting,
         oil, gas, or mineral production or severance, and other taxes), levies,
         imposts, duties, charges or withholdings of any nature whatsoever,
         imposed by any Governmental Body or taxing authority thereof, domestic
         or foreign, together with any and all penalties, fines, additions to
         tax and interest thereon, whether or not such tax shall be existing or
         hereafter adopted.

         "Third Person" means a Person other than a Party or an Affiliate of a
         Party.

         "Title Defect" means any one of the following:

                  (1)      Seller's title as of the Effective Date as to all or
                           any part of the Property or a Lease is subject to an
                           outstanding mortgage, deed of trust, lien, or other
                           monetary encumbrance or adverse claim not listed or
                           referenced on Schedule G that would induce a
                           purchaser to suspend payment of proceeds for the
                           Property or a Lease or require the furnishing of
                           security or indemnity, or title to any Property or
                           Lease is not vested in Seller such that would induce
                           a purchaser to suspend payment of proceeds for the
                           Property or Lease or require the furnishing of
                           security or indemnity;

                  (2)      Seller's Net Revenue Interest attributable to a
                           Property or a Lease as of the Effective Date is less
                           than that shown on Schedule H or Schedule 2.3,
                           respectively, or Seller's Working Interest
                           attributable to a Property or a Lease as of the
                           Effective Date is greater than that shown on Schedule
                           H,

                                       10
<PAGE>

                           or Schedule 2.3, respectively, without a
                           corresponding increase in Seller's Net Revenue
                           Interest in the Property or the Lease; or

                  (3)      Seller's Net Revenue Interest would be reduced if a
                           Third Person were to exercise a reversionary,
                           back-in, or other similar right not listed or
                           referenced on Schedule H;

         but shall not include any Permitted Encumbrances or preferential rights
         to purchase.

         "Wells" means, whether active or inactive, any orifice in the ground,
         completed or being drilled, including without limitation, those
         previously plugged and abandoned, those drilled for the production of
         Hydrocarbons, for injection, for disposal or for water sources.

         "Working Interest" means that share of costs and expenses associated
         with the exploration, maintenance, development and operation of a
         Property that Seller is required to bear and pay.

         Section 1.3 Other Definitions in the Agreement. The following terms
shall have the respective meanings ascribed to them in the Sections of the
Agreement set forth below opposite such terms:

<Table>
<Caption>

                                                Section
                                                -------

<S>                                             <C>
AFE                                             3.1(h)
Aggregate Environmental Defect Value            6.6
Aggregate Title Defect Value                    7.7
Assignments                                     9.1(i)
Buyer                                           Preamble
Claim Notice                                    8.2(a)
Cure                                            7.5
Cure Notice                                     7.5
Deeds                                           9.1(j)
Defect Value                                    7.4
Environmental Defect Notice                     6.2
Environmental Defect Value                      6.2
Environmental Notice Deadline                   6.2
Environmental Rejection Notice                  6.3(b)
Final Recap Amount                              4.3(h)
Final Recapitulation Statement                  4.3(h)
Final Settlement Date                           4.3(h)
Indemnified Party                               8.2(a)
</Table>

                                       11
<PAGE>

<Table>
<S>                                             <C>
Indemnifying Party                              8.2(a)
Interest Addition                               7.8
Interest Addition Notice                        7.8
Interest Addition Payment                       7.8
Interest Addition Rejection Notice              7.8
Interest Addition Value                         7.8
Individual Threshold                            6.1
NORM                                            1.2
Notice Period                                   8.2(a)
Offset                                          7.8
Performance Deposit                             2.4
Permits                                         3.l(1)
Precedent Agreement                             4.3(f)
Purchase Price                                  2.2
Rejection Notice                                7.6
Review Period                                   6.1
Seller                                          Preamble
Title Defect Notices                            7.4
Title Indemnity Payment                         7.4
</Table>

         Section 1.4 Rules of Construction. For purposes of the Agreement:

                  (a) General. Unless the context otherwise requires (i) "or" is
         not exclusive; (ii) an accounting term not otherwise defined has the
         meaning assigned to it in accordance with accounting principles that
         are generally accepted in the United States of America; (iii) words in
         the singular include the plural and words in the plural include the
         singular; (iv) words in the masculine include the feminine and words in
         the feminine include the masculine; (v) any date specified for any
         action that is not a Business Day shall be deemed to mean the first
         Business Day after such date; and (vi) a reference to a Person includes
         its successors and assigns.

                  (b) Parts and Sections. References to Parts and Sections are,
         unless otherwise specified, to Parts and Sections of the Agreement.
         Neither the captions to Parts or Sections hereof nor the Table of
         Contents shall be deemed to be a part of the Agreement.

                  (c) Exhibits and Schedules. The Exhibits and Schedules form
         part of the Agreement and shall have the same force and effect as if
         set out in the body of the Agreement.

                  (d) Other Agreements. References herein to any agreement or
         other instrument shall, unless the context otherwise requires (or the
         definition thereof otherwise

                                       12
<PAGE>

         specifies), be deemed references to that agreement or instrument as it
         may from time to time be changed, amended or extended. There is no
         incorporation by reference unless stated.

                                    PART TWO

                                SALE AND PURCHASE

         Section 2.1 Assets. At Closing, Seller agrees to sell, assign, transfer
and convey to Buyer the Assets and Buyer agrees to purchase and pay for the
Assets and assume the Assumed Liabilities.

         Section 2.2 Purchase Price. The purchase price shall be One Hundred
Thirty Nine Million Seven Hundred and Fifty Thousand Dollars ($139,750,000) plus
or minus the adjustments specifically set forth in the Agreement (the "Purchase
Price").

         Section 2.3 Allocation of Purchase Price. Schedule 2.3 sets forth a
good faith allocation of the Purchase Price among the Properties which comprise
the Assets, which allocation was prepared by Buyer and delivered to Seller on
August 17, 2004. Such allocation has been provided for the purpose of (i)
establishing a basis for certain Taxes, (ii) obtaining waivers of or making
offers with respect to any preferential rights to purchase the Assets, and (iii)
handling those instances for which the Purchase Price is adjusted as provided
herein.

         Section 2.4 Performance Deposit and Liquidated Damages. Buyer shall
tender to Seller immediately upon execution of the Agreement, a non-refundable
(except as provided in Section 2.6, below) cash performance deposit in the
amount of Seven Million Dollars ($7,000,000) (the "Performance Deposit"). At
Closing, Buyer shall pay and deliver to Seller the remaining unpaid portion of
the Purchase Price adjusted as provided herein, and adjusted upward or downward
pursuant to Parts Six and Seven.

                      EXCEPT AS PROVIDED IN SECTIONS 2.6(a) OR (c), IF BUYER
                      FAILS TO COMPLETE THE TRANSACTION SET FORTH IN THIS
                      AGREEMENT, THE PARTIES AGREE THAT SELLER SHALL RETAIN THE
                      PERFORMANCE DEPOSIT AS LIQUIDATED DAMAGES, WHICH THE
                      PARTIES AGREE IS A REASONABLE SUM CONSIDERING ALL THE
                      CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT,
                      INCLUDING THE RELATIONSHIP OF THE SUM OF THE RANGE OF HARM
                      TO SELLER THAT REASONABLY COULD BE ANTICIPATED AND THE
                      ANTICIPATION THAT PROOF OF ACTUAL DAMAGES WOULD BE COSTLY
                      OR INCONVENIENT. IN PLACING THEIR INITIALS BELOW, EACH
                      PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS
                      MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY
                      COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED
                      DAMAGES PROVISION AT THE TIME THIS AGREEMENT WAS MADE.

                                       13
<PAGE>

                 Seller                                Buyer
                 Initial  /s/ MG                       Initial  /s/ WJB  ]
                        ----------                            -----------

         Section 2.6 Termination. The following provisions shall apply in the
event of termination of this Agreement:

         (a) If this Agreement is terminated (i) by the mutual agreement of the
Seller and the Buyer and not as the result of the failure of either Party to
perform its obligations hereunder, or (ii) pursuant to Sections 4.3(e), 6.6 or
7.7 or (ii) because the conditions precedent to a Party's performance as set
forth in Part Nine have not occurred, such termination shall be without
liability of any Party or any affiliate, director, officer, employee, agent or
representative of such Party, and Seller shall return the Performance Deposit to
Buyer.

         (b) If this Agreement is terminated as a result of the failure of Buyer
to perform its obligations hereunder, then Seller shall retain the Performance
Deposit together with interest accrued thereon as liquidated damages, as its
sole remedy, for such failure.

         (c) If this Agreement shall be terminated as a result of the failure of
Seller to perform its obligations hereunder, then Seller shall refund the
Performance Deposit together with interest accrued at the Agreed Rate to
Purchaser.

         Section 2.7 Method of Payment. Any amount payable under the Agreement
shall be payable in immediately available funds by means of a wire transfer, if
to Seller, to Seller's account at Bank One, Houston NA, ABA #111000614, account
number 188-414-8246 (with immediate telephone notice to Michael Gerlich at phone
number 713.335.4037, or to such other account number as Seller may by written
notice direct, or if to Buyer, to Buyer's account as may be designated by Buyer.

                                   PART THREE

                         REPRESENTATIONS AND WARRANTIES

         Section 3.1 Seller. Seller represents and warrants to Buyer that:

                  (a) Organization and Standing. Calpine Corp. is a corporation
         duly organized, validly existing, and in good standing under the laws
         of the State of Delaware, and is in good standing as a foreign
         corporation in all jurisdictions where the nature of the Assets
         requires it. Calpine Natural Gas L.P. is a limited partnership duly
         organized, validly existing, and in good standing under the laws of the
         State of Delaware and is in good

                                       14

<PAGE>
        standing under the laws of the State of Delaware and is in good
        standing as a foreign partnership in all jurisdictions where the nature
        of the Assets requires it.

                      (b) Authority. Seller has the corporate power and
        authority to enter into and perform the Agreement and to consummate the
        transactions contemplated hereby. The execution, delivery and
        performance by Seller of the Agreement and the consummation of the
        transactions contemplated hereby have been duly authorized by all
        requisite corporate action and the Agreement has been duly executed and
        delivered by Seller.

                      (c) Validity of Agreement. The Agreement is a legal, valid
        and binding obligation of Seller enforceable against Seller in
        accordance with the terms of the Agreement, except as enforcement may be
        limited by bankruptcy, insolvency or other similar Applicable Laws now
        or hereafter in effect affecting the enforcement of creditors' rights in
        general. The enforceability of Seller's obligations under the Agreement
        is subject to general principles of equity (regardless of whether such
        enforceability is considered in a proceeding in equity or at law).

                      (d) No Violation. The execution and delivery of the
        Agreement and the performance by the Seller of the terms of the
        Agreement do not conflict with or result in a violation of the Corporate
        Documents of Seller or any agreement, instrument, order, writ, judgment
        or decree to which Seller is a party or is subject.

                      (e) Litigation. Except as set forth on Schedule 3.1(e),
        there are no actions, suits, or proceedings pending or to the Actual
        Knowledge of Seller threatened against Seller as to the Assets, before
        any court or arbitration tribunal or before or by any Governmental Body
        in which the claim is in excess of Fifty Thousand Dollars ($50,000.00)
        for any one claim or One Million Dollars ($1,000,000.00) in the
        aggregate.

                      (f) No Consents Required. Except as set forth in Section
        4.3(d) and on Schedule 3.1(f), no preferential purchase rights,
        consents, approvals or other action by, or filings with any Person or
        Governmental Body are required in connection with the execution,
        delivery and performance by Seller of the Agreement.

