Document:

Form of Restricted Stock Unit Award Agreement

 Exhibit 10.3 
 WINN-DIXIE STORES, INC. 
 EQUITY INCENTIVE PLAN 
 FORM OF RESTRICTED STOCK UNIT AWARD AGREEMENT 
 THIS AGREEMENT is made by and between WINN-DIXIE STORES, INC., a Florida corporation (the “Company”), and             , (“Grantee”),
as of             , 200_. 
 RECITALS 
 A. The Company has adopted and approved the Winn-Dixie Stores, Inc. Equity Incentive Plan (the “Plan”), a copy of which is attached to this
Agreement; and 
 B. The Committee appointed to administer the Plan has determined that Grantee is eligible to participate in the Plan and
that it would be to the advantage and best interest of the Company and its stockholders to grant the award of Restricted Stock Units (as defined below) provided for herein to Grantee; and 
 C. This Agreement is prepared in conjunction with and under the terms of the Plan. Terms used herein but not otherwise defined herein shall have the
meanings ascribed to such terms in the Plan; and 
 D. Grantee has accepted the grant of the Restricted Stock Units and agreed to the terms
and conditions hereinafter stated. 
 NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS AND OF THE PROMISES AND CONDITIONS HEREIN
CONTAINED, IT IS AGREED AS FOLLOWS: 
 ARTICLE I 
 GRANT OF RESTRICTED STOCK UNITS 
 Section 1.1 - Grant of Restricted Stock Units. 
 Subject to the provisions of this Agreement and the provisions of the Plan, the Company has granted effective [INSERT GRANT DATE] (the “Effective
Date”) to Grantee units evidencing a right to receive [INSERT NUMBER OF RSUs] shares of the Company’s common stock, par value $.001 per share (“Stock”) (the “Restricted Stock Units” or “Restricted Stock Unit
Award”). 

					
	 WINN-DIXIE STORES, INC.
 FORM OF RESTRICTED STOCK UNIT AWARD
AGREEMENT
	  	PAGE 2
	  	

 ARTICLE II 
 RESTRICTIONS AND VESTING PERIOD 
 Section 2.1 - Restrictions. 
 The Restricted Stock Units granted hereunder may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of, other
than by will or the laws of descent and distribution. 
 Section 2.2 - Vesting Period. 
 Subject to the forfeiture provisions set forth in Section 4.1, the Restricted Stock Units shall become vested and shares of Stock shall become
deliverable in three equal installments on June 30, 200_, June 30, 200_ and June 30, 200_ (the “Vesting Period”). 
 Section 2.3 - Accelerated Vesting. 
 If during the Vesting Period a Change in Control occurs, all Restricted Stock Units
shall become 100 percent vested and paid out as of the date of such Change in Control or promptly thereafter, in each case, in accordance with the terms of the Plan. 
 Section 2.4 - Post-Termination Vesting. 
 If during the Vesting Period the Grantee’s
employment or service terminates as a result of the Company’s termination of the Grantee without Cause (other than as a result of death or Disability) or the Grantee’s resignation for Good Reason and the Grantee continues to comply with
Section 7.1 of this Agreement, the Restricted Stock Unit Award shall continue to vest pursuant to Section 2.2 following the date of such termination of the Grantee’s employment or service. For purposes of this Agreement,
“Disability” means (i) the Grantee’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for
a continuous period of not less than 12 months, (ii) the Grantee is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than
12 months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of the Company or (iii) the Grantee’s inability due to any physical or mental impairment to perform
his substantial job functions for a period of 180 days during any 365 day period. For purposes of this Agreement, Grantee shall have the right to resign his employment for “Good Reason” if any of the following events occur without the
Grantee’s consent: (i) a reduction by the Company of Grantee’s base salary or bonus opportunity, other than in connection with any across-the-board reduction of base salaries or target bonus opportunities of senior executives of the
Company; (ii) the failure of the acquirer of all or substantially all of the assets of the Company to assume this Agreement if the Company is to be liquidated within a reasonable period of time following such acquisition; or (iii) a material
diminution in the Grantee’s duties or responsibilities. 
 ARTICLE III 
 NO STOCKHOLDER RIGHTS 
 Section 3.1 - No Stockholder Rights. 
 Grantee shall have no rights of a stockholder of the Company with respect to the Restricted Stock Units, including, but not limited to, the rights to vote
and receive ordinary dividends, until the date of issuance of a stock certificate for such shares. In the event of an adjustment to the Restricted Stock Unit Award pursuant to Section 5(d) of the Plan, then in such event, any and all new,
substituted or additional securities to which Grantee is entitled by reason of the Restricted Stock Unit Award shall be immediately subject to the Restrictions and Vesting Period set forth in Sections 2.1 and 2.2 above with the same force and effect
as the Restricted Stock Unit Award subject to such Restrictions immediately before such event. 

					
	 WINN-DIXIE STORES, INC.
 FORM OF RESTRICTED STOCK UNIT AWARD
AGREEMENT
	  	PAGE 3
	  	

 ARTICLE IV 
 CESSATION OF EMPLOYMENT 
 Section 4.1 - Forfeiture. 
 If, at any time while the Restricted Stock Unit Award is outstanding, the Grantee’s employment or service with the Company or any Subsidiary or
Affiliate is terminated for any reason other than those set forth in Section 2.4 of this Agreement, then any unvested Restricted Stock Units pursuant to the Restricted Stock Unit Award shall be forfeited to the Company and neither the Grantee
nor any of Grantee’s successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such Restricted Stock Unit Award. 
 ARTICLE V 
 CERTIFICATES 
 Section 5.1 - Certificates. 
 Upon vesting and
subject to Section 8(i) of the Plan, the Company will issue a stock certificate for the shares of Stock represented by this Agreement, net of any shares of Stock withheld by the Company to satisfy the payment of mandatory taxes as described in
Section 6 herein. 
 ARTICLE VI 
 TAXES 
 Section 6.1 - Taxes. 
 The Grantee shall be required to pay to the Company in cash all federal, state and local taxes required to be withheld in respect of settlement of
Restricted Stock Units, provided, that Committee may allow the Grantee to satisfy payment of taxes due upon vesting of the Restricted Stock Units, by having the Company distribute to the Grantee shares of Stock net of the number of whole shares of
Stock the fair market value of which is equal to the minimum amount of federal, state and local taxes required to be withheld under applicable tax laws. 

					
	 WINN-DIXIE STORES, INC.
 FORM OF RESTRICTED STOCK UNIT AWARD
AGREEMENT
	  	PAGE 4
	  	

 ARTICLE VII 
 RESTRICTIVE COVENANTS 
 Section 7.1 - Restrictive Covenants. 
 If the Grantee engages in any conduct in breach of any noncompetition, nonsolicitation or confidentiality obligations to the Company under any agreement,
policy or plan, then such conduct shall also be deemed to be a breach of the terms of the Plan and this Agreement. Upon such breach, all portions of the Restricted Stock Unit Award which are not then vested shall be cancelled and forfeited.

 ARTICLE VIII 
 MISCELLANEOUS 
 Section 8.1 - Incorporation of Plan. 
 This Agreement is made under the provisions of the Plan (which is incorporated herein by reference) and shall be interpreted in a manner consistent with
it. To the extent that this Agreement is silent with respect to, or in any way inconsistent with, the terms of the Plan, the provisions of the Plan shall govern and this Agreement shall be deemed to be modified accordingly. 
 Section 8.2 - Notices. 
 Any notice to be given
under the terms of this Agreement shall be in writing and addressed to the Company at 5050 Edgewood Court, Jacksonville, Florida 32254-3699, Attention: Corporate Secretary, and to Grantee at the address set forth below or at such other address as
either party may hereafter designate in writing to the other by like notice. 
 Section 8.3 - Successor. 
 Except as otherwise provided hereunder, this Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company.

 Section 8.4 - Governing Law. 
 This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations
under them, and its decision shall be binding and conclusive upon the Grantee and the Grantee’s legal representative in respect of any questions arising under the Plan or this Agreement. 

					
	 WINN-DIXIE STORES, INC.
 FORM OF RESTRICTED STOCK UNIT AWARD
AGREEMENT
	  	PAGE 5
	  	

 Section 8.5 - Amendment. 
 This Agreement may not be amended in any manner except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement shall not operate or be
construed as a waiver of any other provision of this Agreement or of any subsequent breach of such party of a provision of this Agreement. 
 (Remainder of page intentionally left blank) 

					
	 WINN-DIXIE STORES, INC.
 FORM OF RESTRICTED STOCK UNIT AWARD
AGREEMENT
	  	PAGE 6
	  	

 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by a
duly authorized officer and Grantee has hereunto set Grantee’s hand. 
  

			
	WINN-DIXIE STORES, INC.
		
	BY:	 	  

  

	
	  

	[GRANTEE’S NAME]
	
	  

	AddressExecution Counterpart

                           PURCHASE AND SALE AGREEMENT

                                 by and between

                            Statex Petroleum I, L.P.
                                       and
                              Charles W. Gleeson LP
                                    (Seller)

                                       and

                            Baseline Oil & Gas Corp.
                                   (Purchaser)

                             dated December 20, 2006

<PAGE>

                                TABLE OF CONTENTS

1.       PURCHASE AND SALE.....................................................1

     1.1      AGREEMENT TO SELL AND PURCHASE...................................1
     1.2      ASSETS...........................................................1
     1.3      EFFECTIVE DATE...................................................3
     1.4      EXCLUDED ASSETS..................................................3
     1.5      GAUGING AND STRAPPING............................................4
     1.6      RECORDS..........................................................4

2.       SALE AND PURCHASE.....................................................5

     2.1      PURCHASE AND SALE................................................5
     2.2      PURCHASE PRICE...................................................5
     2.3      PERFORMANCE DEPOSIT..............................................5
     2.4      ALLOCATION OF PURCHASE PRICE.....................................5
     2.5      DETERMINATION OF ADJUSTED PURCHASE PRICE.........................6
     2.6      PAYMENT OF ADJUSTED PURCHASE PRICE...............................7
     2.7      TAX PURCHASE PRICE ALLOCATIONS...................................7

3.       TITLE MATTERS.........................................................8

     3.1      ACCESS TO RECORDS AND ASSETS.....................................8
     3.2      DEFINITIONS......................................................8
     3.3      NOTICE OF TITLE DEFECT..........................................11
     3.4      REMEDIES FOR TITLE DEFECTS......................................11
     3.5      PROCEDURE FOR RESOLVING TITLE DEFECTS...........................11
     3.6      VALUE OF DEFECTS................................................12
     3.7      INTEREST ADDITIONS..............................................13
     3.8      RIGHT TO TERMINATE AGREEMENT....................................14
     3.9      EXPERT DETERMINATION............................................14
     3.10     PREFERENTIAL PURCHASE RIGHTS AND CONSENTS TO ASSIGN.............15

4.       CASUALTY LOSS........................................................18

     4.1      CASUALTY LOSS...................................................18

5.       ENVIRONMENTAL CONDITION..............................................18

     5.1      PHYSICAL CONDITION OF THE ASSETS................................18
     5.2      ENVIRONMENTAL ASSESSMENT........................................19
     5.3      ENVIRONMENTAL DEFECT NOTICE.....................................20
     5.4      REMEDIES FOR ENVIRONMENTAL DEFECTS..............................20
     5.5      PROCEDURE FOR RESOLVING ENVIRONMENTAL DEFECTS...................20
     5.6      DEFINITIONS.....................................................21
     5.7      "AS IS, WHERE IS" PURCHASE......................................23

6.       REPRESENTATIONS OF SELLER............................................23

     6.1      DISCLAIMERS.....................................................23
     6.2      REPRESENTATIONS.................................................23
     6.3      KNOWLEDGE.......................................................27

7.       REPRESENTATIONS OF PURCHASER.........................................27

     7.1      EXISTENCE.......................................................28
     7.2      POWER...........................................................28
     7.3      AUTHORIZATION...................................................28
     7.4      BROKERS.........................................................28
     7.5      DISTRIBUTION....................................................28
     7.6      CLAIMS AND LITIGATION...........................................29

<PAGE>

     7.7      FINANCIAL ABILITY TO PERFORM....................................29
     7.8      BONDS...........................................................29

8.       PRE-CLOSING OBLIGATIONS OF SELLER....................................29

     8.1      OPERATIONS......................................................29
     8.2      CONTRACTS.......................................................29
     8.3      COMPENSATION OF SELLER..........................................30
     8.4      OPERATION OF CERTAIN PROPERTIES AFTER INTERIM PERIOD............30
     8.5      PERMISSIONS.....................................................30
     8.6      BEST EFFORTS....................................................31
     8.7      DEFAULTS........................................................31
     8.8      OPERATORSHIP....................................................31
     8.9      GEOLOGICAL AND GEOPHYSICAL INFORMATION..........................31
     8.10     FINANCIAL STATEMENTS............................................31

9.       PRE-CLOSING OBLIGATIONS OF PURCHASER.................................32

     9.1      RETURN OF DATA..................................................32
     9.2      BEST EFFORTS....................................................32

10.      CONDITIONS OF SELLER TO CLOSING......................................32

     10.1     REPRESENTATIONS.................................................32
     10.2     PERFORMANCE.....................................................32
     10.3     CERTIFICATE.....................................................33
     10.4     PENDING MATTERS.................................................33
     10.5     GOVERNMENTAL CONSENTS...........................................33
     10.6     OPINION.........................................................33

11.      CONDITIONS OF PURCHASER TO CLOSING...................................34

     11.1     REPRESENTATIONS.................................................34
     11.2     PERFORMANCE.....................................................34
     11.3     OFFICER'S CERTIFICATE...........................................34
     11.4     PENDING MATTERS.................................................34
     11.5     GOVERNMENTAL CONSENTS...........................................34
     11.6     OPINION OF SELLER'S COUNSEL.....................................34
     11.7     FINANCIAL STATEMENTS............................................35

12.      CLOSING..............................................................35

     12.1     TIME AND PLACE OF CLOSING.......................................35
     12.2     CHANGE OF CLOSING DATE..........................................35
     12.3     CALCULATION OF PRELIMINARY AMOUNT...............................36
     12.4     FAILURE TO CLOSE................................................36
     12.5     CLOSING OBLIGATIONS.............................................36
     12.6     CONVEYANCE......................................................37

13.      POST-CLOSING OBLIGATIONS.............................................38

     13.1     POST-CLOSING ADJUSTMENTS........................................38
     13.2     RECEIPTS AND CREDITS............................................39
     13.3     ASSUMPTION; SURVIVAL; INDEMNIFICATION; CERTAIN LIMITATIONS......40
     13.4     DISCLAIMER......................................................44
     13.5     METHOD OF ASSERTING CLAIMS......................................44
     13.6     PAYMENT.........................................................45
     13.7     LIMITATION ON DAMAGES...........................................46
     13.8     RECORDING.......................................................46
     13.9     COOPERATION AND FURTHER ASSURANCES..............................46

14.      TERMINATION..........................................................47

                                       ii
<PAGE>

     14.1     RIGHT OF TERMINATION............................................47
     14.2     EFFECT OF TERMINATION...........................................47

15.      TAXES................................................................48

     15.1     APPORTIONMENT OF AD VALOREM AND PROPERTY TAXES..................48
     15.2     TAXES PAID FOR OTHERS...........................................49
     15.3     SALES TAXES.....................................................49
     15.4     OTHER TAXES.....................................................49
     15.5     COOPERATION.....................................................49
     15.6     TAX INDEMNITY...................................................50
     15.7     EXCULSIVITY; LIMITATIONS........................................50

16.      MISCELLANEOUS........................................................50

     16.1     ENTIRE AGREEMENT................................................50
     16.2     WAIVER..........................................................50
     16.3     HEADINGS........................................................50
     16.4     ASSIGNMENT......................................................51
     16.5     NO THIRD PARTY BENEFICIARIES....................................51
     16.6     GOVERNING LAW...................................................51
     16.7     NOTICES.........................................................51
     16.8     EXECUTION IN COUNTERPARTS.......................................52
     16.9     EXPENSES........................................................52
     16.10    CONFIDENTIALITY.................................................52
     16.11    EXHIBITS AND SCHEDULES..........................................53
     16.12    PUBLICITY.......................................................53
     16.13    USE OF SELLER'S NAMES...........................................53
     16.14    SEVERABILITY....................................................53
     16.15    AFFILIATE.......................................................53
     16.16    INTENTIONALLY OMITTED...........................................53
     16.17    ATTORNEY'S FEES.................................................53

                                       iii
<PAGE>

                                    Exhibits

Exhibit A - Leases

Exhibit B - Wells Listing and Allocated Values

Exhibit C - Closing Adjustment Statement

Exhibit D - Preferential Rights to Purchase and Consent to Assignment

Exhibit E - Tax Partnerships

Exhibit F - Pending Claims and Litigation

Exhibit G - Violation of Laws

Exhibit H - Production and Pipeline Imbalances

Exhibit I - Material Existing Contracts

Exhibit J - Purchaser's Required Bonds and Securities

Exhibit K - Outstanding AFE's

Exhibit L - Assignment, Bill of Sale and Conveyance

                                       iv
<PAGE>

                                Glossary of Terms

"Accounting Firm" means the firm of PriceWaterhouseCoopers.

"Adjusted Purchase Price" has the meaning given to it in Section 2.5 of the
Agreement.

"Affiliate" has the meaning given to it in Section 16.15 of the Agreement.

"Agreed Rate" has the meaning given to it in Section 13.6.2 of the Agreement.

"Allocated Value" has the meaning given to it in Section 2.4 of the Agreement.

"Applicable Laws" has the meaning given to it in Section 5.6.1 of the Agreement.

"Assets" has the meaning given to it in Section 1.2 of the Agreement.

"Assumed Obligations" has the meaning given to it in Section 13.3.1 of the
Agreement.

"Basket Deductible" has the meaning given to it in Section 13.3.4 of the
Agreement.

"Casualty Loss" has the meaning given to it in Section 4.1 of the Agreement.

"Casualty Loss Amount" has the meaning given to it in Section 4.1 of the
Agreement.

"CERCLA" is defined in Section 5.6.3 of the Agreement.

"Claim Notice" has the meaning given to it in Section 13.5.1 of the Agreement.

"Closing" has the meaning given to it in Section 12.1 of the Agreement.

"Closing Adjustment Statement" has the meaning given to it in Section 12.3 of
the Agreement.

"Closing Date" has the meaning given to it in Section 12.1 of the Agreement.

"Code" has the meaning given to it in Section 2.7 of the Agreement.

"Confidentiality Agreement" has the meaning given to it in Section 16.1 of the
Agreement.

"Control," "controlled by" and "under common control with" have the meanings
given to them in Section 16.15 of the Agreement.

"Costs" has the meaning given to it in Section 3.1 of the Agreement.

"Decision Notice" has the meaning given to it in Section 3.9.1 of the Agreement.

"Defect Expert" has the meaning given to it in Section 3.9. of the Agreement.

                                        v
<PAGE>

"Defect Value" has the meaning given to it in Section 3.3 of the Agreement.

"Due Diligence Period" has the meaning given to it in Section 3.3 of the
Agreement.

"Effective Date" has the meaning given to it in Section 1.3 of the Agreement.

"Environmental Defect" has the meaning given to it in Section 5.6.2 of the
Agreement.

"Environmental Defect Notice" has the meaning given to it in Section 5.3 of the
Agreement.

"Environmental Indemnity Payment" has the meaning given to it in Section 5.4 of
the Agreement.

"Environmental Laws" has the meaning given to it in Section 5.6.3 of the
Agreement.

"Environmental Obligations" has the meaning given to it in Section 13.3.1 of the
Agreement.

"Excluded Assets" has the meaning given to it in Section 1.4 of the Agreement.

"Existing Contracts" has the meaning given to it in Section 1.2.3 of the
Agreement.

"Finally Determined Casualty Loss" has the meaning given to it in Section 4.1 of
the Agreement.

"Finally Determined Environmental Defect" has the meaning given to it in Section
5.5.1 of the Agreement.

"Finally Determined Title Defect" has the meaning given to it in Section 3.5.1
of the Agreement.

"Final Settlement Date" has the meaning given to it in Section 13.1.2 of the
Agreement.

"Financial Statements" has the meaning given to it in Section 8.10 of the
Agreement.

"Form 8594" has the meaning given to it in Section 2.7 of the Agreement.

"General Assignment" has the meaning given to it in Section 12.6.2 of the
Agreement.

"Good and Defensible Title" has the meaning given to it in Section 3.2.1 of the
Agreement.

"Governmental Body" has the meaning given to it in Section 5.6.4 of the
Agreement.

"Hazardous Substances" has the meaning given to it in Section 5.6.5 of the
Agreement.

"Indemnified Party" and "Indemnifying Party" have the meanings given to them in
Section 13.5.1 of the Agreement.

                                       vi
<PAGE>

"Interest Addition," "Interest Addition Notice," "Interest Addition Rejection
Notice," and "Interest Addition Value" have the meanings given to them in
Section 3.7 of the Agreement.

"Interest Period" has the meaning given to it in Section 2.2 of the Agreement.

"Interim Period" has the meaning given to it in Section 8.1 of the Agreement.

"Net Revenue Interest" has the meaning given to it in Section 3.2.1 of the
Agreement.

"Non-Third Party Claim" has the meaning given to it in Section 13.5.1 of the
Agreement.

"NORM" has the meaning given to it in Section 5.1 of the Agreement.

"Notice Period" has the meaning given to it in Section 13.5.2 of the Agreement.

"Offset" has the meaning given to it in Section 3.7 of the Agreement.

"OSHA" is defined in Section 5.6.3 of the Agreement.

"Performance Deposit" has the meaning given to it in Section 2.3 of the
Agreement.

"Permitted Encumbrances" has the meaning given to it in Section 3.2.2 of the
Agreement.

"Personal Property" has the meaning given to it in Section 1.2.5 of the
Agreement.

"Plugging and Abandonment" has the meaning given to it in Section 13.3.1 of the
Agreement.

"Post-Closing Adjustment Statement" has the meaning given to it in Section
13.1.1 of the Agreement.

"Preliminary Amount" has the meaning given to it in Section 2.6 of the
Agreement.

"Properties" and "Property" have the meaning given to them in Section 1.2.1 of
the Agreement.

"Property Taxes" has the meaning given to it in Section 15.1 of the Agreement.

"Purchase Price" has the meaning given to it in Section 2.2 of the Agreement.

"Purchaser Group" has the meaning given to it in Section 5.2.2 of the Agreement.

"Purchaser's Environmental Assessment" and "Purchaser's Environmental
Consultant" have the meanings given to them in Section 5.2.1 of the Agreement.

"PV-NRI" has the meaning given to it in Section 3.6.4 of the Agreement.

                                       vii
<PAGE>

"RCRA" is defined in Section 5.6.3 of the Agreement.

"Records" has the meaning given to it in Section 1.2.6 of the Agreement.

"Rejection Notice" has the meaning given to it in Section 3.5.1 of the
Agreement.

"Remediation" has the meaning given to it in Section 5.6.6 of the Agreement.

"Remediation Amount" has the meaning given to it in Section 5.6.7 of the
Agreement.

"Reserve Report" has the meaning given to it in Section 3.6.4 of the Agreement.

"Retention Period" has the meaning given to it in Section 3.10.3 of the
Agreement.

"SARA" is defined in Section 5.6.3 of the Agreement.

"Seller Group" has the meaning given to it in Section 3.1 of the Agreement.

"Seller's Environmental Audit" has the meaning given to it in Section 5.1 of the
Agreement.

"Survival Date" has the meaning given to it in Section 13.3.2 of the Agreement.

"Third Party Claim" has the meaning given to it in Section 13.5.1 of the
Agreement.

"Title Defect" has the meaning given to it in Section 3.2.3 of the Agreement.

"Title Defect Notice" has the meaning given to it in Section 3.3 of the
Agreement.

"Title Indemnity Payment" has the meaning given to it in Section 3.4 of the
Agreement.

"Wells" has the meaning given to it in Section 1.2.2 of the Agreement.