                      (g) Environmental Claims. Except as set forth on Schedule
        3.1(g), to Seller's Actual Knowledge, there are no pending written
        claims, actions or proceedings by any Third Person or Governmental Body
        caused by or arising out of any Condition against the Seller, the
        Assets, or the ownership or operation thereof and there are no
        Environmental Conditions presently under Remediation.

                      (h) Current Commitments. Schedule 3.1(h) contains a
        complete and accurate list as of the date of this Agreement of (i) all
        authorities for expenditures ("AFEs") in excess of $50,000 to drill or
        rework Well or for capital expenditures pursuant to any of the

                                       15
<PAGE>

        Contracts that have been proposed by any person on or after the
        Effective Date, whether or not accepted by Seller or any Third Person,
        and (ii) all AFEs and oral or written commitments in excess of $50,000
        to drill or rework Wells or for other capital expenditures pursuant to
        any of the Contracts for which all of the activities anticipated in such
        AFEs or commitments have not been completed by the date of this
        Agreement.

                      (i) Personal Property. The Personal Property located on
        the Assets currently operated by Seller constitutes the equipment and
        fixtures reasonably necessary for the operations of the Assets for the
        production of the Hydrocarbons. Such Personal Property currently in
        service is, in good repair and operating condition and is suitable for
        the purpose for which such Personal Property is employed.

                      (j) Status of Contracts. Seller has all Contracts
        necessary to conduct the business and operations of those Assets
        currently operated by Seller as they are currently operated. All of the
        Contracts and Easements (i) are in full force and effect, (ii) neither
        Seller nor, to Seller's Actual Knowledge, any other party to the
        Contracts or Easements, (1) is in breach of or default, or with the
        lapse of time or the giving of notice, or both, would be in breach or
        default, with respect to any of its obligations thereunder to the extent
        that such breaches or default have a material adverse impact on any of
        the Assets or (2) has given notice of any default or action to alter,
        terminate, rescind or procure a judicial reformation of any Contract or
        Easement. Except as set forth on Schedule C, there are no Contracts (i)
        that cannot be terminated upon no more than ninety (90) days notice or
        (ii) for which the amount of Buyer's exposure would exceed One Hundred
        Thousand Dollars ($100,000).

                      (k) Taxes. All ad valorem, property, production, severance
        and other taxes based on or measured by the ownership of the Properties
        or the production of Hydrocarbons from the Properties due and payable
        prior to the Effective Date have been properly and timely paid except
        those disputed in ordinary course of business, which disputed Taxes
        shall be disclosed by Seller to Buyer in writing prior to the Closing
        Date.

                      (l) License. With respect to those Properties currently
        operated by Seller, Seller has all material licenses, authorizations,
        permits, variances and similar rights and interests from Governmental
        Bodies (collectively "Permits"), which are necessary to operate the
        Subject Interests. The conveyance of the Assets to Buyer shall not cause
        revocation of any of such Permits. No violations of any of such Permit
        exists which could result in a termination of such Permit or that would
        materially impair Buyer's ability to enjoy the economic benefit of the
        Assets.

                      (m) Tax Partnerships. None of the Assets are subject to a
        tax partnership, including, without limitation, none of such properties
        are subject to any operating agreement or other agreement under which
        the parties hereto have not made an effective election pursuant to
        Section 761 of the Internal Revenue Code, and the Treasury

                                       16
<PAGE>

        Regulations promulgated thereunder, to be excluded from the application
        of Subchapter K, Chapter 1, Subtitle A, of the Code.

                      (n) Not a Foreign Person. Seller is not a "foreign person"
        within the meaning of Section 1445 (or similar provisions) of the Code
        (i.e., Seller is not a non-resident alien, foreign corporation, foreign
        partnership, foreign trust or foreign estate as those terms are defined
        in the Code and regulations promulgated thereunder). Calpine
        Corporation's taxpayer identification number is 770212977. Calpine
        Natural Gas L.P.'s taxpayer identification number is 710882453.

                      (o) Gas Imbalances. Schedule 3.1(o) sets forth the current
        status of all gas imbalances with respect to Assets as of the Effective
        Date.

                      (p) No Broker.  Seller has not employed or otherwise
        benefited from the services of a broker, finder or similar person in
        connection with the transaction contemplated by this Agreement.

        Section 3.2   Buyer.  Buyer represents and warrants to Seller that:

                      (a) Organization and Standing. Buyer is a corporation duly
        organized, validly existing in good standing under the laws of the State
        of Delaware and is in good standing as a foreign corporation in all
        jurisdictions where the nature of the Assets requires it and is duly
        qualified to own federal and state leases in the State of Colorado.

                      (b) Authority. Buyer has the corporate power and authority
        to enter into and perform the Agreement and to consummate the
        transactions contemplated hereby. The execution, delivery and
        performance by Buyer of the Agreement and the consummation of the
        transactions contemplated hereby have been duly authorized by all
        requisite corporate action and the Agreement has been duly executed and
        delivered by Buyer.

                      (c) Validity of Agreement. The Agreement is a legal, valid
        and binding obligation of Buyer enforceable against Buyer in accordance
        with the terms of the Agreement, except as enforcement may be limited by
        bankruptcy, insolvency or other similar Laws affecting the enforcement
        of creditors' rights in general. The enforceability of Buyer's
        obligations under the Agreement is subject to general principles of
        equity (regardless of whether enforceability is considered in a
        proceeding in equity or at law).

                      (d) No Violation. The execution and delivery of the
        Agreement and the performance by Buyer of the terms of Agreement do not
        conflict with or result in a violation of the Corporate Documents of
        Buyer or of any agreement, instrument, order, writ, judgment or decree
        to which Buyer is a party or is subject.

                                       17
<PAGE>

                      (e) No Consents Required. Except as set forth in Section
        4.3(d), no consents, approvals or other action by, or filings with any
        Person or Governmental Body are required in connection with the
        execution, delivery and performance by Buyer of the Agreement.

                      (f) Securities Representation. Buyer is an experienced and
        knowledgeable investor and operator in the oil and gas business and is
        acquiring the Assets for Buyer's 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, or any other Applicable Laws
        pertaining to the distribution of securities.

                      (g) Buyers' Sole Reliance on Own Investigation. Buyer has,
        subject to necessary Third Person operator approval as to those Assets
        not operated by Seller, availed itself of the opportunity to conduct a
        pre-acquisition review of the Assets. Buyer is purchasing the Assets
        solely in reliance on Buyer's own investigation of the Assets and
        Seller's representations and warranties set forth in this Agreement.

                      (h) No Broker. Buyer has not retained or otherwise
        benefited from the services of a broker, finder or similar
        person in connection with the Agreement or the transaction contemplated
        herein.

                      (i) Buyer's Qualifications. Buyer is, or will as of the
        Closing be, fully qualified and bonded as an operator by all applicable
        Governmental Bodies as necessary to operate the Assets.

        Section 3.3.  Disclaimers and Notifications.  The Parties make the
following disclaimers and notifications:

                      (a) No Other Warranties. Except as otherwise provided
        herein there are no express or implied warranties that apply to the
        transactions contemplated herein.

                      (b) Disclaimer and Assumption of Risk. EXCEPT AS EXPRESSLY
        SET FORTH TO THE CONTRARY HEREIN, IT IS EXPRESSLY UNDERSTOOD BY THE
        PARTIES THAT SELLER DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES,
        EXPRESS OR IMPLIED WITH RESPECT TO THE ASSETS. WITHOUT LIMITATION OF THE
        FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTIES, EXPRESS OR
        IMPLIED, AS TO TITLE OR THE CONDITION OR STATE OF REPAIR OF THE ASSETS,
        THEIR VALUE, QUALITY, MERCHANTABILITY, SUITABILITY OR FITNESS FOR ANY
        PARTICULAR USES OR PURPOSES, NOR AS TO THE CURRENT VOLUME, NATURE,
        QUALITY, CLASSIFICATION, OR VALUE OF THE HYDROCARBONS RESERVES
        THEREUNDER OR COVERED THEREBY, NOR WITH RESPECT TO ANY APPURTENANCES
        THERETO BELONGING OR APPERTAINING TO THE

                                       18
<PAGE>

        ASSETS, AND BUYER SHALL ACCEPT THE ASSETS IN "AS IS," "WHERE IS,"
        CONDITION. WITHOUT LIMITATION OF THE FOREGOING, BUYER HEREBY WAIVES ANY
        AND ALL RIGHTS AND REMEDIES BUYER MAY HAVE AGAINST SELLER ARISING FROM
        SAME INCLUDING, WITHOUT LIMITATION, ANY RIGHTS AND REMEDIES BUYER MAY
        HAVE AGAINST SELLER PURSUANT TO THE COLORADO CONSUMER PROTECTION ACT
        (COLORADO REVISED STATUTES SECTION 61-1-1001 ET SEQ.).

                      (c) Disclaimer with Respect to NORM, etc. BUYER
        ACKNOWLEDGES AND AGREES THAT THE ASSETS HAVE BEEN UTILIZED BY SELLER FOR
        THE PURPOSE OF EXPLORATION, DEVELOPMENT, AND PRODUCTION OF OIL AND GAS,
        AS WELL AS PROCESSING AND REFINING OPERATIONS, AND THAT MATERIALS
        ASSOCIATED THEREWITH MAY HAVE BEEN STORED, KEPT OR DISPOSED OF ON OR IN
        THE ASSETS. BUYER ACKNOWLEDGES THAT EQUIPMENT, PLANTS, BUILDINGS,
        STRUCTURES, IMPROVEMENTS, ABANDONED AND OTHER TANKS AND PIPING, STORAGE
        FACILITIES, GATHERING AND DISTRIBUTION LINES, WELLS AND OTHER PETROLEUM
        PRODUCTION FACILITIES AND APPURTENANCES MAY BE LOCATED THEREON. BUYER
        ACKNOWLEDGES THAT THERE MAY HAVE BEEN SPILLS OF CRUDE OIL, PRODUCED
        WATER OR OTHER MATERIALS IN THE PAST ON OR IN THE ASSETS. IN ADDITION,
        SOME PRODUCTION EQUIPMENT MAY CONTAIN ASBESTOS AND NORM. IN THIS REGARD,
        BUYER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NORM MAY AFFIX OR ATTACH
        ITSELF TO THE INSIDE OF WELLS, MATERIALS AND EQUIPMENT AS SCALE, OR IN
        OTHER FORMS, AND THAT WELLS, MATERIALS AND EQUIPMENT LOCATED ON THE
        ASSETS MAY CONTAIN NORM AND THAT NORM-CONTAINING MATERIAL MAY BE BURIED
        AND OTHERWISE DISPOSED OF ON THE ASSETS. BUYER ALSO EXPRESSLY
        UNDERSTANDS THAT SPECIAL PROCEDURES MAY BE REQUIRED FOR THE REMOVAL AND
        DISPOSAL OF ASBESTOS AND NORM FROM THE EQUIPMENT AND LAND WHERE IT MAY
        BE FOUND AND THAT BUYER ASSUMES ALL LIABILITY AND EXPENSE FOR SUCH
        ASSESSMENT, REMOVAL AND DISPOSAL OF ANY SUCH MATERIALS AND ASSOCIATED
        ACTIVITIES.

                      (d) Disclaimer with Respect to Data. All descriptions set
        forth herein and all data, evaluations, reports, and any other
        information, heretofore or hereafter furnished Buyer by Seller
        concerning any or all of the Assets, and the operation thereof, have
        been and shall be furnished solely for Buyer's convenience and have not
        constituted and shall not constitute a representation or warranty of any
        kind by Seller, and any reliance thereupon by Buyer shall be at Buyer's
        sole risk and liability. Seller does not warrant or represent the
        accuracy or completeness of any information, data or materials furnished
        to Buyer with respect to this transaction. Buyer acknowledges that
        Seller's information with respect to the

                                       19
<PAGE>

        Assets is incomplete and Seller does not have the requisite information
        with which to determine the exact nature or condition of the Assets.

                                    PART FOUR

                                    COVENANTS

        Section 4.1 Covenants of Seller. Seller covenants with Buyer as follows:

                      (a) Access. Except for such of the Assets not operated by
        Seller, Seller shall afford Buyer and Buyer's representatives full and
        reasonable access to the Assets in the possession of Seller during
        normal working hours. In addition, the Seller shall, and shall cause
        officers of Seller to, afford the officers of Buyer complete access at
        all reasonable times from the date hereof through the Closing to
        Seller's officers, properties, facilities, and its non-privileged,
        non-confidential books, records and contracts related to, or with
        knowledge of, the Assets and shall furnish Buyer all financial,
        operating and other data and information regarding the Assets, as Buyer
        through its officers, employees or agents, may reasonably request in a
        form that Buyer may reasonably request, including data required for
        Buyer to operate the Assets after Closing; provided there is no material
        cost to or effort required by Seller to furnish such information.
        Without limiting the foregoing, Seller shall provide Buyer with such
        unaudited accounting information as Buyer may reasonably request in
        order to prepare its financial statements, which information shall be
        audited by Buyer or its designee. Notwithstanding the foregoing, access
        to Tax records shall be governed by Part Five.

                     (b) Operations Prior to Closing. After the date hereof and
         until Closing, except as otherwise consented to by Buyer in writing,
         Seller shall use and maintain the Assets in substantially the same
         manner in which they have been used and maintained prior to the
         Agreement. Seller shall pay in a timely manner in the ordinary course
         of business all expenditures relating to the Assets after the Effective
         Date; provided however, that Seller shall not (i) pay any single amount
         in excess of $50,000 and which is unrelated to any of the AFEs set
         forth on Schedule 3.1(h) or (ii) enter into any new agreement with
         respect to operations on the Assets for which Buyer's liability would
         exceed $50,000 without the prior consent of Buyer, which consent shall
         not be unreasonably delayed or withheld; and provided further however,
         that all expenditures made in compliance with this Section 4.1(b) shall
         become an adjustment to the Purchase

                                       20
<PAGE>

        Price in accordance with Section 4.3(h). Without limitation of the
        foregoing, after the execution of the Agreement and prior to Closing,
        Seller shall have the right to make any changes, repairs or
        modifications, or incur any expenditures necessary or desirable in
        Seller's opinion for the protection of the Assets or to comply with any
        Applicable Law or other legal requirement relative to the premises or to
        prevent or react to an emergency or environmental incident. Seller shall
        have the right to effect such expenditure or action with or without such
        approval, acting as would any prudent operator under similar
        circumstances. Unless Buyer and Seller otherwise agree, Seller shall not
        materially alter the Assets (other than the use of supplies and
        consumables or the normal production of Hydrocarbons from the Assets) or
        remove any improvements, equipment or property which comprise the Assets
        (other than the use of supplies and consumables).

                     (c) Consents. Subject to 4.3(d), Seller shall use
         reasonable efforts to obtain all waivers, consents, approvals, permits
         and authorizations and actions of Third Parties to complete the
         transactions contemplated by the Agreement. Seller shall reasonably
         endeavor to notify all holders of such rights of consent to the
         assignment of the Assets of its intention to sell the portion of the
         Assets affected thereby, and of such terms and conditions of the
         Agreement to which the holders of the rights are entitled. Seller shall
         promptly notify Buyer if any consents or approvals are denied, or if
         the requisite period has elapsed without said consents or approvals
         having been received.

        Section 4.2 Covenants of Buyer. Buyer covenants with Seller as follows:

                      (a) Performance Bonds, Guaranties, Etc. With respect to
        any surety bonds, performance bonds, guarantees or financial assurances
        relating to the Assets, on which Seller or Seller's Affiliates is a
        principal or a guarantor, Buyer shall cause such surety bonds,
        performance bonds, guarantees or financial assurances to be replaced or
        otherwise released within ninety (90) days after the Closing Date. Buyer
        shall reimburse Seller for any amounts paid by Seller with respect to
        such surety bonds, performance bonds, guarantees or financial assurances
        related to periods on and after the Effective Date.

                      (b) Plugging and Abandonment. Upon Closing, Buyer shall
        assume all of Seller's responsibility for Plugging and Abandonment
        associated with the Assets, and shall conduct all Plugging and
        Abandonment in a good and workmanlike manner. If at any time during
        Buyer's ownership of the Assets, Buyer sells an interest or assigns an
        interest or obligation in any of the Leases, Fee Interests or Beneficial
        Interests, then Buyer shall provide Seller a performance bond (in a form
        and with a surety satisfactory to Seller) or other security satisfactory
        to Seller in an amount reasonably calculated by Seller at that time to
        pay for any of Buyer's remaining Plugging and Abandonment obligations
        with respect to the Assets.

                                       21
<PAGE>

                      (c) No Use of Calpine Mark. At the Closing Buyer shall
        cease to use any trademarks, symbols or trade names containing
        "Calpine," or similar words. Notwithstanding anything to the contrary
        herein, Buyer shall have sixty (60) days from the Closing Date to remove
        or replace any identifications and signs.

                      (d) Transfer Orders. Buyer shall execute, acknowledge and
        deliver transfer orders or letters in lieu prepared by Buyer directing
        all purchasers of Hydrocarbons to make payments to buyer of proceeds
        attributable to Hydrocarbons produced from the Assets within sixty (60)
        days after Closing.

        Section 4.3 Covenants of Seller and Buyer. Seller and Buyer covenant to
each other as follows:

                      (a) Compliance with Conditions Precedent. Each Party shall
        use its commercially reasonable efforts to cause the conditions
        precedent set forth in Part Nine, applicable to such Party, to be
        fulfilled and satisfied as soon as practicable.

                      (b) Recording. Seller shall be solely responsible for
        recording of the Assignments, and any other documents related to the
        conveyance of the Assets, and shall promptly furnish Buyer with either
        the recorded originals or with the recording information thereof. Seller
        shall also be solely responsible for all filings with any Governmental
        Body for change of operator, and shall promptly provide Buyer with the
        original approved copies of all such filings, or confirmation thereof.
        All recording and filing shall be at the sole cost and expense of Buyer
        and Buyer shall promptly reimburse Seller for all such costs upon
        presentation of appropriate invoices.

                      (c) Press Release. No Party shall make any press release
        or other announcement respecting the Agreement without the consent of
        the other Party unless a Party refuses to consent and the Party desiring
        to make the release or other announcement is advised by its counsel that
        the release or other announcement is required to comply with any
        Applicable Law or stock exchange rule.

                      (d) Certain Filings, Consents and Permits. With respect to
         filings and consents required by any Governmental Body, the Parties
         agree that Buyer and Seller shall cooperate with one another to make
         all filings necessary and to obtain any necessary consents, permits,
         authorizations, approvals or waivers.

                      (e) Risk of Loss. The risk of casualty loss relating to
        the Assets shall pass from Seller to Buyer as of the Effective Date. If,
        after the Effective Date but prior to Closing, all or any material
        portion of the Assets is destroyed by fire or other casualty, is taken
        in condemnation or under the right of eminent domain or proceedings for
        such purposes are pending or threatened, Buyer shall purchase such
        portion of the Assets

                                       22
<PAGE>

        notwithstanding any such destruction, taking or pending or threatened
        taking, and the Purchase Price shall not be adjusted. Seller shall, at
        Closing, pay to Buyer all sums paid to Seller by Third Persons by reason
        of the destruction or taking of such portion of the Assets to be
        assigned to Buyer, and shall assign, transfer and set over to Buyer all
        of the right, title and interest of Seller in and to any unpaid awards
        or other payments from Third Persons arising out of the destruction,
        taking or pending or threatened taking as to such interest. Seller shall
        not voluntarily compromise, settle or adjust any material amounts
        payable by reason of any material destruction, taking or pending or
        threatened taking as to any of the Assets without first obtaining the
        written consent of Buyer, which shall not be unreasonably withheld. In
        the event a casualty loss or other loss or potential loss described in
        this Section 4.3(e) together with all other such losses or potential
        losses in the aggregate exceeds ten percent (10%) of the Purchase Price,
        either Seller or Buyer may terminate this Agreement upon written notice
        to the other, and neither Party thereafter shall have any further rights
        or obligations hereunder.

                      (f) Questar Capacity. As soon after the Closing as is
         reasonably practical, Seller shall permanently release to Buyer and
         Buyer shall assume all of Seller's capacity on the Questar Pipeline
         Southern System Expansion pursuant to the Precedent Agreement for Firm
         Transportation Service between Calpine Corporation and Questar Pipeline
         Company dated March 28, 2003 (the "Precedent Agreement"). Buyer shall
         undertake all steps necessary to become a qualified replacement shipper
         on Questar Pipeline Company's Southern System on the same terms and
         conditions set forth in the Precedent Agreement.

                      (g) Post-Closing Access. Except as otherwise expressly
        provided herein, from and after the Closing Date, Buyer and Seller shall
        reasonably cooperate and afford each other or cause to be afforded to
        their respective officers, employees, accountants and other
        representatives access, upon reasonable notice, during business hours
        with respect to that portion of the Assets to which access has been
        requested, to review and copy the books, documents, databases or other
        records relating to the Assets, but excluding those documents subject to
        Third Party confidentiality obligations or subject to the
        attorney-client privilege or otherwise excluded from the definition of
        Assets (which books, documents, databases, records, or employees files
        or other information the Parties shall cooperate and assist one another
        in identifying and locating), interview, depose or seek testimony of
        employees, provide assistance in proceedings with employees as witnesses
        or advisors, investigate the physical premises, take photographs or
        videotapes, identify employees and contractors with knowledge of any
        matter which is the subject of a claim for which a Party has
        responsibility and make such employees available to such Party and
        provide reasonable office space to do any of the foregoing in connection
        with any matter affecting or alleged to affect the Party requesting such
        access. Without limiting the foregoing, Seller shall provide Buyer with
        unaudited accounting information as Buyer may reasonably request in
        order to prepare its financial statements, which information shall be
        audited by Buyer or its designee. Notwithstanding the foregoing, access
        to Tax records shall be governed by Part Five.

                                       23
<PAGE>

                     (h) Final Recapitulation Settlement. On or before ninety
         (90) days after Closing ("Final Settlement Date"), Seller shall deliver
         to Buyer a final statement (the "Final Recapitulation Statement"),
         which shall set forth all of the adjustments to the Purchase Price
         called for in this Section 4.3(h) ("Final Recap Amount").

                                (1) Seller Adjustments. The Final Settlement
                        Statement shall incorporate the following adjustments in
                        favor of Seller:

                                            (a) If appropriate, the proceeds,
                                       net to Seller's net revenue interest,
                                       received from any and all merchantable
                                       liquids in sales tanks above the pipeline
                                       connections on the Effective Date that is
                                       credited to the Assets, less any Taxes
                                       required to be withheld by the purchaser
                                       of such.

                                            (b) If appropriate, the proceeds,
                                       net to Seller's net revenue interest,
                                       received for any and all natural gas
                                       produced and credited to the Assets as of
                                       the Effective Date.