"Working Interest" has the meaning given to it in Section 3.2.1 of the
Agreement.

"Work Papers" has the meaning given to it in Section 8.10 of the Agreement.

                                      viii
<PAGE>

                           PURCHASE AND SALE AGREEMENT

      This Purchase and Sale Agreement (this "Agreement") is made and entered
into this 20th day of December, 2006, by and between Statex Petroleum I, L.P.
("Statex I"), a Texas Limited Partnership, with an address of 1801 Royal Lane,
Suite 606, Dallas, Texas 75229 and Charles W. Gleeson LP ("Gleeson"), with an
address of Tgaar Tower, 24 Smith Road, Suite 222, Midland, Texas 79705
(collectively, Seller")and Baseline Oil & Gas Corp., a Nevada corporation with
an address of 3 Park Avenue, 16th Floor, New York, New York 10016 ("Purchaser").
Seller and Purchaser are sometimes collectively referred to in this Agreement as
the "Parties" or individually as a "Party".

                              W I T N E S S E T H:

      WHEREAS, Seller is the owner of the Assets (as defined below); and

      WHEREAS, Seller is willing to sell and deliver to Purchaser, and Purchaser
is willing to purchase and receive from Seller, the Assets upon the terms and
conditions set forth in this Agreement;

      NOW, THEREFORE, for and in consideration of the mutual promises of the
Parties contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:

                              1. PURCHASE AND SALE

1.1      Agreement to Sell and Purchase. Subject to the terms and conditions of
         this Agreement, Purchaser agrees to purchase and receive, and Seller
         agrees to sell, transfer, convey, and deliver, the Assets, as of the
         Effective Date (as defined below).

1.2      Assets. The term "Assets" as used herein shall mean all Seller's right,
         title and interest in and to the following:

1.2.1    All leasehold interests, overriding royalty interests, net profits
         interests, production payments, operating rights, and other similar
         interests of whatever kind or character, whether legal or equitable,
         vested or contingent, in, to, under, or otherwise attributable to the
         oil, gas, and mineral leases described in the attached Exhibit A and
         the leasehold estates created thereby, as to all lands and depths
         covered thereby or the applicable part or portion thereof if limited
         specifically in depth or geographic extent, and all units created by
         pooling, unitization, or communitization agreements or governmental
         pooling or unitization orders in effect with respect to such leases,
         lands, and interests, whether or not such interests or lands are
         described in Exhibit A. All such leases, interests and lands described
         in this Section 1.2.1 are hereinafter collectively called the
         "Properties" and singularly a "Property."

                                       1
<PAGE>

1.2.2    All producing oil wells and gas wells, water wells, saltwater disposal
         wells, injection wells, temporarily abandoned wells, and plugged and
         abandoned wells located on the Properties or on lands pooled, unitized,
         or communitized therewith, including, without limitation, the producing
         oil and/or gas wells, water wells, saltwater disposal wells, injection
         wells, and temporarily abandoned wells listed on Exhibit B hereto (such
         wells listed on Exhibit B hereto being called herein the "Wells"), and
         all oil, gas, and other minerals or substances produced therefrom or
         allocable thereto from and after the Effective Date.

1.2.3    Any and all surface leases, rights-of-way and easements; operating
         agreements; consulting agreements; exploration agreements; oil, gas,
         liquids, casinghead gas and condensate purchase, sales, processing,
         gathering, treatment, compression, transportation and gas balancing
         agreements; farmout, farmin, and participation agreements; dry hole,
         bottom hole, acreage contribution, purchase and acquisition agreements;
         area of mutual interest agreements; salt water disposal agreements;
         servicing contracts; permits; licenses; servitudes; and all other
         similar contracts and agreements and any amendments thereto relating to
         the Properties (collectively, with the oil and gas leases described on
         Exhibit A, the "Existing Contracts").

1.2.4    All valid oil, gas and/or mineral unitization, pooling, or
         communitization agreements and/or orders in effect with respect to the
         Properties, including, without limitation, all units formed under
         orders, rules, regulations, or other official acts of any federal,
         state, or other authority having jurisdiction, voluntary pooling,
         communitization, and unitization agreements, designations and/or
         declarations, and so-called "working interest units" created under
         operating agreements or otherwise relating to the Properties.

1.2.5    All surface or subsurface machinery, equipment, platforms, facilities,
         supplies or other property of whatsoever kind or nature now or
         hereafter located on or under any of the Properties and which relate to
         or are useful for the production, treatment, storage or transportation
         of hydrocarbons, including, without limitation, all wellhead equipment,
         casing, tubing, rods, pumping units and engines, christmas trees,
         derricks, separators, compressors, dehydration units, heater-treaters,
         boilers, valves, gauges, meters, pumps, generators, motors, gun
         barrels, flow lines, tanks and tank batteries, water lines, gas lines,
         gas processing plants and other plants, gathering lines, laterals and
         trunklines, gas systems (for gathering, treating and compression),
         chemicals, solutions, water systems (for treating, disposal and/or
         injection), power plants, poles, lines, transformers, starters,
         controllers, machine shops, tools, storage yards and equipment stored
         therein, buildings and camps, field pickup trucks and other field
         vehicles, telegraph, telephone and other communication systems, loading
         docks, loading racks and shipping facilities, equipment and facilities,
         and any and all additions, accessions to, substitutions and
         replacements of any of the foregoing, wherever located, together with
         all attachments, components, parts, equipment and accessories installed

                                       2
<PAGE>

         thereon or affixed thereto (all such machinery, equipment, platforms,
         facilities, supplies and other property being collectively called the
         "Personal Property").

1.2.6    All of the applicable files, records and data directly relating to the
         items described in subsections 1.2.1 through 1.2.5 above (including
         only copies of all applicable tax and accounting records) including,
         without limitation, joint interest billings, check receipts and third
         party disbursement records, and records relating to ad valorem, excise
         and other production related taxes, legal files, land and lease files,
         title records, contracts, geological, geophysical and seismic data and
         records except where the transfer or disclosure of such data and
         records is restricted by agreement with third parties (as more fully
         set forth in Section 8.9 below), production records, electric logs,
         core data, pressure data and decline curves and graphical production
         curves and all related matters in the possession of Seller
         (collectively the "Records"); provided, however, that Seller has the
         rights with respect to such Records as provided in Section 1.5 below.

1.3      Effective Date. Ownership of the Assets shall be transferred from
         Seller to Purchaser at the Closing (as defined below), but shall be
         effective as of 7:00 a.m. (local time where the Assets are located) on
         December 1, 2006 (the "Effective Date"). Except as may be otherwise
         specifically provided herein, Seller shall be entitled to any amounts
         realized from and accruing to the Assets (including contract rights,
         gas contract settlements, take-or-pay claims, and other claims and
         causes of action) for all periods prior to the Effective Date and shall
         be liable for the payment of all expenditures relating to the Assets
         and attributable to all periods prior to the Effective Date. Except as
         may be otherwise specifically provided herein, Purchaser shall be
         entitled to any amounts realized from and accruing to the Assets for
         all periods on and after the Effective Date, and shall be liable for
         the payment of all expenses relating to the Assets and attributable to
         all periods on and after the Effective Date.

1.4      Excluded Assets. There are hereby expressly excluded from the Assets to
         be conveyed pursuant hereto, and each of Statex I and Gleeson excepts
         and reserves to itself, severally according to its ownership interest
         therein and not jointly, the following property, rights, and assets
         (collectively, the "Excluded Assets"): (i) the leasehold rights of
         Statex I and Statex Petroleum, Inc., in and with respect to their
         office lease at 1801 Royal Lane, Suite 606, Dallas, Texas 75229, and of
         Gleeson in and with respect to its office lease at 24 Smith Rd., Suite
         222, Midland, Texas 79705, as well as, in each case, all furniture,
         fixtures, office equipment, computer hardware and software, inventory,
         supplies, trucks, and automobiles located outside Stephens County,
         Texas; (ii) the surface estate and all fee minerals and mineral rights
         (but not the oil and gas leasehold estate created under the oil, gas,
         and mineral lease described hereinafter, which constitutes a part of
         the Properties) in, to, and under 320 acres of land, more or less,
         being all of T.E. & L. Co. Survey 1175, A-504, Stephens County, Texas,
         which land is currently subject to that certain Oil, Gas and Mineral

                                       3
<PAGE>

         Lease dated June 3, 1992, from Mary Julia Spear, life estate; Box
         Chapel United Methodist Church, remainderman; Marie Caylor,
         remainderman; Carol Ann Caylor, remainderman; and Mary Julia Spear,
         Executrix of the Estate of Dan W. Babb, as Lessors, and Statex
         Petroleum, Inc., as Lessee, recorded in Book 1068, Page 137, Public
         Records, Stephens County, Texas; and (iii) any and all interests in
         oil, gas, and other minerals of any kind or character owned by Seller
         or Statex Petroleum, Inc., covering lands located outside Stephens
         County, Texas.

1.5      Gauging and Strapping. Seller has caused the oil storage facilities on
         or utilized in connection with the Properties to be gauged or strapped
         as of the Effective Date for those Properties for which it serves as
         operator. Seller also has caused the gas production meter charts (or if
         such do not exist, the sales meter charts) on the pipelines
         transporting gas production from the Assets to be read as of the
         Effective Date for those Properties for which it serves as operator.
         The production in such storage facilities or through such meters in the
         gas pipelines as of the Effective Date shall belong to Seller and
         production placed in such storage facilities thereafter and production
         upstream of the meters in the pipelines shall belong to Purchaser and
         shall become a part of the Assets. Prior to Closing, Purchaser, upon
         request, shall be provided with access to the records of the gauging,
         strapping or chart reading for the purpose of verifying such records.
         For those Properties which Seller does not operate, applicable state
         regulatory agency production reports or records shall be used to
         determine the amount of oil in storage or gas existing in the pipeline
         as of the Effective Date. If such state records or reports are not
         available or sufficient, another method agreeable between the Parties
         shall be used.

1.6      Records. Seller or any affiliate of Seller shall deliver to Purchaser
         within thirty (30) days after Closing, or such later time as Purchaser
         may request, but in no event later than three (3) months after Closing,
         all of the original Records. Seller or its affiliate shall have the
         right to make and retain such copies of the Records as Seller may
         desire prior to the delivery of the Records to Purchaser. Insofar as
         Seller reasonably believes the Records may be needed or useful in
         connection with federal, state or local regulatory or tax matters or
         resolution of disputes, litigation, or contract compliance issues,
         Purchaser, for a period of seven (7) years after the Closing Date,
         shall make available to Seller or its Affiliate (at the location of
         such Records in Purchaser's organization) access to the Records during
         normal business hours, upon written request of Seller or its Affiliate,
         and Seller or its Affiliate shall have the right to copy at its own
         expense and retain such copies of the Records. If, however, Purchaser
         elects to destroy any of the Records prior to the expiration of the
         seven (7) year period, Purchaser shall give to Seller or its Affiliate
         written notice of such intent at least thirty (30) days prior to such
         destruction, and Seller or its Affiliate shall have the option, at its
         expense, of having such Records delivered to it.

                                       4
<PAGE>

                              2. SALE AND PURCHASE

2.1      Purchase and Sale. At the Closing, Seller shall sell, assign and convey
         to Purchaser, and Purchaser shall purchase and pay for the Assets and
         assume the Assumed Obligations as provided in Section 13.3.1 hereof and
         the Environmental Obligations as set forth in Section 13.3.1 hereof.

2.2      Purchase Price. The purchase price shall be Twenty-Eight Million
         Dollars U.S. ($28,000,000) (the "Purchase Price"). The amount of the
         Purchase Price is set in consideration of Purchaser assuming the
         Assumed Obligations as provided in Section 13.3.1 hereof and the
         Environmental Obligations as set forth in Section 13.3.1 hereof. In
         addition, Purchaser agrees to pay Seller, at the Closing, interest on
         the full amount of the Purchase Price for each day from January 15,
         2007, until the Closing Date (the "Interest Period") at a rate of
         interest per annum calculated on a 365-day basis which is equal to one
         percent (1%) above the prime rate of interest of JPMorgan Chase Bank,
         National Association, as announced or published by such bank from time
         to time during the Interest Period, but in no event to exceed the
         maximum rate of interest from time to time permitted by Applicable Law.

2.3      Performance Deposit. As evidence of good faith intentions to consummate
         the transactions contemplated hereby, contemporaneously with the
         execution of this Agreement, Purchaser has tendered to Seller a cash
         performance deposit in the amount of One Million Dollars U.S.
         ($1,000,000) (the "Performance Deposit"). If Seller terminates this
         Agreement in accordance with Section 14.1.2 or Section 14.1.5 hereof as
         the result of Purchaser's failure to fulfill one or more of the
         conditions stated in Article 10 hereof (other than Section 10.5 and in
         the case of Section 10.3, to the extent only that, as between Seller
         and Purchaser, the complaint(s) set forth in the relevant suit, action,
         or proceeding are finally determined, by agreement, final arbitration
         decision, or final judgment of a court of competent jurisdiction, to be
         based principally on the acts or omissions of Purchaser), or in Section
         11.7, the Parties agree that Seller shall retain the Performance
         Deposit as liquidated damages. The Parties agree that the extent of the
         damages to Seller occasioned by the failure of the Closing to occur for
         the reasons described in the preceding sentence would be impossible or
         extremely difficult to ascertain and that the Performance Deposit is a
         reasonable estimate of such damages considering all the circumstances
         existing on the date of this Agreement, and does not constitute a
         penalty. In the event this Agreement is otherwise terminated by either
         Seller or Purchaser pursuant to this Agreement, the Performance Deposit
         shall be returned to Purchaser. In the event the transactions
         contemplated herein close, the Performance Deposit shall be credited
         against the Purchase Price payable by Purchaser hereunder with respect
         to the Assets.

2.4      Allocation of Purchase Price. Exhibit B hereto sets forth Purchaser's
         good faith allocation of the Purchase Price among the Assets. The term
         "Allocated Value" shall be the value agreed upon by the Parties for the

                                       5
<PAGE>

         Assets as set forth in Exhibit B. Such allocation is 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.

2.5      Determination of Adjusted Purchase Price. The net Purchase Price for
         the Assets (the "Adjusted Purchase Price") shall be determined as
         follows (as more fully illustrated in Exhibit C hereto):

2.5.1    The Purchase Price;

2.5.2    Plus the amount of all interest on the Purchase Price accrued during
         the Interest Period as provided in Section 2.2;

2.5.3    Plus the amount of all actual expenditures made or prepaid by Seller
         that are incurred in connection with the Assets (exclusive of Property
         Taxes) which are attributable to periods on and after the Effective
         Date, including, without limitation, rentals, shut-in well payments,
         and other lease maintenance payments; operating costs; capital costs
         (including, without limitation, all drilling costs, completion costs,
         acreage expenditures, acquisition expenditures, seismic expenditures,
         operation and waterflood expenditures); and the direct, overhead, and
         other charges and expenses (including, without limitation, the
         salaries, wages, and personal expenses of technical employees of Seller
         directly employed on the Assets, to the extent that such charges are
         permitted as direct charges to the joint account under the terms of the
         applicable joint operating agreements) billed to Seller by the operator
         or operators (including, without limitation, Seller or its Affiliates)
         of the Assets under applicable operating agreements (or if Seller or
         its Affiliate is the operator in the absence of an operating agreement,
         the charges provided in Section 8.3 hereof), including, without
         limitation, unreimbursed expenses paid by Seller on behalf of third
         parties to which Seller is entitled to reimbursement under such
         operating agreements;

2.5.4    Plus the total amount of any Property Taxes (as defined below) paid by
         Seller, for its own or other's account, relating to the Assets and
         attributable to any period of time on and after the Effective Date, as
         further provided for in Sections 15.1 and 15.2;

2.5.5    Less the amount of the actual proceeds received by Seller in the
         ordinary course of business after the Effective Date that are
         attributable to production from the Properties on and after the
         Effective Date (net of any royalties and of any production, severance,
         sales or other taxes actually paid by or on behalf of Seller), together
         with any other monies or credits received by Seller and attributable to
         the ownership or operation of the Assets from and after the Effective
         Date;

                                       6
<PAGE>

2.5.6    Less the amount of all advances and deposits received by Seller as of
         the Closing relating to the Assets and attributable to periods of time
         on or after the Effective Date;

2.5.7    Less an amount equal to the aggregate of all Title Indemnity Payments
         resulting from Title Defects, in accordance with Article 3, but subject
         to the limitation set forth in Section 13.3.5;

2.5.8    Less an amount equal to the aggregate of all Environmental Indemnity
         Payments resulting from all Environmental Defects, in accordance with
         Article 5, but subject to the limitation set forth in Section 13.3.5;

2.5.9    Less an amount equal to the Allocated Value of the Assets with respect
         to which preferential purchase rights have been exercised prior to the
         Closing;

2.5.10   Less the value of Seller's prorated share of all accrued Property Taxes
         relating to the Assets that are unpaid as of the Effective Date in
         accordance with Sections 15.1 and 15.2;

2.5.11   Less an amount equal to the reduction in value of the Assets subject to
         Casualty Losses that exist at the Closing in accordance with Article 4,
         but subject to the limitation set forth in Section 13.3.5;

2.5.12   Less or plus, as the case may be, an amount necessary to adjust for the
         net gas imbalances as determined pursuant to Section 13.1.3 hereof; and

2.5.13   Less an amount equal to the net proceeds and receivables related to
         production attributable to the Assets which are payable to third
         parties and are held in suspense by Seller as of the Closing Date.

2.6      Payment of Adjusted Purchase Price. At the Closing, Purchaser shall
         cause to be delivered by wire transfer to Seller an amount in
         immediately available U.S. funds equal to the Purchase Price set forth
         in Section 2.2, less the Performance Deposit set forth in Section 2.3
         and adjusted pursuant to Section 2.5 based on actual figures available
         on that date and estimated figures where actual figures are not
         available, subject to final adjustment pursuant to Section 13.1 (the
         "Preliminary Amount"). At Closing, 80% of the Preliminary Amount is to
         be deposited to the account of Statex I at International Bank of
         Commerce, ABA #114902528, Account Name: Statex Petroleum I, L.P.,
         Account Number 11497901, Attention: Michael K. Sohn, (telephone number
         (210)518-2500), and 20% to the account of Gleeson at Community National
         Bank, ABA# 116312873, Account Name: Charles W. Gleeson LP, Account
         Number 1100641, Attention: Darla Brazeal, Energy Lending (telephone
         number (432)685-8479).

2.7      Tax Purchase Price Allocations. Seller and Purchaser recognize that
         reporting requirements, as imposed by Section 1060(b) of the United
         States Internal Revenue Code of 1986, as amended (the "Code") and the
         regulations thereunder, may apply to the transaction contemplated by

                                       7
<PAGE>

         this Agreement. Accordingly, Seller and Purchaser agree that the
         Purchase Price shall be allocated among the Assets as set forth in
         Exhibit B, and such allocation shall satisfy the requirements of
         Section 1060 of the Code, and the regulations thereunder and shall be
         used in preparing Internal Revenue Service Form 8594 ("Form 8594")
         pursuant to Treasury Regulations under Section 1060. Each Party agrees
         not to assert, in connection with any tax return, tax audit or similar
         proceeding, any allocation of the Purchase Price that differs from that
         set forth in Exhibit B to this Agreement. In the event of an adjustment
         of the Purchase Price pursuant to the provisions hereof, the Parties
         agree to adjust their previously reported Purchase Price allocation as
         scheduled in Exhibit B as reasonably required by such adjustments, and
         to report such increase or decrease as it affects the previously agreed
         to Purchase Price allocation in conformity with Section 1060 and the
         regulations thereunder.

                                3. TITLE MATTERS

3.1      Access to Records and Assets. Upon execution of this Agreement until
         the Closing, and thereafter to the extent Seller or any affiliate of
         Seller retains physical possession of any of the Assets and/or Records,
         Seller shall make the Records (including, without limitation, all
         revenue statements, lease operating statements, invoices, and
         regulatory reports necessary to permit Purchaser to verify the
         historical and current lease operating statements and joint interest
         billings prepared by Seller with respect to the Assets) available to
         Purchaser at Seller's offices located at 1801 Royal Lane, Suite 606,
         Dallas, Texas 75229, during normal business hours for examination and
         copying by Purchaser and, with respect to the Properties it operates,
         shall grant Purchaser access to such Properties for inspection. Seller
         shall not be obligated to perform any title work or provide abstracts
         other than those presently in Seller's possession, nor will any
         existing title opinions be made current by Seller. Seller will use
         reasonable business efforts to furnish to Purchaser all other
         information with respect to the Assets as Purchaser may from time to
         time reasonably request, except to the extent that Seller determines in
         good faith that it is prohibited by agreement with a third party from
         disclosing the information covered thereby. Purchaser agrees to conduct
         its due diligence in a professional and orderly manner and at its own
         cost and expense without disruption of Seller's normal and usual
         operations. Purchaser shall indemnify and hold harmless Seller, its
         Affiliates and their respective partners, shareholders, officers,
         directors, employees, agents and representatives (the "Seller Group")
         from any and all claims, losses, damages, liabilities, costs and
         expenses, including court costs and reasonable attorney's fees
         ("Costs"), resulting from Purchaser's acts or omissions in connection
         with its access to the Assets, irrespective of whether such Costs are
         attributable, in whole or in part, to the negligence, sole or
         concurrent, of the Seller Group.

3.2      Definitions.

                                       8
<PAGE>

3.2.1    "Good and Defensible Title" shall mean, as to each Well, that (i)
         Seller (and upon Closing, Purchaser), by virtue of its ownership
         interests therein, are entitled to receive a fractional decimal
         interest of not less than the Net Revenue Interest set forth in Exhibit
         B for each Well without reduction, suspension, or termination
         throughout the productive life of each Well (the "Net Revenue
         Interest"); (ii) Seller is obligated to bear (and after Closing shall
         obligate Purchaser to bear) a fractional decimal interest of not more
         than the "Working Interest" set forth on Exhibit B of the costs and
         expenses related to the maintenance, development, drilling, equipping,
         testing, completing, sidetracking, reworking and operation of each Well
         without increase throughout the productive life of each Well (unless
         otherwise shown on Exhibit B); and (iii) the Wells are subject to no
         liens, encumbrances, obligations or defects except those that are
         Permitted Encumbrances (as defined below).