                                            (c) An amount equal to all capital
                                       costs, expenses, and any Taxes that are
                                       paid by Seller, and that are, in
                                       accordance with generally accepted
                                       accounting principles, attributable to
                                       the Assets from and after the Effective
                                       Date, including, without limitation:

                                                     (i) royalties, rentals or
                                            other similar charges;

                                                     (ii) expenses paid by or on
                                            behalf of Seller under applicable
                                            operating agreements and, in the
                                            absence of an operating agreement,
                                            expenses of the sort customarily
                                            billed under such agreements; and

                                                     (iii) ad valorem, property
                                            and other Taxes and assessments (but
                                            not including income Taxes) based
                                            upon or measured by the ownership of
                                            the Property or the production of
                                            Hydrocarbons or the receipt of
                                            proceeds therefrom. For the purposes
                                            of this Agreement ad valorem taxes
                                            shall be prorated as of the
                                            Effective Date in the manner
                                            provided in Section 5.1(a).

                                                     (iv) amounts paid by Seller
                                            with respect to surety bonds,
                                            performance bonds or other financial
                                            assurances pursuant to Section
                                            4.2(a); and

                                       24
<PAGE>

                                            (d) Any other adjustments in favor
                                       of Seller as provided for in this
                                       Agreement.

                                (2) Buyer Adjustments. The Final Settlement
                        Statement shall incorporate adjustments in favor of
                        Buyer:

                                            (a) to the extent not already
                                    remitted to Buyer pursuant to Section
                                    4.3(p), the proceeds received for any and
                                    all merchantable liquids below the pipeline
                                    connections on the Effective Date that is
                                    credited to the Assets less any Taxes
                                    required to be withheld by the purchaser of
                                    such.

                                            (b) to the extent not already
                                    remitted to Buyer pursuant to Section
                                    4.3(p), the actual sales price received by
                                    Seller from any and all natural gas proceeds
                                    and credited to the Assets after the
                                    Effective Date; and

                                            (c) Any other adjustments in favor
                                    of Buyer as provided for in this Agreement.

                                (3) Buyer shall have the right, within fifteen
                        (15) days after receipt of the Final Recapitulation
                        Statement, to audit and object to such statement. If
                        Buyer objects to the Final Recapitulation Statement in
                        writing within the fifteen (15) day period, Buyer and
                        Seller shall attempt to resolve such objections within
                        fifteen (15) days after receipt of said objection. If
                        the Parties are unable to resolve such objections within
                        the fifteen (15) day period, then either Party shall
                        have the right thereafter to submit the matter to
                        arbitration pursuant to the terms of the Dispute
                        Resolution Procedure attached as Schedule 10.12 for
                        determination of the Final Recap Amount.

                                (4) Payment of the undisputed portion of the
                        Final Recap Amount is due fifteen (15) days after the
                        Final Recapitulation Statement is received by Buyer.
                        Payment of the Final Recap Amount, less any amounts
                        previously paid, is due fifteen (15) days from receipt
                        of the Final Recapitulation Statement, or ten (10) days
                        from the determination of the Final Recap Amount under
                        the Dispute Resolution Procedure, whichever is later.
                        Interest will be applied at the Agreed Rate to any
                        amounts if not paid when due.

                     (i) Audit Rights. Within one year after the Closing Date,
         each of Seller and Buyer may, at its own expense and by appointment
         only, audit the other Party's

                                       25
<PAGE>

        books, accounts and records relating to such production proceeds,
        capital costs, Taxes, Expenses and Burdens relating to this transaction.
        Such audit shall be conducted so as to cause a minimum of inconvenience
        to the audited Party.

                      (j) Further Assurances. Each Party shall, from time to
        time at the request of the other, and without further consideration,
        execute and deliver such other instruments of sale, transfer,
        conveyance, assignment, clarification and termination and take such
        other action as the Party making the request may reasonably require to
        effectuate the intentions of the Parties, including those reasonably
        required to sell, transfer, convey and assign to and vest in Buyer, and
        to place Buyer in possession of the Assets and to transfer, assign or
        convey the excluded Assets to Seller and to fulfill Seller's obligations
        under this Agreement. Seller intends to convey the Assets at Closing;
        however, in the event it is determined after Closing that: (i) any part
        of the Assets was not in fact conveyed to Buyer, and that the title to
        any part of the Assets is incorrectly in the name of Seller; (ii) any
        excluded Asset is conveyed to Buyer and that the title to such excluded
        Asset is incorrectly in the name of Buyer; then each Party shall take
        all such action necessary to correctly convey any part of Assets to
        Buyer, or any part of the excluded assets to Seller.

                      (k) Affiliates Access. Seller and its Affiliates shall
        have a non-exclusive right of access to and over the Fee Interests,
        Leases and Easements, after notice to Buyer, reasonably necessary to
        operate, maintain or remove any facilities or personal property in
        existence and owned or operated by such Affiliates on the Effective Date
        that is not included in the Assets.

                      (l) Files Transfer. Originals (or copies if originals are
        not in possession of Seller) of all non-privileged and non-confidential
        files, contracts, and documents, including those in electronic form,
        affecting title to the Assets which are in Seller's possession shall be
        shipped, using reasonable efforts, to Buyer within thirty (30) days
        after Closing. Buyer shall designate the method of shipment and the
        carrier far enough in advance to allow for timely shipment and shall be
        solely responsible for the cost and expense of shipment and for any
        Losses occurring as a result of such shipment. In the event Buyer has
        not provided for shipment within a reasonable time, then Seller may
        arrange and pay for shipment to Buyer; in such event, Buyer shall
        reimburse Seller for all expenses associated with such shipment within
        thirty (30) days of Seller's request for reimbursement.

                      (m) Copies. Copies of all non-privileged and
        non-confidential books, records, production records, logs (originals if
        in possession of Seller), well files (originals if in possession of
        Seller), information, and engineering data relating to the Assets,
        including those in electronic form, (except information and data
        excluded from the definition of Assets), shall be shipped, using
        reasonable efforts, to Buyer within thirty (30) days after Closing.

                                       26
<PAGE>

                      (n) Assumption of Operatorship. Unless otherwise agreed to
         by the Parties and subject to the terms and conditions of all
         applicable Contracts, Buyer shall assume Seller's obligations for
         operatorship of any Seller operated Assets conveyed herein at 7:00 a.m.
         on the first Business Day following the Closing, and thereafter shall
         perform all duties required in the course of business, including
         without limitation, paying Burdens and severance Taxes, pumping and
         gauging wells, marketing Hydrocarbons, working over wells, drilling new
         wells, filing all necessary reports required by Applicable Law or
         otherwise, and performing maintenance or repair work on the Assets
         until such time as a successor operator is duly elected pursuant to any
         applicable Contract. Seller shall cooperate with Buyer in the
         transition of Buyer's assumption of Seller's obligations for
         operatorship pursuant to this Section 4.3(n), including but not limited
         to coordinating with Buyer with respect to the receipt of revenue and
         the timing of payments. Notwithstanding the foregoing, Seller does not
         warrant or guarantee that Buyer shall succeed Seller as operator.

                      (o) Assumption of Gas Imbalances. Buyer agrees to assume
         and bear any and all gas imbalances with respect to the Assets that are
         in effect on the Effective Date and set forth on Schedule 3.1(o). Buyer
         understands that the existence of a gas imbalance in the form of
         overproduction may result in a cash payment by Buyer or in Buyer's
         inability to further produce and sell gas. Further, to the extent any
         of the Wells are underproduced, there are no warranties that any rights
         of makeup or cash payment exist with respect to such underproduction.
         WITHOUT LIMITATION OF ANY OTHER PROVISION CONTAINED HEREIN, BUYER
         HEREBY SPECIFICALLY RELEASES SELLER FROM, AND AGREES TO FULLY DEFEND,
         PROTECT, INDEMNIFY AND HOLD HARMLESS SELLER, ITS AFFILIATES AND THEIR
         RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES,
         FROM AND AGAINST EACH AND EVERY LOSS THAT MAY BE ASSERTED BY ANY THIRD
         PERSON, RELATING TO GAS IMBALANCES RESPECTING THE WELLS CONVEYED
         WHETHER ARISING UNDER THE TERMS OF ANY GAS BALANCING OR OTHER SIMILAR
         AGREEMENT, BY OPERATION OF APPLICABLE LAW OR OTHERWISE. Buyer
         represents that it has independently investigated, to its satisfaction,
         the gas balancing account associated with the Assets.

         On or before the date that the Final Recapitulation Statement is due,
         Seller and Buyer shall, based upon data available at that time,
         determine (a) the total amount of overproduction of gas attributable to
         Seller's interest (e.g. volumes of gas taken from the Properties, or on
         lands unitized therewith, by Seller in excess of those volumes which
         Seller's interest would be entitled to receive) and (b) the total
         amount of underproduction of gas attributable to Seller's interest
         (e.g. volumes of gas not taken from the Properties, or on lands
         unitized therewith, by Seller despite Seller's interest in and right to
         receive such volumes). If the total amount of overproduction (as so
         determined) exceeds the total amount of underproduction (as so
         determined) Buyer shall receive a credit against the Purchase Price
         equal to the actual price per Mcf received by Seller for July 2004
         production times such

                                       27
<PAGE>

        excess. If the total amount of underproduction (as so determined)
        exceeds the total amount of overproduction (as so determined) Buyer
        shall in addition to the amount of Purchase Price payable, pay to Seller
        an amount equal to the actual price per Mcf received by Seller for July
        2004 production times such excess.

                      (p) Post-Closing Proceeds. Following the Closing, Seller
         shall remit to Buyer, within five (5) business days of Seller's receipt
         thereof, the net proceeds actually received by Seller for the sale of
         Hydrocarbons attributable to the Assets for the production months
         subsequent to the Effective Date.

                                    PART FIVE

                                      TAXES

        Section 5.1 Payment and Apportionment of Real Property Taxes and
Personal Property Taxes. With respect to Taxes:

                      (a) 2004 Taxes. All property Taxes accruing during the Tax
        year in which the Effective Date occurs with respect to ownership of the
        Assets or production from the Assets during the period from January 1 of
        such year up to the Effective Date and regardless of when payable,
        including, without limitation, ad valorem Taxes, benefit assessments,
        and special assessments, shall be allocated to the Seller and all such
        Taxes accruing on and after the Effective Date through the end of such
        Tax year shall be allocated to the Buyer. Any Taxes determined by the
        value of any production shall be deemed to be attributable to the period
        during which such production occurred and not attributable to the year
        in which such Taxes are assessed. Buyer shall pay such Taxes to the
        appropriate taxing authorities. Seller shall be charged for and shall
        reimburse Buyer for the Seller's allocated share of property Taxes paid
        or to be paid by Buyer.

                      (b) 2003 Taxes. All real property Taxes and personal
        property Taxes imposed as a result of ownership of the Assets at any
        time during 2003 shall be paid by Seller.

                      (c) 2005 Taxes. All real property Taxes and personal
        property Taxes imposed as a result of ownership of the Assets at any
        time during 2005 shall be paid by Buyer.

        Section 5.2 Sales Taxes. The Purchase Price does not include any sales
Taxes or other transfer Taxes imposed in connection with the sale of the Assets.
Buyer shall reimburse Seller for or otherwise pay any sales Tax or other
transfer Tax, as well as any applicable conveyance, transfer and recording fee,
and real estate transfer stamps or Taxes imposed on the transfer of the Assets
pursuant to the Agreement. If Buyer is of the opinion that it is exempt from the
payment of any

                                       28
<PAGE>

such sales Tax or other transfer Tax in connection with the purchase of the
Assets, Buyer shall furnish to Seller the appropriate Tax exemption
certification. Sales and other transfer Taxes shall be accounted for pursuant to
Section 4.3(h).