3.2.2    "Permitted Encumbrances" shall mean:

         (a)   Lessors' royalties, overriding royalties, payments out of
               production, reversionary interests and other similar payments out
               of production affecting Seller's Net Revenue Interest if the net
               cumulative effect of such burdens does not operate to (i) reduce
               the Net Revenue Interest of Seller in any of the Wells to less
               than the Net Revenue Interest for such Well as set forth in
               Exhibit B; or (ii) increase the Working Interest of Seller in any
               such Well to greater than the Working Interest therefor as set
               forth in Exhibit B (unless Seller's Net Revenue Interest therein
               is increased in the same proportion);

         (b)   Preferential rights to purchase and required third party consents
               to assignment and similar agreements with respect to which, prior
               to the Closing, (i) waivers or consents are obtained from the
               appropriate parties; (ii) the appropriate time for asserting such
               rights has expired without an exercise of such rights; or (iii)
               with respect to consents, such consents need not be obtained
               prior to assignment where the failure to obtain such consents
               will not have a material adverse effect on the value of the Well
               or subject Purchaser to liability in favor of any third party;

         (c)   All rights to consent by, required notices to, filings with, or
               other actions by governmental entities in connection with the
               sale or conveyance of oil and gas leases or interests therein if
               the same are customarily obtained subsequent to such sale or
               conveyance;

         (d)   Non-consent penalties applied against the interest of Seller
               arising under applicable operating agreements which are scheduled
               on Exhibit I and taken into account in the calculation of the
               interests shown on Exhibit B;

                                       9
<PAGE>

         (e)   Easements, rights-of-way, servitudes, permits, surface leases and
               other rights in respect of surface operations which do not and
               will not materially interfere with or detract from the operation,
               value, or use of the Wells by Purchaser;

         (f)   Such Title Defects as Purchaser has waived or is deemed to have
               waived pursuant to the terms of this Agreement, excluding,
               however, any Title Defects that would constitute a breach of the
               special warranty of title contained in the General Assignment;

         (g)   The terms and conditions of all Existing Contracts, provided the
               same do not result in a decrease in the Net Revenue Interest or
               an increase of the Working Interest in any of the Properties
               (unless Seller's Net Revenue Interest therein is increased in the
               same proportion) or that do not unreasonably interfere with or
               detract from the operation, value or use of the Wells by
               Purchaser in the same manner as currently operated, valued or
               used by Seller;

         (h)   Rights of reassignment, to the extent any exist as of the date of
               this Agreement, upon the surrender or expiration of any lease
               attributable to a Well;

         (i)   Liens for taxes or assessments not yet due or not yet delinquent
               or, if delinquent, that are being contested in good faith;

         (j)   Materialman's, mechanic's, repairman's, employee's, contractor's,
               operator's, and other similar liens or charges arising in the
               ordinary course of business (i) if they have not been filed
               pursuant to law, (ii) if filed, they have not yet become due and
               payable or payment is being withheld as provided by law, or (iii)
               if their validity is being contested in good faith by appropriate
               action;

         (k)   All rights reserved to or vested in any governmental, statutory
               or public authority to control or regulate any of the Wells in
               any manner, and all Applicable Laws;

         (l)   All defects and irregularities of title that would not reasonably
               be expected to result in claims that would materially and
               adversely affect Seller's title to, or ownership, operations or
               value of the affected Well, including, without limitation (i)
               defects in the early chain of title consisting of the failure to
               recite marital status or the omission of succession or heirship
               proceedings; (ii) defects or irregularities arising out of the
               lack of a survey; (iii) defects or irregularities arising out of
               or relating to the lack of powers of attorney from corporations
               to execute and deliver documents on their behalf; and (iv)
               defects and irregularities cured by adverse possession under
               applicable statutes of limitation and statutes relating to
               acquisitive (or liberative) prescription;

                                       10
<PAGE>

         (m)   All other liens, charges, encumbrances, instruments, obligations,
               defects and irregularities affecting the Properties which,
               individually or in the aggregate, do not: (i) interfere
               materially with the operation, value or use of any of the Wells;
               (ii) do not materially prevent Purchaser from receiving the
               proceeds of production from any of the Wells; (iii) do not reduce
               the interest of Seller with respect to all oil and gas produced
               from any Well below the Net Revenue Interest for such Well set
               forth on Exhibit B; or (iv) do not increase the costs and
               expenses that Seller is obligated to pay above the Working
               Interest set forth in Exhibit B for such Well without a
               proportionate increase in the Net Revenue Interest for such Well.

3.2.3    "Title Defect" shall mean any matter that (a) would cause the title to
         the Wells to fail to qualify as Good and Defensible Title and (b) has a
         Defect Value (as hereinafter defined) which is greater than $100,000.

3.3      Notice of Title Defect. During the period of time between the execution
         of this Agreement and January 26, 2007 (the "Due Diligence Period"),
         Purchaser may review title to the Wells and may notify Seller in
         writing (the "Title Defect Notice") of any Title Defect; provided,
         however, Purchaser shall notify Seller of any Title Defect it discovers
         as soon as reasonably practicable after its discovery. Any Title Defect
         Notice provided hereunder shall include appropriate evidence to
         substantiate the Purchaser's position, including a description of the
         Title Defect, the basis for the Title Defect, the Allocated Value
         therefor, the portion of the Property or other part of the Assets
         affected by the Title Defect, the amount by which Purchaser reasonably
         believes, in accordance with the provisions of Section 3.6, the value
         of the Well has been reduced because of the Title Defect (the "Defect
         Value"), and the computations and information upon which Purchaser's
         belief is based. The aggregated Defect Value for any Well shall not
         exceed the Allocated Value for such Well. Purchaser will be deemed to
         have conclusively waived any Title Defect about which it fails to
         notify Seller pursuant to a Title Defect Notice during the Due
         Diligence Period, excluding Title Defects that would constitute a
         breach of the special warranty of title contained in the General
         Assignment.

3.4      Remedies for Title Defects. For any Title Defect properly asserted by
         Purchaser during the Due Diligence Period, subject to the rights of
         Purchaser pursuant to Section 3.5.2 and Section 3.8 hereof, Seller
         shall have the option, in its sole discretion, of (i) curing the Title
         Defect, (ii) contesting the Title Defect or, the Defect Value, or (iii)
         paying the Defect Value as an adjustment to the Purchase Price, subject
         to the limitations set forth in Section 13.3.5 ("Title Indemnity
         Payment").

3.5      Procedure for Resolving Title Defects. With respect to Title Defects
         properly asserted by Purchaser, the following procedures shall apply.

                                       11
<PAGE>

3.5.1    If Seller contests the existence of a Title Defect or the Defect Value,
         then Seller shall so notify Purchaser in writing on or before five (5)
         days after 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 the Defect Value. No later
         than five (5) days following delivery of the Rejection Notice,
         representatives of Purchaser and Seller, knowledgeable in title
         matters, shall meet and 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 cure such Title
         Defect at its own expense and to its reasonable satisfaction and,
         failing such cure, make the Title Indemnity Payment therefor, subject
         to the limitations set forth in Section 13.3.5. 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 dispute resolution in accordance with the procedures
         set forth in Section 3.9. Each Title Defect as to which either Seller
         and Purchaser reach agreement hereunder concerning the validity of such
         Title Defect and its Defect Value or such validity and/or Defect Value
         is finally determined pursuant to Section 3.9 shall be referred to
         herein as a "Finally Determined Title Defect."

3.5.2    Notwithstanding the provisions of Article 3 of this Agreement, Seller
         shall be obligated to make a Title Indemnity Payment only, and then
         only to the extent, stated in Section 13.3.5 of this Agreement.

3.6      Value of Defects. The Defect Value shall be determined as follows:

3.6.1    If, because of the Title Defect, title to any particular Property fails
         completely with the effect that Seller has no ownership interest in the
         Property to which an individual Allocated Value is assigned, the Defect
         Value shall be the Allocated Value for that Property.

3.6.2    If the Title Defect consists of a lien, encumbrance or other charge
         upon the Property which is liquidated in amount, the Defect Value shall
         be the amount necessary to pay the obligee to remove such Title Defect.
         If such amount, however, is in excess of the Allocated Value of that
         Property, Purchaser may elect to exclude the Property from this sale,
         and the Purchase Price shall be reduced by the Allocated Value of such
         Property, without regard to the existence of or status of amounts
         credited against the Basket Deductible.

3.6.3    If Seller's actual Net Revenue Interest is less than the Net Revenue
         Interest set forth in Exhibit B for an individual Property throughout
         the entire life of the Property, the Defect Value shall be an amount
         equal to (a) the ratio of (x) the difference between the Net Revenue
         Interest on Exhibit B and the actual Net Revenue Interest to (y) the
         Net Revenue Interest on Exhibit B, (b) multiplied by the Allocated
         Value for such Property.

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<PAGE>

3.6.4    If Seller's actual Net Revenue Interest is less than the Net Revenue
         Interest set forth in Exhibit B for an individual Property for less
         than the entire life of the Property, or if Seller's actual WI is
         greater than the WI set forth in Exhibit B for an individual Property
         without a proportional increase in the relevant Net Revenue Interest,
         then the Defect Value shall be equal to the Allocated Value for such
         Property multiplied by a fraction (i) the numerator of which shall be
         the net present value, as of the Effective Date, of Seller's interest
         in the future net revenues from reserves classified as proved developed
         producing for such Property set forth in that certain Crude Oil and
         Natural Gas Reserve Report - Stephens County Acquisition, dated as of
         November 22, 2006, prepared by Pressler Petroleum Consultants, Inc.,
         and addressed to Purchaser, covering the Properties (the "Reserve
         Report"), a copy of which has been previously delivered to Seller,
         discounted at ten percent (10%) per annum (the "PV-NRI"), minus the net
         present value, as of the Effective Date, of Seller's interest in the
         future net revenues from reserves classified as proved developed
         producing for such Property calculated based upon the same production,
         cost, and assumed future price estimates and such other methods,
         techniques and assumptions utilized by Pressler Petroleum Consultants,
         Inc., in the preparation of the Reserve Report but taking into account
         the Title Defect, and (ii) the denominator of which shall be the
         PV-NRI.

3.6.5    If the Title Defect is one other than described in subparagraphs 3.6.1
         through 3.6.4, the Defect Value shall be the amount agreed to by Seller
         and Purchaser or, failing such agreement, the value of the Defect shall
         be determined pursuant to Section 3.9 below.

3.7      Interest Additions. If Seller discovers an increase in the Net Revenue
         Interest shown on Exhibit B with respect to a Well which is free of
         Title Defects (an "Interest Addition"), then Seller shall, from time to
         time, have the right to give Purchaser written notice of such Interest
         Additions ("Interest Addition Notice"), as soon as practicable but no
         later than the end of the Due Diligence Period, stating with reasonable
         specificity the Property 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 over and above
         the Allocated Value for such Property ("Interest Addition Value"). If
         Purchaser agrees with the existence of an Interest Addition and
         Seller's good faith estimate of the Interest Addition Value applicable
         thereto, and such Interest Addition Value exceeds $100,000, such
         Interest Addition Value shall be applied as an offset to any Title
         Indemnity Payments, Environmental Indemnity Payments, and Casualty Loss
         Amounts credited against the Basket Deductible, up to, but not to
         exceed, the Basket Deductible ("Offset"). If Purchaser contests the
         existence of an Interest Addition or Seller's good faith estimate of
         the applicable Interest Addition Value, then Purchaser shall so notify
         Seller in writing on or before five (5) days after receipt of the
         Interest Addition Notice ("Interest Addition Rejection Notice"). The
         Interest Addition Rejection Notice shall state with reasonable
         specificity the basis of Purchaser's rejection of the Additional
         Interest or the Interest Addition Value. No later than five (5) days
         following delivery of the Interest Addition Rejection Notice,
         representatives of Purchaser and Seller, knowledgeable in title

                                       13
<PAGE>

         matters, shall meet and, either (i) agree to mutually reject the
         Interest Addition in which case Seller shall waive the Interest
         Addition, or (ii) agree on the validity of such Interest Addition and
         the Interest Addition Value, in which case Seller shall be entitled to
         an Offset. If the Parties cannot agree on either option (i) or (ii) in
         the preceding sentence, the Interest Addition subject to the Interest
         Addition Rejection Notice shall be submitted to dispute resolution in
         accordance with the procedures set forth in Section 3.9. If Purchaser
         fails to timely deliver an Interest Addition Rejection Notice,
         Purchaser shall be deemed to have accepted the validity of the Interest
         Addition and the Interest Addition Value, and Seller shall be entitled
         to an Offset as described above.

3.8      Right to Terminate Agreement. Notwithstanding anything in Article 3,
         Article 4, or Article 5, in the event the sum of (i) the Defect Values
         attributable to Finally Determined Title Defects asserted by Purchaser
         in a timely manner as provided in Section 3.3, plus (ii) the
         Remediation Amounts of all Finally Determined Environmental Defects
         asserted by Purchaser in a timely manner as provided in Section 5.3,
         plus (iii) the Casualty Loss Amounts for all Finally Determined
         Casualty Losses that occur prior to the Closing Date, equals or
         exceeds, independently of and without regard to the Basket Deductible,
         ten percent (10%) of the Purchase Price, and Seller elects not to cure,
         remedy, or repair, or is unable to cure, remedy, or repair, such
         Finally Determined Title Defects, Finally Determined Environmental
         Defects, or Finally Determined Casualty Losses, Purchaser may elect to
         terminate this Agreement without liability to Seller, in which case
         Purchaser shall be entitled to a refund of the Performance Deposit.