        Section 5.3 Other Taxes. All excise, windfall profit and other Taxes
(other than income Taxes) relating to production of Hydrocarbons prior to the
Effective Date shall be paid by Seller, and all such Taxes relating to such
production on or after the Effective Date shall be paid by Buyer.

        Section 5.4 Cooperation. For the period ending on the seventh
anniversary of the Closing Date, each Party to the Agreement shall provide the
other Party with reasonable access to all relevant documents, data and other
information which may be required by the other Party for the purpose of
preparing Tax returns, establishing or defending a Tax position and responding
to any audit by any taxing jurisdiction. Each Party to the Agreement shall
cooperate with all reasonable requests of the other Party made in connection
with contesting the imposition of Taxes. Notwithstanding anything to the
contrary in the Agreement, neither Party to the Agreement shall be required at
any time to disclose to the other Party any Tax returns or other confidential or
privileged Tax information.

        Section 5.5 Tax Proceedings. In the event Buyer receives notice of any
examination, claim, adjustment or other proceeding relating to the liability for
Taxes of or with respect to Seller for any period Seller is or may be liable
under the Agreement, Buyer shall within ten (10) days notify Seller in writing
thereof. As to any such Taxes for which Seller is or may be liable under the
Agreement, and Seller does not contest such liability as against Buyer, Seller
shall be entitled at Seller's expense to control or settle the contest of such
examination, claim, adjustment or other proceeding, provided Seller notifies
Buyer in writing within thirty (30) days after receipt of the notice described
in the preceding sentence that Seller desires to do so. The Parties shall
cooperate with each in the negotiations and settlement of any proceeding
described in this Section 5.5. Buyer shall provide, or cause to be provided, to
Seller necessary authorizations, including powers of attorney, to control any
proceeding which Seller is entitled to control pursuant to this Part Five to the
extent that Seller is so entitled to control such proceeding.

        Section 5.6 Purchase Price Allocation. The allocation of Purchase Price
provided for in Section 2.3 is intended to comply with the allocation method
required by Section 1060 of the Code. Buyer and Seller shall cooperate to comply
with all substantive and procedural requirements of Section 1060 and regulations
thereunder, including without limitation the filing by Buyer and Seller of an
IRS Form 8594 with their federal income Tax returns for the taxable year in
which the Closing occurs. Buyer and Seller agree that each will not take for
income Tax purposes, or permit any Affiliate to take, any position inconsistent
with the allocation of Purchase Price prescribed in Section 2.3.

                                       29
<PAGE>

                                    PART SIX

                              ENVIRONMENTAL MATTERS

        6.1 Phase I Environmental Assessment. Beginning on the date of this
Agreement and ending on August 20, 2004 (the "Review Period"), Buyer shall have
the right, at its sole cost, risk and expense, to conduct an environmental
assessment of the Assets. During normal business hours and after providing
Seller reasonable prior notice of any such activities, Buyer and its
representatives shall be permitted to enter upon the Assets operated by Seller
and all buildings and improvements thereon, inspect the same, review all of
Seller's non-privileged and non-confidential files and records related to the
Assets and generally conduct such tests, examinations, and investigations as are
consistent with the American Society for Testing and Materials standard Phase I
environmental audit. Seller will have the right to (i) observe such
investigation and (ii) promptly receive a copy of all results, analyses and
reviews. All information obtained or reviewed by Buyer shall be maintained
confidential pursuant to the Confidentiality Agreement, which shall continue in
force under its terms.

        6.2 Environmental Defect Notice. Buyer shall notify Seller in writing of
any Environmental Conditions (an "Environmental Defect Notice(s)") on or before
August 20, 2004. The Environmental Defect Notice shall state with reasonable
specificity: (i) the Property affected or on which the Asset is located; (ii) a
complete description of the Environmental Condition claimed; (iii) Buyer's good
faith estimate of the cost of Remediation of such Environmental Condition (the
"Environmental Defect Value"); and (iv) appropriate documentation substantiating
Buyer's claim. Buyer shall conclusively be deemed to have waived any
Environmental Condition not asserted by an Environmental Defect Notice on or
before August 20, 2004 (the "Environmental Notice Deadline").

        6.3 Seller's Election. For any Environmental Conditions asserted in an
Environmental Defect Notice(s), Seller shall have the option of (i) Remediating
the Environmental Condition, (ii) contesting the existence of the Environmental
Condition or the Environmental Defect Value, (iii) paying the Environmental
Defect Value as an adjustment to the Purchase Price subject to the limitations
set forth below, or (iv) excluding the affected Property and reducing the
Purchase Price by the value allocated to the Property. Seller shall notify Buyer
in writing of its election no more than five (5) days following its receipt of
an Environmental Defect Notice.

                       (a) If Seller elects to Remediate an Environmental
        Condition, Seller shall give written notice of such an election to Buyer
        no more than five (5) days after receipt of the Environmental Defect
        Notice, together with Seller's proposed plan and timing for such
        Remediation and Seller shall remain liable for all Losses arising out of
        or in connection with such Environmental Condition until such time as
        the Remediation is completed.

                                       30
<PAGE>

                      (b) If Seller contests the existence of an Environmental
        Defect or the Environmental Defect Value, then Seller shall so notify
        Buyer in writing no more than five (5) days after receipt of the
        Environmental Defect Notice ("Environmental Rejection Notice"). The
        Environmental Rejection Notice shall state with reasonable specificity
        the basis of Seller's rejection of the Environmental Defect or the
        Environmental Defect Value. Within ten (10) days of Buyer's receipt of
        the Environmental Rejection Notice, representatives of Buyer and Seller,
        knowledgeable in environmental matters, shall meet and, within twenty
        (20) days after Buyer's receipt of such Environmental Rejection Notice,
        either: (i) agree to mutually reject the particular Environmental Defect
        Notice, or (ii) agree on the validity of such Notice including the
        Environmental Defect Value, in which case Seller shall have sixty (60)
        days after the date of such agreement within which to elect in writing
        to Remediate the Environmental Condition pursuant to Section 6.2(a)
        above or to pay Buyer the Environmental Defect Value pursuant to Section
        6.2 (c) above. If the Parties cannot agree on either options (i) or (ii)
        in the preceding sentence, the dispute shall be submitted to arbitration
        in accordance with the procedures set forth in Section 10.12. In such
        case, Seller shall have five (5) days following the final decision of
        the arbitration panel to notify Buyer in writing of its election to
        Remediate the Environmental Defect or to pay the Buyer the Environmental
        Defect Value.

                      (c) In the event a contested Environmental Defect cannot
        be resolved prior to Closing, Seller shall convey the affected Property
        to Buyer and Buyer shall pay for the Property at Closing in accordance
        with the Agreement as though there were no Environmental Defect, subject
        to Seller's obligations as set forth above upon resolution of the
        contested matter.

                      (d) If the Purchase Price is adjusted pursuant to Section
        6.2(iii) above, or if Buyer waives an Environmental Condition pursuant
        to Section 6.2 above or otherwise, Buyer shall assume all Losses
        associated with such Environmental Condition(s).

        Section 6.4 Covenant of Cooperation. The Parties shall cooperate fully
with each other and act in good faith in implementing Part Six, including but
not limited to the following:

                      (a) sharing with the other Party in a timely manner all
        material, non-privileged, non-confidential correspondence received from
        any Affiliate or Third Person that is relevant to such an Environmental
        Condition for which a Party is responsible pursuant to this Part Six;

                      (b) affording the other Party timely access to and an
        opportunity to comment on (both draft and final versions) any material
        non-privileged, non-confidential correspondence to Affiliates or Third
        Persons, study protocols and results, drawings, charts

                                       31
<PAGE>

        remediation plans or reports, or other documentation relating to an
        Environmental Condition for which a Party is responsible pursuant to
        this Part Six;

                      (c) providing the other Party timely notice of and an
        opportunity to attend and participate in any meetings or hearing with
        Governmental Bodies or courts relating to any Environmental Condition
        for which a Party is responsible pursuant to this Part Six;

                      (d) preparing all material strategies and plans affecting
        any matter with respect to which the other Party may have liability
        hereunder or that may affect the future operations of the other Party in
        consultation with the other Party using appropriate cost-effective
        technology and clean-up criteria, including risk-based clean-up
        standards where permitted, in accordance with Applicable Law;

                      (e) permitting each other post-Closing access, as
        described in Section 4.3(h); and

                      (f) cooperating with each other to assist in the
        collection of any amounts that may be collectible from joint interest
        owners to offset Buyer's and Seller's liabilities pursuant to Part Six;

        Section 6.5 Post-Closing Access. After the Closing with prior consent of
Buyer (which consent shall be timely given and shall not be unreasonably
withheld) and, where required, the prior written consent of any operator and
landowner of any affected Property, Seller and Seller's agents and
representatives shall have the right to enter onto the affected Property during
normal business hours for the purpose of conducting any environmental
inspection, audit, test, Remediation, or any other purpose deemed necessary by
Seller for purposes of fulfilling its responsibilities under Part Six. Buyer
shall use its reasonable efforts to obtain for Seller any consent required from
any Third Person (including but not limited to the operator and landowner) to
obtain such access.

        Section 6.6 Limitation. Payments of the Environmental Defect Values
shall be made by Seller to Buyer as an adjustment to the Purchase Price at
Closing if then determined or if not determined as of the Closing, thereafter,
consistent with the time frames set forth above. Notwithstanding the provisions
of Sections 6.2 and 6.3, no adjustment to the Purchase Price for Environmental
Defect Values pursuant to Section 6.2(b) shall be made unless and until the
aggregate value of all such Values (the "Aggregate Environmental Defect Value")
exceeds a deductible (not a threshold) equal to One Million Dollars
($1,000,000). If the Environmental Defect Value with respect to any single
Environmental Condition is less than $5,000, such cost shall not be considered
in calculating the Aggregate Environmental Defect Value. In the event the
Aggregate Environmental Defect Value exceeds ten percent (10%) of the Purchase
Price, either Seller or Buyer may terminate this Agreement upon written notice
to the other, and neither Party thereafter shall have any further rights or
obligations hereunder.

                                       32
<PAGE>

        Section 6.7 Exclusive Remedies. The rights and remedies granted each
Party in Part Six are exclusive rights and remedies against the other Party
related to any Environmental Condition, or Losses related thereto and the other
matters contained in this Part Six, and, EXCEPT AS PROVIDED IN PART 8, EACH
PARTY EXPRESSLY WAIVES ANY AND ALL OTHER RIGHTS AND REMEDIES WHICH IT MAY HAVE
AGAINST THE OTHER PARTY REGARDING ENVIRONMENTAL CONDITIONS, WHETHER FOR
CONTRIBUTION, INDEMNITY OR OTHERWISE, REGARDLESS OF THE FAULT OR NEGLIGENCE OF
THE CLAIMING PARTY, INCLUDING STRICT OR STATUTORY LIABILITY OF THAT PARTY UNDER
ANY APPLICABLE LAW.

                                   PART SEVEN

                                  TITLE MATTERS

        Section 7.1 Confidentiality Agreement. During the Review Period, Buyer
upon written request and at Buyer's sole cost and expense, may inspect and
review all of Seller's non-privileged and non-confidential files, records, and
similar materials relating to the Fee Interests, Leases, Beneficial Interests
and Contracts. All information made available to Buyer and designated by Seller
as confidential or proprietary shall be maintained confidential pursuant to the
Confidentiality Agreement, which shall continue in force under its terms.

         Section 7.2 Preferential Purchase Rights. Seller shall have a period of
sixty (60) days from the date of the Agreement to resolve preferential purchase
rights to the Properties set forth on Schedule 7.2. To the extent any
preferential purchase rights are exercised by any Third Person entitled to
exercise such rights, or waivers thereof, are not obtained prior to the Closing
Date, then the Properties subject to such preferential purchase rights shall not
be sold to Buyer and shall be excluded from the Agreement. The Purchase Price
shall be adjusted by the dollar value allocated to the Properties subject to
such preferential purchase right set forth in Schedule 2.3. In the event any
Third Person initially elects to exercise a particular preferential right, but
subsequently refuses or elects not to consummate the purchase under the
preferential right (whether such failure occurs before or after the Closing
Date), the Parties agree that Buyer shall purchase such interests covered by the
preferential right in accordance with the values set forth in Schedule 2.3 and
the closing of such transaction shall take place on a date designated by Seller
not more than ninety (90) days after the Closing Date.

        Section 7.3 Required Consents. If Seller shall fail to obtain any
consent or waiver of maintenance of uniform interest provision required for the
transfer of any Property, Seller's failure shall be handled as follows:

                                       33
<PAGE>

                      (a) If the holder of the right to consent or party to a
        maintenance of uniform interest provision affirmatively refuses to
        consent or waive prior to Closing, such refusal shall be considered a
        Title Defect under this Part Seven and the Title Indemnity Payment
        therefor shall equal the value (or portion thereof) allocated to the
        affected Property (or portion thereof) in Schedule 2.3.

                      (b) Except for approvals from Governmental Bodies normally
        received subsequent to assignment, if Seller believes a consent or
        waiver may be obtained subsequent to Closing, the Property shall be held
        by Seller for the benefit of Buyer after Closing and Seller shall
        provide Buyer with the economic benefits thereof until such consent or
        waiver is received or until ninety (90) days following Closing, if
        later, and Buyer shall pay for the Property at Closing in accordance
        with the Agreement as though the consent or waiver had been obtained. If
        Seller obtains the consent or waiver on or before ninety (90) days
        following Closing, then Seller shall deliver conveyances of the Property
        to Buyer. If the consent or waiver is not obtained or is affirmatively
        refused on or before ninety (90) days following Closing, Seller shall
        refund the value allocated to the affected portion of the Property to
        Buyer less any net revenues (revenues net of costs and Burdens) received
        by Buyer in connection with such affected portion of the Property and
        Seller's holding for the benefit of Buyer shall terminate.

        Section 7.4 Title Defects. Buyer shall notify Seller in writing of any
Title Defects ("Title Defect Notice(s)") on or before August 25, 2004. The Title
Defect Notice shall state with reasonable specificity: (i) the Property or Lease
affected; (ii) the particular Title Defect claimed; (iii) Buyer's good faith
estimate of the amount the Title Defect reduces the value allocated to the
affected Property or Lease on Schedule 2.3 (the "Defect Value"); and (iv)
appropriate documentation substantiating Buyer's claim. For purposes of this
Part Seven, the value allocated to an affected Lease for an undeveloped parcel
listed on Schedule 2.3 shall be the aggregate amount shown on Schedule 2.3 for
the 40-acre governmental quarter-quarter section, which amount is equal to the
sum of the two adjacent 20-acre parcels shown on Schedule 2.3 comprising the
40-acre governmental quarter-quarter section. Buyer shall conclusively be deemed
to have waived any Title Defects not asserted by a Title Defect Notice on or
before on or before August 25, 2004. For all Title Defects asserted in Title
Defect Notices, Seller shall have the option of (a) curing the Title Defect, (b)
contesting the Title Defect or Buyer's good faith estimate of the Defect Value,
(c) paying Buyer's good faith estimate of the Defect Value as an adjustment to
the Purchase Price subject to the limitations set forth below (a "Title
Indemnity Payment"), or (d) excluding the affected Property or Lease and
reducing the Purchase Price by the value allocated to such Property or Lease.
Seller shall notify Buyer in writing of its election no more than five (5) days
following its receipt of a Title Defect Notice.

        Section 7.5 Seller's Right to Cure. If Seller elects to cure a Title
Defect, then Seller shall so notify Buyer in writing within five (5) days after
receipt of the particular Title Defect Notice ("Cure Notice"). Within sixty (60)
days after receipt of the Title Defect Notice, Seller shall either

                                       34
<PAGE>

cure the Title Defect to the reasonable satisfaction of Buyer ("Cure") or if
Seller is unable to Cure such Title Defect, make a Title Indemnity Payment for
such Title Defect equal to Buyer's good faith estimate of the Defect Value set
forth in the Title Defect Notice.

        If Seller is unable to Cure a Title Defect prior to Closing, Seller
shall convey the Property or Lease to Buyer and Buyer shall pay for the Property
or Lease at Closing in accordance with the Agreement as though the Title Defect
had been Cured, subject to Seller's obligation to make a Title Indemnity Payment
to Buyer less any net revenues (revenues net of costs and Burdens) received by
Buyer in connection with the affected portion of the Property or Lease if the
Title Defect cannot be Cured during the sixty (60) days following receipt of the
Title Defect Notice.

        Section 7.6 Contested Title Defects. If Seller contests the existence of
a Title Defect or Buyer's good faith estimate of the Defect Value, then Seller
shall so notify Buyer in writing no more than five (5) days after Seller's
receipt of the Title Defect Notice ("Rejection Notice"). The Rejection Notice
shall state with reasonable specificity the basis of Seller's rejection of the
Title Defect or Buyer's good faith estimate of the Defect Value. Within thirty
(30) days of Buyer's receipt of the Rejection Notice, representatives of Buyer
and Seller, knowledgeable in title matters, shall meet and, within ten (10) days
after Buyer's receipt of such Rejection Notice, either: (i) agree to mutually
reject the particular Title Defect, or (ii) agree on the validity of such Title
Defect and the Defect Value, in which case Seller shall have sixty (60) days
after the date of such agreement within which to Cure such Title Defect and
failing such Cure, to make the Title Indemnity Payment therefore. If the Parties
cannot agree on either options (i) or (ii) in the preceding sentence, the Title
Defect or the Defect Value subject to the Rejection Notice shall be submitted to
arbitration in accordance with the procedures set forth in Section 10.12. If
Seller fails to timely deliver a Rejection Notice or a Cure Notice, Seller shall
be deemed to have accepted the validity of the Title Defect and Buyer's good
faith estimate of the Defect Value, and shall pay Buyer a Title Indemnity
Payment for the Title Defect equal to the Defect Value within sixty (60) days of
Seller's receipt of the applicable Title Defect Notice.

        In the event a contested Title Defect cannot be resolved prior to
Closing, Seller shall convey the affected Property or Lease to Buyer and Buyer
shall pay for the Property at Closing in accordance with the Agreement as though
there were no Title Defect, subject to Seller's obligations as set forth in this
Section 7.6 to Cure or to make a Title Indemnity Payment to Buyer less any net
revenues (revenues net of costs and Burdens) received by Buyer in connection
with the affected Property or Lease.

        Section 7.7 Title Indemnity Payments. Title Indemnity Payments shall be
made by Seller to Buyer as an adjustment to the Purchase Price at Closing if
then determined or if not determined as of the Closing, thereafter, consistent
with the time frames set forth above. Notwithstanding the provisions of Sections
7.3, 7.4, 7.5 and 7.6, Seller is obligated to make a Title Indemnity Payment
only if the aggregate Defect Value of all Title Defects that Seller has agreed
to pay pursuant to Section 7.4 or which is resolved pursuant to Section 7.6 (the
"Aggregate Title Defect Value")

                                       35
<PAGE>

exceed a deductible (not a threshold) equal to One Million Dollars ($1,000,000).
If the Defect Value for any single Property or Lease is less than $5,000, such
value shall not be considered in calculating the Aggregate Title Defect Value.
If a Defect Value is not liquidated or certain in amount, the Defect Value shall
be the amount necessary to compensate Buyer for the adverse economic effect on
the Property or Lease, taking into account all relevant factors, including
without limitation, the Property or Leases's allocated value, the time value of
money, the practical and legal effect of the Title Defect, and the amount of
reduction in Net Revenue Interest or increase in the Working Interest of the
affected Property or Lease. The aggregated Defect Value(s) for any Property
shall never exceed the value allocated to such Property in Schedule 2.3. In the
event the Aggregate Title Defect Value exceeds ten percent (10%) of the Purchase
Price either Buyer or Seller may terminate this Agreement upon written notice to
the other, and neither Party thereafter shall have any further rights or
obligations hereunder.

        Section 7.8 Interest Additions. If Seller discovers an increase in the
Net Revenue Interest shown on Schedule H with respect to a Property Interest or
on Schedule 2.3 with respect to a Lease which is free of Title Defects (an
"Interest Addition"), then Seller shall, from time to time and without
limitation, have the right to give Buyer written notice of such Interest
Additions ("Interest Addition Notice"), as soon as practicable but no less than
five (5) days before Closing, stating with reasonable specificity the Property
or Lease affected, the particular Interest Addition claimed, and Seller's good
faith estimate of the amount the Additional Interest increases the value of the
affected Property or Lease over and above the value allocated to such Property
or Lease in Schedule 2.3 ("Interest Addition Value"). Seller shall conclusively
be deemed to have waived any additional interest not asserted by an Interest
Addition Notice on or before five (5) days prior to Closing. If Buyer agrees
with the existence of the Additional Interest and Seller's good faith estimate
of the Interest Addition Value, then the Interest Addition Value shall be
applied as an offset to any Title Indemnity Payment required of Seller
("Offset"). If the Interest Addition Value exceeds the amount of any Title
Indemnity Payment(s) due Buyer, the amount of such difference (an "Interest
Addition Payment") shall be paid by Buyer to Seller as an adjustment to the
Purchase Price at Closing. If Buyer contests the existence of the Interest
Addition or Seller's good faith estimate of the Interest Addition Value, then
Buyer shall so notify Seller in writing within ten (10) days after Buyer's
receipt of the Interest Addition Notice ("Interest Addition Rejection Notice").
The Interest Addition Rejection Notice shall state with reasonable specificity
the basis of Buyer's rejection of the Additional Interest or Buyer's good faith
estimate of the Interest Addition Value. Within ten (10) days of Seller's
receipt of the Interest Addition Rejection Notice, representatives of Buyer and
Seller, knowledgeable in title matters, shall meet and, within sixty (60) days
after Seller's receipt of such Interest Addition Rejection Notice, either (a)
agree to mutually reject the Interest Addition in which case Seller shall waive
the Interest Addition, or (b) agree on validity of such Interest Addition and
the Interest Addition Value, in which case Seller shall be entitled to an Offset
or Interest Addition Payment. If the Parties cannot agree on either option (a)
or (b) in the preceding sentence, the Interest Addition subject to the Interest
Addition Rejection Notice shall be submitted to arbitration in accordance with
the procedures set forth in Section 10.12. If Buyer fails to timely deliver an
Interest Addition Rejection Notice, Buyer shall be deemed to have accepted the
validity

                                       36
<PAGE>

of the Interest Addition and Seller's good faith estimate of the Interest
Addition Value, and Seller shall be entitled to an Offset or Interest Addition
Payment as described above.

        Section 7.9 Reconveyance. If Seller makes a payment for Title Defect
pursuant to Part Seven for one hundred percent (100%) of the Defect Value, Buyer
shall, at Seller's sole option to be exercised no later than sixty (60) days
after such payment, reconvey to Seller the Property or Lease or portion of the
Property or Lease, and all proceeds accruing thereto, with respect to which the
Title Indemnity Payment was made (effective as of the Effective Date).