3.9      Expert Determination. If Seller and Purchaser are unable to agree as
         herein provided, as to whether a Title Defect, Environmental Defect or
         Casualty Loss exists, or as to the amount or calculation of a Defect
         Value, a Remediation Amount, or a Casualty Loss Amount, or any other
         matter to be resolved under this Article 3 or Article 4 or 5, the
         Parties shall promptly refer the matter for determination in the manner
         hereinafter provided to the law firm of Cotton, Bledsoe, Tighe &
         Dawson, P.C. (the "Defect Expert"). The Defect Expert may enlist the
         advice of Netherland Sewell & Associates, Inc., or any other petroleum
         engineer, environmental consultant, or any other neutral expert as
         reasonably necessary in the sole discretion of the Defect Expert.

3.9.1    Upon referral to the Defect Expert, the Parties shall each deliver to
         the other and the Defect Expert a notice setting forth in adequate
         detail the issues to be determined by the Defect Expert and the
         decision (on a word-for-word basis) that such Party wishes the Defect
         Expert to make with respect to the issues to be determined (the
         "Decision Notice"); provided, however, that in preparing their Decision
         Notice, each Party (as well as the Defect Expert) shall be bound by the
         terms of this Agreement. Within two (2) business days after the giving
         of the two Decision Notices, the Parties shall attend a meeting with
         the Defect Expert at a mutually acceptable time and place to discuss

                                       14
<PAGE>

         fully the content of such Decision Notices and, based thereon,
         determine whether either or both wish to modify their Decision Notices
         in any way. Any such modifications shall be discussed, so that when
         each Party finalizes its Decision Notice, it shall do so with full
         knowledge of the content of the other Party's final Decision Notice.
         The finalization of such Decision Notices and the delivery of same by
         each Party to the other shall occur at the meeting unless the Parties
         agree to have one or more additional meetings for such purposes. The
         Defect Expert shall be required to adopt the decision set forth in one
         or the other of the final Decision Notices and shall have no power
         whatsoever to reach any other result. The Defect Expert shall adopt the
         decision that, in his or her judgment, is the more fair and equitable
         and in conformity with this Agreement based upon the nature of the
         Title Defect, Environmental Defect, or Casualty Loss in controversy,
         the Allocated Value of the affected Well, the likelihood of such Title
         Defect, Environmental Defect, or Casualty Loss having economic impact
         on the affected Well, and such other reasonable standards customary in
         the industry as are applicable to the situation.

3.9.2    The decision, made in writing and signed by the Defect Expert, shall
         determine such dispute. Such decision shall be made, signed and
         delivered to the Parties at the meeting unless otherwise agreed by the
         Parties. The expenses of the Defect Expert and any other expert
         retained by the Defect Expert under this Agreement shall be borne
         one-half (1/2) by Seller and one-half (1/2) by Purchaser, except that
         each Party shall bear the compensation and expense of its own counsel,
         witnesses and employees. The determination and award of the Defect
         Expert shall be final and binding upon the Parties, and judgment may be
         entered thereon in any court of competent jurisdiction upon the
         application of either Party.

3.10     Preferential Purchase Rights and Consents to Assign.

3.10.1   Within five (5) days after the execution of this Agreement, Seller
         shall send to the holder of each preferential right to purchase
         identified on Exhibit D a written notice offering to sell to such
         holder, in accordance with the contractual provisions applicable to
         such right, the Asset covered by such right on substantially the same
         terms as this Agreement and for the Allocated Value applicable to such
         Asset as set forth in Exhibit B, subject to adjustments in price in the
         same manner that the Purchase Price is adjusted pursuant to Section 2.5
         of this Agreement. Similarly, within five (5) days after the execution
         of this Agreement, Seller shall send to each party identified on
         Exhibit D from whom a consent to assignment is required a written
         notice requesting such party to consent to the assignment of the
         affected Asset to Purchaser. Both Purchaser and Seller shall use
         reasonable efforts to identify additional preferential rights to
         purchase and consents to assign and, if any such rights are identified,
         Seller shall notify such holder(s) in accordance with the terms of this
         Section 3.10.1 within five (5) days of the identification of such
         additional rights.

                                       15
<PAGE>

3.10.2   Except for consents and other matters described in subparagraph 3.2.2
         in the definition of Permitted Encumbrances, Seller shall use its
         reasonable commercial efforts (which shall in no event include any
         obligation to pay money to the owner of such rights or undertake any
         legal obligation) to obtain all required consents to assignment of the
         Assets prior to the Closing. If a lessor or other third party holding
         such right to consent to the assignment of an Asset or part thereof
         neglects or refuses such consent prior to the Closing, Seller will
         promptly so notify Purchaser and, at Purchaser's option, (i) Seller
         shall convey the affected Asset to Purchaser at the Closing, or (ii)
         the affected Asset shall be excluded from the Assets conveyed at
         Closing, and title thereto shall be retained by Seller subject to the
         terms of this Section 3.10.2 and Section 3.10.3. In either case, the
         Allocated Value applicable to the Affected Asset shall be included in
         the Purchase Price paid by Purchaser at the Closing, and Seller shall
         protect and indemnify Purchaser from any and all claims or Costs
         relating to such failure to obtain the required consent. After the
         Closing, Seller shall continue to use its reasonable commercial efforts
         (which shall in no event include any obligation to pay money to the
         owners of such rights or undertake any legal obligation) to obtain all
         consents to assignment as promptly after the Closing as is possible. If
         Seller obtains the relevant outstanding consent to assignment, and
         Purchaser has elected to exclude the affected Asset from the Assets
         conveyed at Closing, then within fifteen (15) days after Seller's
         receipt of such consent, Seller shall convey the affected Asset to
         Purchaser, subject to and in accordance with the other terms of this
         Agreement. If such outstanding consent is not obtained prior to the
         expiration of one hundred fifty (150) days after the Closing Date, and
         Purchaser has elected to purchase and receive a conveyance of the
         affected Asset at the Closing, and in Purchaser's reasonable judgment,
         the failure to obtain such consent adversely and materially affects the
         value of the affected Asset, Purchaser shall have the option to
         reassign the affected Asset to Seller, without representation or
         warranty as to title except as against those claiming the same by,
         through or under Purchaser and subject only to those matters to which
         the Asset was subject at Closing, and Seller shall refund to Purchaser
         the Allocated Value for such Asset subject to adjustment for revenues,
         expenses and other matters attributable to such Asset since the
         Effective Date in accordance with Section 2.5. Upon such reassignment,
         Seller shall have no further liability to Purchaser with respect to the
         Asset under this Section 3.10.2.

3.10.3   If Purchaser has elected to exclude the affected Asset from the Assets
         conveyed at the Closing, then during the period from the Closing Date
         until such outstanding consent is obtained and such Asset is conveyed
         to Purchaser (the "Retention Period"), Seller and Purchaser shall take
         such actions, to the extent permitted by Applicable Law, as may be
         necessary to permit Purchaser to receive the economic benefits from,
         and assume the liabilities of Seller with respect to, the affected
         Asset. To that end, during the Retention Period: (i) Purchaser shall be

                                       16
<PAGE>

         entitled to receive directly and retain all revenues payable to Seller
         with respect to the affected Asset (after deducting Seller's share of
         all royalties, overriding royalties, and other burdens upon or payable
         out of production from such Asset and all applicable Property Taxes and
         production, severance, excise, and other taxes); and (ii) Purchaser
         shall directly bear and pay all costs, expenses, and other sums owed by
         Seller in connection with such Asset. Oil and gas operations on or
         related to the affected Asset shall be conducted by Purchaser and
         Seller subject to the terms of a mutually agreeable joint operating
         agreement that names Purchaser as a contract operator and authorizes
         Purchaser to make all operational decisions pertaining to the affected
         Asset. Notwithstanding the foregoing, during the Retention Period, as
         between the lessor(s) under the oil and gas lease(s) comprising the
         affected Asset, on the one hand, and Seller and Purchaser, on the other
         hand, Seller shall remain the party directly responsible to such
         lessor(s) for the performance of the obligations of the lessee under
         terms of such oil and gas leases, which Seller shall continue to
         perform in accordance with the terms of Sections 8.1 through 8.3;
         provided, however, that Seller shall have no liability to Purchaser for
         any claims or Costs associated with the performance of the terms of
         such leases except for matters indemnified by Seller under Section
         3.10.2 and except for matters relating to the gross negligence,
         criminal or fraudulent acts, or willful misconduct of Seller. Nothing
         contained in this Section 3.10.3 shall be deemed or construed to create
         a relationship among Seller and Purchaser of partnership, joint
         venture, agency, or other relationship creating fiduciary,
         quasi-fiduciary, or similar duties and obligations inter se.

3.10.4   If, prior to the Closing, any holder of a valid preferential purchase
         right notifies Seller that it intends to consummate the purchase of an
         Asset to which its preferential purchase right applies, then such Asset
         shall be excluded from the Assets to be conveyed to Purchaser under
         this Agreement, and the Purchase Price shall be reduced by the
         Allocated Value of such Asset, without regard to the existence of or
         status of amounts credited against the Basket Deductible; provided,
         however, that if the holder of such preferential right fails to
         consummate the purchase of the Asset covered by such right, whether
         before or after Closing, then Seller, as promptly as possible
         thereafter, but in no event later than one hundred fifty (150) days
         after the Closing, shall so notify Purchaser, and within fifteen (15)
         days after Purchaser's receipt of such notice from Seller, Seller shall
         sell to Purchaser, and Purchaser shall purchase from Seller, for a
         price equal to the Allocated Value of such Asset and subject to and in
         accordance with the other terms of this Agreement, the Asset to which
         the preferential purchase right applies. All Assets for which a
         preferential purchase right has not been exercised by the holder of
         such right prior to the Closing (whether or not the applicable time

                                       17
<PAGE>

         period in which to exercise such right has expired) shall be sold to
         Purchaser at the Closing pursuant to the provisions of this Agreement.
         If Seller is notified within the applicable time period for exercising
         such right but subsequent to the Closing that the holder of such right
         intends to assert its preferential purchase right, Seller shall give
         notice thereof to Purchaser, whereupon Purchaser shall convey the
         affected Asset to the holder of the preferential purchase right as of
         the Effective Date in exchange for the Allocated Value for such Asset.

                                4. CASUALTY LOSS

4.1      Casualty Loss. If, prior to the Closing, any of the Assets are
         substantially damaged or destroyed by fire or other casualty ("Casualty
         Loss"), Seller shall notify Purchaser promptly after Seller learns of
         such event. Seller shall have the right, but not the obligation, to
         cure any such Casualty Loss by repairing such damage or, in the case of
         personal property or fixtures, replacing the damaged Assets with
         equivalent items, no later than the Closing Date. If any unrepaired
         Casualty Loss exists at the Closing, Purchaser shall proceed to
         purchase the damaged Assets, and the Purchase Price shall be reduced by
         the aggregate reduction in value of all affected Assets on account of
         such Casualty Loss (the "Casualty Loss Amount"), as determined by the
         mutual agreement of the Parties, or if the Parties are unable to agree
         on the Casualty Loss Amount prior to the Closing, then such
         determination shall be made by the Defect Expert as provided in Section
         3.9 above. Each Casualty Loss as to which either Seller and Purchaser
         reach agreement on the Casualty Loss Amount prior to the Closing or
         such Casualty Loss Amount is finally determined pursuant to Section 3.9
         shall be referred to herein as a "Finally Determined Casualty Loss."
         Notwithstanding anything to the contrary contained in this Section 4.1,
         (i) a reduction of the Purchase Price attributable to any Casualty Loss
         shall be made only to the extent permitted under the provisions of
         Section 13.3.5, and (ii) if any reduction to the Purchase Price occurs
         as the result of a Casualty Loss, Seller shall be entitled to retain
         all insurance proceeds and claims against other parties relating to any
         such Casualty Loss. For purposes of this provision, normal wear and
         tear shall not be considered a Casualty Loss.