                                   PART EIGHT

                                    INDEMNITY

        Section 8.1   General Indemnification.  Buyer and Seller agree that:

                      (a) Seller. Except with respect to Taxes (which are
        covered by Part Five), and title matters (which are covered by Part
        Seven) Seller shall indemnify, defend and hold harmless Buyer, its
        Affiliates and its and their respective officers, directors, agents and
        employees from and against all Losses based upon, arising out of, in
        connection with, or relating to:

                                (i) any breach of any representation, warranty,
                        covenant or agreement of Seller contained in the
                        Agreement;

                                (ii) except for the Assumed Liabilities, any
                        matter arising in connection with the ownership or
                        operation of the Assets prior to the Effective Date;

                                (iii) all actions, proceedings, claims,
                        litigation, arbitration, mediation or other dispute
                        resolution procedure pending or to the Actual Knowledge
                        of Seller threatened, as of the Effective Date relating
                        to or affecting the Assets;

         and for which Buyer has submitted a Claim Notice within one (1) year
         following the Closing Date in compliance with Section 8.2.
         NOTWITHSTANDING THE FOREGOING, SELLER'S FINANCIAL OBLIGATIONS UNDER
         THIS SECTION 8.1(a) SHALL NOT EXCEED, IN THE AGGREGATE, AN AMOUNT EQUAL
         TO FIFTY PERCENT (50%) OF THE PURCHASE PRICE AS ADJUSTED PURSUANT TO
         SECTION 2.2.

                      (b) Buyer. Except with respect to Taxes (which are covered
         in Part Five), Buyer shall indemnify, defend and hold harmless Seller,
         its Affiliates and its and their

                                       37
<PAGE>

        respective officers, directors, agents and employees from and against
        all Losses based upon, arising out of, in connection with, or relating
        to:

                                (i) any breach of any representation, warranty,
                        covenant or agreement of Buyer contained in the
                        Agreement;

                                (ii) if the Closing occurs, any matter arising
                        in connection with the ownership or operation of the
                        Assets from and after the Effective Date;

                                (iii) Buyer's inspection of the Assets as set
                        forth in Section 3.2(g) and 4.1(a);

                                (iv) any claims asserted by Third Persons
                        against Seller in reliance on any interpretive data
                        conveyed by Seller to Buyer, to the extent such claims
                        arise as a consequence of Buyer's disclosure of such
                        data; and

                                (v) If Closing occurs, Losses attributable to
                        claims against Seller's bonds or similar instruments
                        that remain in place after the Closing pursuant to
                        Section 4.2;

                                (vi) if the Closing occurs, the Assumed
                        Liabilities.

        Section 8.2 Method of Asserting Claims, Etc. Except for Claims under
Parts 5 and 7, all claims for indemnification under the Agreement shall be
asserted and resolved as follows:

                      (a) Third Party Claims. In the event that any claim for
        which a Party providing indemnification (the "Indemnifying Party") would
        be liable to a Party or any of its officers, directors, employees,
        agents, representatives or others entitled to indemnification hereunder
        (the "Indemnified Party") is asserted against or sought to be collected
        by a Third Person, the Indemnified Party shall promptly notify the
        Indemnifying Party of such claim, specifying the nature of such claim
        and the amount or the estimated amount thereof to the extent then
        feasible (which estimate shall not be conclusive of the final amount of
        such claim) (the "Claim Notice"). The Indemnified Party shall have
        thirty (30) days from its receipt of the Claim Notice (the "Notice
        Period") to notify the Indemnified Party (i) whether or not it disputes
        its liability to the Indemnifying Party hereunder with respect to such
        claim, and (ii) if it does not dispute such liability, whether or not it
        desires, at its sole cost and expense, to defend the Indemnified Party
        against such claim; provided, however, that the Indemnified Party is
        hereby authorized prior to and during the Notice Period to file any
        motion, answer or other pleading which it shall deem necessary or
        appropriate to protect its interests. In the event that the Indemnifying
        Party notifies the Indemnified Party within the

                                       38
<PAGE>

        Notice Period that it does not dispute such liability and desires to
        defend against such claim or demand, then, except as hereinafter
        provided, the Indemnifying Party shall have the right to defend such
        claim or demand by appropriate proceedings, which proceedings shall be
        promptly settled or prosecuted to a final conclusion, in such a manner
        as to avoid any risk of the Indemnified Party becoming subject to
        liability. If the Indemnified Party desires to participate in, but not
        control, any such defense or settlement, it may do so at its own cost
        and expense. If the Indemnifying Party disputes its liability with
        respect to such claim, or elects not to defend against such claim,
        whether by not giving timely notice as provided above or otherwise, the
        Indemnified Party shall have the right but not the obligation to defend
        against such claim, and the amount of any such claim, or if the same be
        contested by the Indemnifying Party or by the Indemnified Party, then
        that portion thereof as to which such defense is unsuccessful, shall be
        conclusively deemed to be a liability of the Indemnifying Party
        hereunder (subject, if it has timely disputed liability, to a
        determination in accordance with Section 10.12 that the disputed
        liability is covered by this Part Eight.)

                      (b) Other Claims. In the event that the Indemnified Party
        shall have a claim against the Indemnifying Party hereunder which does
        not involve a claim or demand being asserted against or sought to be
        collected from it by a Third Person, the Indemnified Party shall
        promptly send a Claim Notice with respect to such claim to the
        Indemnifying Party. If the Indemnifying Party does not notify the
        Indemnified Party within the Notice Period that it disputes such claim,
        the amount of such claim shall be conclusively deemed a liability of the
        Indemnifying Party hereunder.

        Section 8.3 Payment. Payments under this Part Eight shall be made as
follows:

                      (a) Payment for Undisputed Amounts. In the event that the
        Indemnifying Party is required to make any payment under this Part
        Eight, the Indemnifying Party shall promptly pay the Indemnified Party
        the amount so determined. If there should be a dispute as to the amount
        or manner of determination of any indemnity obligation owed under Part
        Six or this Part Eight, the Indemnifying Party shall nevertheless pay
        when due such portion, if any, of the obligation as shall not be subject
        to dispute. The difference, if any, between the amount of the obligation
        ultimately determined as properly payable under Part Six or this Part
        Eight and the portion, if any theretofore paid, shall bear interest at
        the Agreed Rate as provided in Section 8.3(b). Upon the payment in full
        of any claim, the Indemnifying Party shall be subrogated to the rights
        of the Indemnified Party against any Person or other entity with respect
        to the subject matter of such claim.

                      (b) Interest. If all or part of any indemnification
        obligation under the Agreement is not paid when due upon resolution of
        the claim, then the Indemnifying Party shall pay on demand to the
        Indemnified Party interest at the Agreed Rate on the unpaid amount of
        the obligation for each day from the date the amount became due until
        payment in full.

                                       39
<PAGE>

        Section 8.4 Disputed Claims. If the Indemnifying Party shall notify the
Indemnified Party during the Notice Period of any Disputed Claim under Section
8.2, the Disputed Claims shall be subject to the Dispute Resolution Procedure
pursuant to Section 10.12.

        Section 8.5 Applicability of Part Eight. This Part Eight does not apply
to title matters (which are covered by Part Seven) or Tax matters (which are
covered by Part Five). This Part Eight applies to certain Environmental
Conditions only to the extent of a breach of the representation set forth in
Section 3.1(g), and Seller's obligation as set forth in Section 6.3(a), all
other Environmental Conditions or other matters being expressly subject to the
terms and conditions of Part Six.

                                    PART NINE

                              CONDITIONS PRECEDENT

        Section 9.1 Conditions Precedent of Seller. The obligations of Seller
under the Agreement are subject, at the sole option of Seller, to the
satisfaction, in Seller's sole opinion, at or prior to the Closing of the
following conditions:

                      (a) Representations and Warranties True at Closing. The
        representations and warranties of Buyer contained in the Agreement or in
        any certificate or document delivered pursuant to the provisions hereof,
        or in connection with the transactions contemplated hereby, were true
        and complete when made, and shall be true and complete on and as of the
        Closing Date as though such representations and warranties were made at
        and as of such date except as otherwise expressly provided herein.

                      (b) Compliance with Agreement. On and as of the Closing
        Date, Buyer shall have performed and complied with all agreements,
        covenants and conditions required by the Agreement to be performed and
        complied with prior to or on the Closing Date.

                      (c) Validity of Agreement. 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.

                      (d) Approvals. Seller shall have obtained all approvals
        including, without limitation, those of its senior management and board
        of directors, necessary to consummate the proposed transaction.

                      (e) Opinion of Counsel. Seller shall have received an
        opinion dated as of the closing from Buyer's general counsel in
        substantially the form set forth in Exhibit 3.

                                       40
<PAGE>

                      (f) Buyer's Certificates. Seller shall have received (i) a
        certificate executed by a duly qualified officer of Buyer dated as of
        the Closing in substantially the form set forth in Exhibit 4 and a
        certificate of incumbency for such officer and (ii) certified copies of
        resolutions of Buyer's board of directors, as appropriate, authorizing
        and approving the execution, delivery and performance of the Agreement.

                      (g) Consents. Buyer shall have used reasonable best
        efforts to obtain all necessary consents of and filings with any
        Governmental Body relating to the consummation of the transactions
        contemplated by this Agreement.

                      (h) Injunction. On the Closing Date, there shall be no
        injunction, writ, or preliminary restraining order or any order of any
        nature issued by a court or other Governmental Body of competent
        jurisdiction directing that the transaction provided for herein or any
        of them not be consummated as herein provided or imposing any conditions
        on the consummation of the transactions contemplated hereby and no
        material proceeding or lawsuit shall have been commenced or threatened
        by any Governmental Body or other Third Person with respect to any of
        the transactions contemplated by the Agreement.

                      (i) Due Diligence Acknowledgment. Buyer shall deliver to
        Seller at Closing a signed acknowledgment in substantially the form set
        forth in Exhibit 5, stating that Buyer had sufficient and adequate time
        and opportunity to review all files, documents, and other information,
        which Seller has made available. Buyer shall also acknowledge that as a
        result of Buyer's due diligence, including but not limited to the
        aforementioned file review, it has fully satisfied itself as to the
        condition and value of the Assets.

                      (j) Conveyances. Buyer shall execute and acknowledge the
        assignments which are contained in Exhibit 1 (the "Assignments), the
        deeds which are contained in Exhibit 2 (the "Deeds"), as well as such
        certificates or other documents as are required to effect the transfer
        of the Assets.

                      (k) Additional Agreements. Buyer shall execute,
        acknowledge and deliver to Seller such other agreements as may be
        necessary to carry out the purposes of the Agreement.

        Section 9.2 Conditions Precedent of Buyer. The obligations of Buyer
under this Agreement are subject, at the option of Buyer, to the satisfaction,
in Buyer's sole opinion, at or prior to the Closing of the following conditions:

                      (a) Representations and Warranties True at Closing. The
        representations and warranties of Seller contained in the Agreement or
        in any certificate or

                                       41
<PAGE>

        document delivered pursuant to the provisions hereof, or in connection
        with the transactions contemplated hereby, were true and complete when
        made, and shall be true and complete on and as of the Closing Date as
        though such representations and warranties were made at and as of such
        date except as otherwise expressly provided herein.

                      (b) Compliance with Agreement. On and as of the Closing
        Date, Seller shall have performed and complied with all agreements,
        covenants, and conditions required by the Agreement to be performed and
        complied with prior to or on the Closing Date.

                      (c) Validity of Agreement. 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.

                      (d) Opinion of Counsel. Buyer shall have received an
        opinion dated as of the Closing from Seller's counsel in substantially
        the form set forth in Exhibit 3.

                      (e) Seller's Certificate. Buyer shall have received (i) a
        Certificate executed by a duly qualified officer of Seller dated as of
        the Closing in substantially the form set forth in Exhibit 4 and a
        certificate of incumbency for such officer and (ii) certified copies of
        resolutions of Buyer's board of directors, as appropriate authorizing
        and approving the execution, delivery and performance of the Agreement.

                      (f) Consents. Seller shall have used reasonable efforts to
        obtain all necessary consents of and filings with any Governmental Body
        relating to the consummation of the transactions contemplated by the
        Agreement.

                      (g) Injunction. On the Closing Date, there shall be no
        injunction, writ, or preliminary restraining order or any order of any
        nature issued by a court or other Governmental Body of competent
        jurisdiction directing that the transaction provided for herein or any
        of them not be consummated as herein provided or imposing any conditions
        on the consummation of the transactions contemplated hereby and no
        material proceeding or lawsuit shall have been commenced or threatened
        by any Governmental Body or other Third Person with respect to any of
        the transactions contemplated by the Agreement.

                      (h) Conveyances. Seller shall execute, acknowledge and
        deliver to Buyer the Assignments as well as such certificates or other
        documents as are required to effect the transfer of the Assets, or the
        subsequent operation thereof. Buyer shall also execute and deliver such
        change of operator forms as are required by applicable Governmental
        Bodies to transfer operatorship of the Assets. Such documents as may be
        necessary to carry out the purpose of the Agreement.

                                       42
<PAGE>

                      (i) Release of Lien. Seller shall have delivered to Buyer,
        a release, as to the Assets, of the liens and security interests created
        by the Mortgage, Deed of Trust, Assignment, Security Agreement,
        Financing Statement and Fixture Filing dated as of May 1, 2002 as
        delivered to the Bank of Nova Scotia as agent as amended by the Amended
        and Restated Mortgage, Deed of Trust, Assignment, Security Agreement,
        Financing Statement and Fixture Filing dated July 16, 2003.

                      (j) Geophysical License. Seller shall deliver to Buyer, at
        no additional cost to Buyer beyond the Purchase Price, a geophysical
        license in a mutually agreeable form granting Buyer a license for the
        geophysical data acquired by Seller pursuant to the approximately 34
        mile 2D seismic shoot in Garfield County, Colorado conducted on or about
        August 14, 2004 by Tesla Exploration, which license shall allow Buyer to
        provide access to (but not a copy or license of) such data to Buyer's
        partners and joint interest owners in the Assets. Should Buyer sell all
        or substantially all of the Assets, Buyer may transfer such license by
        notifying Seller in writing of the sale and Seller shall not be due any
        fee in connection with such transfer.

                      (k) Additional Agreements. Seller shall execute,
        acknowledge and deliver to Seller such other agreements as may be
        necessary to carry out the purposes of the Agreement.

        Section 9.3 Market Disruption. Notwithstanding anything to the contrary
        contained herein, in the event that a general moratorium on commercial
        banking activities or clearance services is declared by Federal
        authorities or a material disruption in commercial banking or securities
        settlement or clearance services in the United States occurs; Buyer's
        obligation to close may be delayed for a period not to exceed seven (7)
        days until such moratorium or disruption is resolved without forfeiture
        of the Performance Deposit; provided that Buyer uses its best efforts to
        effect the Closing as soon thereafter as possible. In the event that
        Buyer is unable to Close within such seven (7) day period, this
        Agreement may be terminated at Seller's sole option and Buyer shall
        forfeit the Performance Deposit.

                                    PART TEN

                                  MISCELLANEOUS

        Section 10.1 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given and received when actually delivered
to the addressee or received via facsimile at the number set forth below of the
Party to be notified.

                                       43
<PAGE>

                      If to Seller:

                              Calpine Corp.
                              717 Texas Avenue
                              Houston, Texas 77002

                              Fax:          713.651.3056
                              Phone:        713.335.4001
                              Attention:    B. A. Berilgen

                              With a copy to:

                              50 West San Fernando Street
                              San Jose, California 95113

                              Fax:          408.975.4648
                              Phone:        408.792.1226
                              Attention:    Lisa Bodensteiner

                      If to Buyer:

                              Bill Barrett Corporation
                              1099 18th Street, Suite 2300
                              Denver, Colorado 80202

                              Fax:          (303) 291-0420
                              Phone:        (303) 293-9100
                              Attention:    President

                      With a copy to:

                              General Counsel

Any Party may, by written notice so delivered to the other, change the address
to which the delivery shall thereafter be made.

        Section 10.2 Modification. The Agreement, including this Section 10.2
and the Exhibits and Schedules, shall not be modified except by an instrument in
writing signed by or on behalf of all of the Parties.

                                       44
<PAGE>

        Section 10.3 GOVERNING LAW. THE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PROVISIONS THEREOF WHICH WOULD
REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. ALL ASSIGNMENTS AND
INSTRUMENTS EXECUTED IN ACCORDANCE WITH THE CONVEYANCES TO BE DELIVERED
HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE WHERE THE PROPERTIES CONVEYED THEREBY ARE LOCATED.

        Section 10.4 Exhibits. All Exhibits and Schedules thereto, and the terms
thereof, which are referred to herein are hereby made a part of and incorporated
herein by reference.

        Section 10.5 Counterparts. The Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

        Section 10.6 Invalidity. If any of the provisions of the Agreement
including the Schedules and Exhibits, are held invalid or unenforceable, such
invalidity or unenforceability shall not affect in any way the validity or
enforceability of any other provision of the Agreement. In the event any
provision is held invalid or unenforceable, the Parties shall attempt to agree
on a valid or enforceable provision which shall be a reasonable substitute for
such invalid or unenforceable provision in light of the tenor of the Agreement
and, on so agreeing, shall incorporate such substitute provision in the
Agreement.

        Section 10.7 Entire Agreement and Construction. Except for the
Confidentiality Agreement, which shall terminate upon the Closing Date if the
Closing occurs, this Agreement contains the entire agreement between the Parties
with respect to the transactions contemplated hereby and all prior
understandings and agreements shall merge herein. There are no additional terms,
whether consistent or inconsistent, oral or written, which are intended to be
part of the Parties' understandings which have not been incorporated into the
Agreement and the Schedules. The Parties agree that they have jointly
participated in the drafting and preparation of the Agreement and that the
language of the Agreement shall be construed as a whole according to its fair
meaning and not for or against either of the Parties hereto based upon that
Party's role in the preparation of the Agreement.

        Section 10.8 Expenses. Except as otherwise expressly provided herein,
each Party shall bear its fees, costs and expenses in connection with the
transactions contemplated herein, including, without limitation, all legal and
accounting fees and disbursements and fees and expenses of other advisors
retained by such Party.

        Section 10.9 Waivers and Amendments. All amendments and other
modifications hereof shall be in writing and signed by each of the Parties. Any
Party may by written instrument (i) waive

                                       45
<PAGE>

any inaccuracies in any of the representations or warranties made to it by any
other Party contained in the Agreement or in any instruments and documents
delivered to it pursuant to the Agreement, or (ii) waive compliance or
performance by any other Party with or of any of the covenants or agreements
made to it by any other Party contained in the Agreement. The delay or failure
on the part of any Party hereto to insist, in any one instance or more, upon
strict performance of any of the terms or conditions of the Agreement, or to
exercise any right or privilege herein conferred shall not be construed as a
waiver or any such terms, conditions, rights or privileges but the same shall
continue and remain in full force and effect. All rights and remedies are
cumulative.

        Section 10.10 Binding Effect: Assignment. All the terms, provisions,
covenants, obligations, indemnities, representations, warranties and conditions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
This Agreement may not be assigned by Buyer or Seller without the express
written consent of the other, such consent not to be unreasonably withheld.
Seller may condition its consent to assign this Agreement on Buyer providing
Seller with an appropriate guarantee of its assignee's performance. In the event
Buyer sells or assigns all or a portion of the Assets, this Agreement shall
remain in effect between Buyer and Seller as to all the Assets regardless of
such assignment.

        Section 10.11 Survival of Representations and Covenants. All
representations and warranties contained in the Agreement shall survive the
Closing and continue for one (1) year following the Closing Date, except those
contained in Parts Six and Seven. The covenants, indemnities and agreements
contained in the Agreement shall survive the Closing and continue in accordance
with their respective terms.

        Section 10.12 Arbitration of Disputes. Seller and Buyer covenant with
each other as follows:

                      (a) Generally. Any claim, controversy or dispute arising
        out of, relating to, or in connection with the Agreement or the
        agreements and transactions contemplated hereby, by Buyer or Seller,
        including the interpretation, validity, termination or breach thereof,
        shall be resolved solely in accordance with the dispute resolution
        procedures set forth in Schedule 10.12. The Parties covenant that they
        shall not resort to court remedies except as provided for in Schedule
        10.12, or for preliminary relief in aid of arbitration.

                      (b) Violations. A Party who violates the covenants in
        Section 10.12(a) shall pay all the legal costs incurred by the other
        Parties in connection with the enforcement thereof. Suits, actions or
        proceedings in connection with violations of the covenants in Section
        10.12 and Schedule 10.12 shall be instituted in the United States
        District Court for the District of Colorado, and pursuant to Title IX of
        the United States Code. Each Party

                                       46
<PAGE>

        waives any option or objection which it may now or thereafter have to
        the laying of the venue in any such suit, action or proceeding and
        irrevocably submits to the jurisdiction of such court in any such suit,
        action or proceeding.

                      BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
                      ANY DISPUTE ARISING OUT OF THIS AGREEMENT DECIDED BY
                      NEUTRAL ARBITRATION AS PROVIDED BY COLORADO LAW AND THIS
                      SECTION 10.12. YOU ARE GIVING UP ANY RIGHTS YOU MIGHT
                      POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
                      TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP
                      YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE
                      RIGHTS ARE SPECIFICALLY INCLUDED IN THE ARBITRATION OF
                      DISPUTES PROVISIONS. IF YOU REFUSE TO SUBMIT TO
                      ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE
                      COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE COLORADO
                      CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
                      ARBITRATION PROVISION IS VOLUNTARY.

                      WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO
                      SUBMIT DISPUTES ARISING OUT OF MATTERS INCLUDED IN THE
                      ARBITRATION OF DISPUTES PROVISION TO NEUTRAL ARBITRATION.

                           BUYER'S INITIALS: /s/ WJB  SELLER'S INITIALS: /s/ MG
                                            ---------                   --------

                                       47
<PAGE>

        Section 10.13 Conflict. Should terms and conditions of this Agreement be
in conflict with the Assignment and Bill of Sale, or the Deed, as such are
executed pursuant to the terms of this Agreement, the terms and conditions of
this Agreement shall prevail.

        IN WITNESS WHEREOF, the Parties hereto have entered into the Agreement
as of the date first herein above written.

                                         CALPINE CORPORATION

                                         By: /s/ Michael Gerlich
                                             -----------------------------------

                                         Date: August 18, 2004
                                               ---------------------------------

                                         CALPINE NATURAL GAS L.P.

                                         By: /s/ Michael Gerlich
                                             -----------------------------------

                                         Date: August 18, 2004
                                               ---------------------------------

                                         BILL BARRETT CORPORATION

                                         By: /s/ William J. Barrett
                                             -----------------------------------

                                         Date: August 18, 2004
                                               ---------------------------------

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