                           5. ENVIRONMENTAL CONDITION

5.1      Physical Condition of the Assets. The Assets have been used for oil and
         gas drilling and production operations and various related oil field
         operations. Physical changes in or under the Assets or adjacent lands
         may have occurred as a result of such uses. The Assets also may contain
         buried pipelines and other equipment, whether or not of a similar
         nature, the locations of which may not now be known by Seller or be
         readily apparent by a physical inspection of the Assets. Purchaser
         understands that Seller may not have the requisite information with
         which to determine the exact nature or condition of the Assets or the
         effect any such use has had on the physical condition of the Assets.
         Seller has caused a "Phase I" Environmental Compliance Audit of the
         Assets to be conducted by Highlander Environmental Corp. ("Seller's
         Environmental Audit"). A copy of Seller's Environmental Audit has been
         provided to Purchaser under separate cover, and receipt thereof is
         hereby acknowledged by Purchaser. Seller hereby grants Purchaser the
         right to contact Highlander Environmental Corp. in connection with

                                       18
<PAGE>

         Seller's Environmental Audit. IN RESPECT TO SELLER'S ENVIRONMENTAL
         AUDIT, SELLER MAKES NO, AND DISCLAIMS ANY, EXPRESS OR IMPLIED WARRANTY
         AS TO THE ACCURACY OR COMPLETENESS OF ANY STATEMENT OF PURPORTED FACT
         OR CONCLUSION CONTAINED THEREIN. In addition, Purchaser acknowledges
         that some oil field production equipment may contain asbestos and/or
         naturally occurring radioactive material ("NORM"). In this regard,
         Purchaser expressly understands that NORM may affix or attach itself to
         the inside of wells, materials and equipment as scale or in other
         forms, and that the wells, materials and equipment located on the
         Assets described herein may contain NORM and that NORM containing
         materials may be buried or have been otherwise disposed of on the
         Assets. Purchaser also expressly understands that special procedures
         may be required for the removal and disposal of asbestos and NORM from
         the Assets where it may be found.

5.2      Environmental Assessment.

5.2.1    Prior to the Closing, and upon reasonable, prior notice to Seller and
         the operator of the Assets, Purchaser and any third party consulting
         firm approved by Seller (which consent shall not be unreasonable
         withheld) and retained by Purchaser (the "Purchaser's Environmental
         Consultant"), to the same extent Seller has such right, shall have the
         right to enter upon the Assets and all buildings and improvements
         thereon, inspect the same, conduct soil and water tests and borings,
         and generally conduct such tests, examinations, investigations and
         studies as may be necessary or appropriate for the preparation of
         appropriate engineering and other reports, judgments or environmental
         assessments in relation to the Assets, their environmental condition,
         and the existence of Environmental Defects (as hereinafter defined)
         (such inspection and investigation being called herein "Purchaser's
         Environmental Assessment"). Purchaser agrees promptly to provide to
         Seller a copy of Purchaser's Environmental Assessment, including any
         reports, data and conclusions. Purchaser and Seller shall keep any data
         or information acquired by all such examinations and the results of all
         analyses of such data and information strictly confidential and shall
         not disclose same to any person or agency without the prior written
         approval of the other Party, except such disclosure as may be required
         by law. This obligation of confidentiality shall survive the Closing.

5.2.2    With respect to Purchaser's Environmental Assessment, Purchaser shall
         indemnify and hold harmless the Seller Group from any and all Costs
         resulting from the acts or omissions of Purchaser or Purchaser's
         Environmental Consultant, including, without limitation, Costs relating
         to (i) any and all statutory or common-law liens or other encumbrances
         for labor or materials furnished in connection with such tests,

                                       19
<PAGE>

         samplings, studies or surveys as Purchaser or Purchaser's Environmental
         Consultant may conduct with respect to the Assets and (ii) claims
         asserted by the Purchaser, its Affiliates and their respective
         partners, shareholders, officers, directors, employees, agents and
         representatives (the "Purchaser Group"), irrespective of whether such
         Costs are attributable, in whole or in part, to the negligence, sole or
         concurrent, of the Seller Group.

5.3      Environmental Defect Notice. If Purchaser, in its sole discretion,
         determines, as a result of Purchaser's Environmental Assessment, that
         there exists or may exist an Environmental Defect, Purchaser may notify
         Seller thereof in writing as soon as reasonably practical after its
         discovery, but in any event before the end of the Due Diligence Period
         (the "Environmental Defect Notice"). Any notice provided hereunder
         shall include appropriate evidence to substantiate the Purchaser's
         position, including a description of the Environmental Defect, the
         Environmental Law applicable to the Environmental Defect and
         Purchaser's basis for believing that Seller is in violation of such
         Environmental Law, the portion of the Assets affected by the
         Environmental Defect, a bid from Purchaser's Environmental Consultant
         outlining the cost for Remediation (as hereinafter defined) which bid
         shall identify the methods and scope of the Remediation proposed and
         all assumptions relied upon by Purchaser's Environmental Consultant in
         calculating the cost of Remediation, and a calculation by Purchaser of
         the Remediation Amount (as hereinafter defined) attributable to the
         Environmental Defect based upon the bid of Purchaser's Environmental
         Consultant. Purchaser will be deemed to have conclusively waived any
         Environmental Defect about which it fails to notify Seller pursuant to
         an Environmental Defect Notice during the Due Diligence Period.

5.4      Remedies for Environmental Defects. For any Environmental Defect
         properly asserted by Purchaser during the Due Diligence Period, subject
         to the rights of Purchaser pursuant to Section 5.5.2 and Section 3.8
         hereof, Seller shall have the option, in its sole discretion, of (i)
         curing the Environmental Defect, (ii) contesting the Environmental
         Defect or the Remediation Amount, or (iii) paying the Remediation
         Amount as an adjustment to the Purchase Price, subject to the
         limitations set forth in Section 13.3.5 ("Environmental Indemnity
         Payment").

5.5      Procedure for Resolving Environmental Defects. With respect to
         Environmental Defects properly asserted by Purchaser, the following
         procedures shall apply.

5.5.1    If Seller contests the existence of an Environmental Defect or the
         Remediation Amount, then Seller shall provide Purchaser a Rejection
         Notice thereof in writing on or before five (5) days after receipt of
         the Environmental Defect Notice. The Rejection Notice shall state with
         reasonable specificity the basis of Seller's rejection of the
         Environmental Defect or the Remediation Amount. No later than five (5)
         days following delivery of the Rejection Notice, representatives of
         Purchaser and Seller, knowledgeable in environmental matters, shall
         meet and either: (i) agree to mutually reject the particular

                                       20
<PAGE>

         Environmental Defect, or (ii) agree on the validity of such
         Environmental Defect and the Remediation Amount, in which case Seller
         shall cure such Environmental Defect at its own expense and to the
         satisfaction of the appropriate Governmental Body (as hereinafter
         defined) prior to Closing or as soon thereafter as is reasonably
         practicable and, failing such cure, make the Environmental Indemnity
         Payment therefor, subject to the limitation set forth in Section
         13.3.5. If the Parties cannot agree on either options (i) or (ii) in
         the preceding sentence, the Environmental Defect or the Remediation
         Amount subject to the Rejection Notice shall be submitted to dispute
         resolution in accordance with the procedures set forth in Section 3.9.
         Each Environmental Defect as to which either Seller and Purchaser reach
         agreement hereunder concerning the validity of such Environmental
         Defect and its Defect Amount or such validity and/or Remediation Amount
         is finally determined pursuant to Section 3.9 shall be referred to
         herein as a "Finally Determined Environmental Defect."

5.5.2    Notwithstanding the other provisions of Article 5 of this Agreement,
         Seller shall be obligated to make an Environmental Indemnity Payment
         only, and then only to the extent, stated in Section 13.3.5 of this
         Agreement.

5.6      Definitions.

5.6.1    "Applicable Laws" shall mean all laws, statutes, treaties, rules,
         codes, ordinances, regulations, certificates, orders, interpretations,
         licenses and permits of any Governmental Body (as hereinafter defined),
         including the common or civil law, (including, without limitation,
         those pertaining to occupational health and safety, consumer product
         safety, employee benefits, the environment, securities or zoning) and
         all judgments, decrees, injunctions, writs, orders or like action of
         any court, arbitrator or other Governmental Body of competent
         jurisdiction.

5.6.2    "Environmental Defect" shall mean a condition that exists prior to the
         Effective Date, and only to the extent in existence as of the Effective
         Date, with respect to the air, land, soil, surface, subsurface strata,
         surface water, ground water or sediments which causes an Asset to be
         subject to Remediation within a time certain under Environmental Laws
         in effect as of the Effective Date, but only to the extent that (i) the
         condition is not disclosed in the Seller's Environmental Audit, (ii)
         the condition was not otherwise known to Purchaser prior to the
         execution of this Agreement, and (iii) the Remediation Amount, net to
         Purchaser's interest, will exceed the sum of $100,000.

5.6.3    "Environmental Laws" shall mean any and all Applicable Laws pertaining
         to safety, health or conservation or protection of the environment,
         wildlife, or natural reserves in effect in any and all jurisdictions in
         which the Assets are located, including, without limitation, the Clean
         Air Act, as amended, the Federal Water Pollution Control Act, as

                                       21
<PAGE>

         amended, the Safe Drinking Water Act, as amended, the Comprehensive
         Environmental Response, Compensation and Liability Act, as amended
         ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
         as amended ("SARA"), the Resource Conservation and Recovery Act, as
         amended ("RCRA"), the Hazardous and Solid Waste Amendments Act of 1984,
         as amended, the Toxic Substances Control Act, as amended, and the
         Occupational Safety and Health Act, as amended ("OSHA"), and any
         applicable state, tribal, or local counterparts, but shall not include
         any Applicable Law associated with Plugging and Abandonment (as
         hereinafter defined). The terms "release" and "threatened release"
         shall have the meanings specified in CERCLA; provided, however, that to
         the extent the laws of the state in which the Assets are located are
         applicable and have established a meaning for "release", "threatened
         release", and "disposal" that is broader than that specified in CERCLA
         or RCRA, such broader meaning shall apply with respect to the matters
         covered by such laws.

5.6.4    "Governmental Body" shall mean any Federal, state, tribal, county,
         parish, 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).

5.6.5    "Hazardous Substances" shall mean shall mean all industrial or solid
         waste, hazardous waste, hazardous or toxic substances, chemicals or
         pollutants, hydrocarbons (including crude oil, natural gas, natural gas
         liquids, or liquefied natural gas) and any wastes associated with the
         exploration and production of hydrocarbons, asbestos or any substance
         containing asbestos and deemed hazardous, the group of organic
         compounds known as polychlorinated biphenyls, flammable explosives,
         radioactive materials, effluents, contaminants, emissions or related
         materials and any items included in the definition of hazardous,
         dangerous or toxic waste, materials or substances under any
         Environmental Law, including, without limitation, RCRA, CERCLA, SARA,
         the Hazardous Materials Transportation Act, the Federal Water Pollution
         Control Act, the Clean Air Act, the Clean Water Act, the Toxic
         Substances Control Act, and the Safe Drinking Water Act.

5.6.6    "Remediation" shall mean removal, excavation, capping or other
         environmental remedies to the extent required by Environmental Laws in
         effect as of the Effective Date to remedy an Environmental Defect
         existing on or with respect to an Asset using the least stringent, most
         cost effective standard, but only to the extent such requirement
         relates to the continued use and operation of the Asset for oil and/or
         gas exploration, production and gathering.

                                       22
<PAGE>

5.6.7    "Remediation Amount" shall mean, with respect to any Environmental
         Defect, the cost of Remediation with respect thereto.

5.7      "As Is, Where Is" Purchase. Except to the extent of the remedies
         provided to Purchaser in Section 5.4 with respect to any Environmental
         Defects properly asserted by Purchaser prior to the end of the Due
         Diligence Period, Purchaser shall acquire the Assets in an "AS IS,
         WHERE IS" condition and shall assume the risk that adverse physical
         conditions, including but not limited to Environmental Defects, the
         presence of Hazardous Substances, or the presence of unknown abandoned
         oil and gas wells, water wells, sumps and pipelines, may exist on or
         with respect to the Assets.

                          6. REPRESENTATIONS OF SELLER

6.1      Disclaimers. Except as specifically set forth in this Article 6, Seller
         (i) makes no representations or warranties, express or implied, in
         connection with the Assets, and (ii) expressly disclaims any
         representations or warranties with regard to the accuracy or
         completeness of any information or data disclosed or provided by
         Seller, its agents, representatives, employees or advisors to Purchaser
         or to Purchaser's agents, representatives, employees, or advisors.
         Subject to this Section 6.1 and to the Permitted Encumbrances, Seller
         makes the representations and warranties set forth in Section 6.2.
         Except for Purchaser's remedies with respect to Environmental Defects
         set forth in Section 5.4 above, SELLER EXPRESSLY DISCLAIMS ANY WARRANTY
         AS TO THE CONDITION OF ANY PERSONAL PROPERTY, FIXTURES AND ITEMS OF
         MOVABLE PROPERTY COMPRISING ANY PART OF THE ASSETS, INCLUDING (i) ANY
         IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR
         EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED
         OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
         (iv) ANY RIGHTS OF PURCHASER UNDER APPLICABLE STATUTES TO CLAIM
         DIMINUTION OF CONSIDERATION, AND (v) ANY CLAIM BY PURCHASER FOR DAMAGES
         BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING EXPRESSLY
         UNDERSTOOD BY PURCHASER THAT THE PERSONAL PROPERTY, FIXTURES AND ITEMS
         AND THE CONDITION OF THE PROPERTIES ARE BEING CONVEYED TO PURCHASER "AS
         IS, WHERE IS, WITH ALL FAULTS," AND IN THEIR PRESENT CONDITION AND
         STATE OF REPAIR, AND THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH
         INSPECTIONS AS PURCHASER DEEMS APPROPRIATE.

6.2      Representations. Each of Statex I and Gleeson represents and warrants
         to Purchaser, with respect to itself only and severally with respect to
         its ownership interest in the Assets, but not jointly, and as of the
         date hereof and as of the Closing Date, the following:

                                       23
<PAGE>

6.2.1    Existence. Each of Statex I and Gleeson is a limited partnership duly
         organized and validly existing under the laws of the State of Texas and
         is duly qualified to carry on its business and, where required by
         applicable law, is in good standing in the states in which the Assets
         are located.

6.2.2    Power. Seller has all requisite limited partnership power and authority
         to carry on its business as presently conducted, to enter into this
         Agreement and the other documents and agreements contemplated hereby,
         and to perform its obligations under this Agreement.

6.2.3    Authorization. Seller's execution and delivery of this Agreement and
         the consummation of the transactions contemplated hereby have been duly
         and validly authorized and will not violate, or be in conflict with, or
         result in a breach, or trigger a default (or an event that, with the
         lapse of time or notice or both, would constitute a default) under the
         provisions of any material agreement or instrument to which Seller is a
         party or by which Seller is bound or to which any Asset is subject
         (other than Permitted Encumbrances), the organizational and governing
         documents of Seller, or any judgment, decree, order, or Applicable Law
         applicable to Seller or any Asset or by which Seller or any Asset may
         be bound, non-compliance with which would have a material and adverse
         effect on Purchaser or its ownership or operation, on or after the
         Closing Date, of any of the Assets or on the ability of Seller to
         consummate the transactions contemplated herein. This Agreement has
         been, and the other documents provided for herein to be executed and
         delivered by Seller to Purchaser at the Closing will be, duly executed
         and delivered on behalf of Seller and constitute or shall constitute
         the legal, valid and binding obligations of Seller enforceable in
         accordance with their respective terms, subject to the effects of
         bankruptcy, insolvency, reorganization, moratorium and similar laws, as
         well as to principles of equity (regardless of whether such
         enforceability is considered in a proceeding in equity or at law).

6.2.4    Brokers. Seller has incurred no obligation or liability, contingent or
         otherwise, for brokers' or finders' fees relating to the matters
         provided for by this Agreement which will be the responsibility of
         Purchaser; and any such obligation or liability of Seller that might
         exist shall be the sole obligation of Seller.

6.2.5    Tax Partnerships. Except as shown on Exhibit E, (i) the Properties are
         not subject to any currently effective Tax Partnership Agreement or
         provisions requiring a Partnership Income Tax Return to be filed under
         Subchapter K of Chapter 1 of Subtitle A of the Code, or any similar
         state statute; and (ii) all Partnership Income Tax Returns required to
         be filed by the Code have been timely filed.

6.2.6    Pending Claims and Litigation. Except as disclosed on Exhibit F, there
         are no suits, actions or other legal, administrative or arbitration
         proceedings pending or, to the best of Seller's knowledge, threatened
         in writing against Seller or any of the Assets (or, with respect to the
         Properties for which Seller has not been designated operator, to the

                                       24
<PAGE>

         best of Seller's knowledge, pending or threatened in writing against
         the operator of such Properties) that would, if determined adversely to
         Seller, (i) result in the material impairment or loss of Seller's title
         to any material part of the Assets, (ii) materially hinder or impede
         the operation of all or any material portion of the Assets, or (iii)
         restrain, prohibit or impose damages on Purchaser or Seller with
         respect of the transactions contemplated herein.

6.2.7    Verbal Threats of Claims and Litigation. Except as disclosed on Exhibit
         F, to the best knowledge of Seller, no verbal communications from third
         parties have come to the attention of Seller which has caused Seller to
         believe in good faith that there are any legal proceedings threatened
         against Seller, the operator of the Assets, or any of the Assets which
         would, if determined adversely to Seller, (i) result in the material
         impairment or loss of any material part of the Assets, (ii) materially
         hinder or impede the operation of all or any material portion of the
         Assets, or (iii) restrain, prohibit or impose damages on Purchaser or
         Seller with respect to the transactions contemplated herein.

6.2.8    Violations. Except with respect to Environmental Laws, which are
         covered by Article 5, and except as set forth on Exhibit G, to the best
         knowledge of Seller, neither Seller nor any operator of the Assets has
         not violated any Applicable Laws applicable to any of its Assets or the
         operation thereof which violation materially and adversely affects the
         value of the Assets affected thereby. Neither Seller nor, to Seller's
         knowledge, any other person has received notice from any Governmental
         Body having jurisdiction to the effect that Seller or any other person
         has violated or failed to comply with any such Applicable Law.

6.2.9    Gas Imbalances. Except for those listed on Exhibit H, there exist no
         production imbalances or imbalances with respect to any gas pipeline,
         storage, or processing facility or other conditions regarding
         production or products taken or marketed from the Assets or any portion
         thereof which could result in:

         (a)   a portion of Seller's interest in production or products
               therefrom being taken or delivered after the Closing without
               Purchaser receiving payment therefor or at the price it would
               have received absent such imbalance; or

         (b)   Seller or Purchaser being obligated to make payment to any person
               or entity as a result of such imbalance; or

         (c)   Seller being obligated, by virtue of any production payment,
               prepayment arrangement, take-or-pay agreement, forward sale,
               deferred production, or similar arrangement, to deliver
               hydrocarbons or products produced from the Assets at some future
               time without then receiving full payment therefor.

                                       25
<PAGE>

      Notwithstanding anything else to the contrary contained herein,
      Purchaser's sole and exclusive remedy with respect to any breach of the
      representation and warranty contained in this Section 6.2.9 shall be an
      adjustment to the Purchase Price made at the Final Settlement Date in
      connection with the Post-Closing Adjustment Statement pursuant to Section
      13.1.3.

6.2.10   Preferential Purchase Rights and Consents to Assignment. Except as
         disclosed on Exhibit D, there exist no (i) preferential purchase or
         similar rights burdening the Assets or (ii) required third person
         consents to assignment whose terms would invalidate an Asset or the
         transfer of an Asset as the result of a failure to obtain the required
         consent.

6.2.11   AFEs and Commitments. Except as disclosed on Exhibit K, there are no
         outstanding authorities for expenditure under the Existing Contracts
         affecting the Properties or other commitments for which (i) Seller will
         be obligated for expenses or (ii) Seller has non-consented.

6.2.12   Marketing. Except as disclosed on Exhibit I, there are (i) no
         hydrocarbons marketing agreements that are not cancellable by Seller on
         notice to be given more than 90 days prior to cancellation, and (ii) no
         calls on production, options to purchase, or similar rights in effect
         with respect to hydrocarbon production from the Assets. Seller is
         currently being paid the full prices provided for under applicable
         marketing agreements with respect to hydrocarbon production from the
         Assets, the full amount of the proceeds from the sale of such
         production is being disbursed to Seller in the ordinary course of
         business, and none of such proceeds is being held in suspense, subject
         to a claim for refund, being used as an offset or collateral for
         another obligation, or otherwise not being paid as they become due in
         the ordinary course of business.

6.2.13   Wells. Exhibit B lists all of the Wells located on the Properties. The
         Wells are located on the Properties in accordance with all legal and
         regulatory requirements. All producing Wells have been produced within
         applicable allowable rates of production, and none of the producing
         Wells listed on Exhibit B have been plugged and abandoned or
         permanently ceased the production of hydrocarbons. Except as shown on
         Exhibit B, no Wells located on the Properties require permanent
         plugging and abandonment. All plugged and abandoned Wells have been
         plugged and abandoned, and all related salvage, site clearance, and
         surface restoration has been performed, in accordance with all
         Applicable Laws.

6.2.14   Expenses and Property Taxes. With respect to the ownership and
         operation of the Assets, Seller has paid all current and past expenses
         for which Seller is contractually obligated and all Property Taxes.

                                       26
<PAGE>

6.2.15   Area of Mutual Interest Provisions. There are no area of mutual
         interest provisions applicable to the Assets.

6.2.16   Leases. The oil and gas leases included in the Properties are valid and
         effective. There is no breach or default by Seller under the terms of
         such leases, and there has occurred no event, fact, or circumstance
         that, with the lapse of time or the giving of notice or both, would
         constitute a breach or default by Seller under the terms of any such
         lease. The royalty, rentals, shut-in royalties, and other payments
         required under such leases have been paid timely.

6.2.17   Governmental Permits. Except for governmental permits covered by
         Environmental Laws, which are covered by Article 5, Seller has obtained
         all governmental permits that are required for ownership and operation
         of the Assets and there exists no material default by Seller under the
         terms of Seller's governmental permits. Seller has not received notice
         from any Governmental Body having jurisdiction to the effect that
         Seller has violated or failed to comply with any such governmental
         permit.

6.2.18   Governmental Consents. There are no consents of any Governmental Body
         with respect to the ownership or operation of the Assets for which
         Seller is responsible in any case in which the failure of Seller to
         obtain such consents would (i) result in the material impairment or
         loss of any material part of the Assets, (ii) materially hinder or
         impede the operation of all or any material portion of the Assets, or
         (iii) restrain, prohibit or impose damages on Purchaser or Seller with
         respect to the transactions contemplated herein.

6.2.19   Material Contracts. Except for those oil and gas leases and contracts
         creating or evidencing the Properties which are described in Exhibit A
         and those contracts for the sale of gas, oil or products which are
         terminable within thirty-one (31) days or less, Exhibit I contains a
         list of all contracts and agreements that constitute the Existing
         Contracts. Except as referenced in Exhibits A and I, there are no
         Existing Contracts that (i) result in the material impairment or loss
         of any material part of the Assets, (ii) materially hinder or impede
         the operation of all or any material portion of the Assets, or (iii)
         restrain, prohibit or impose damages on Purchaser or Seller with
         respect to the transactions contemplated herein.

6.3      Knowledge. As used in this Agreement, words "to the best of Seller's
         knowledge," "to the knowledge of Seller," or other words of similar
         import mean that the statement so qualified is true to the knowledge of
         Dhar Carman or Charles W. Gleeson.

                         7. REPRESENTATIONS OF PURCHASER

      Purchaser represents and warrants to Seller, as of the date hereof and as
of the Closing Date, as follows:

                                       27
<PAGE>

7.1      Existence. Purchaser is a corporation duly organized, validly existing,
         and in good standing under the laws of the State of Nevada and, at the
         Closing, will be duly qualified to carry on its business and in good
         standing in all states where the Assets are located.

7.2      Power. Purchaser has all requisite corporate power and authority to
         carry on its business as presently conducted, to enter into this
         Agreement and the other documents and agreements contemplated hereby,
         and to perform its obligations under this Agreement.

7.3      Authorization. Purchaser's execution and delivery of this Agreement and
         the consummation of the transactions contemplated hereby have been duly
         and validly authorized and will not violate, or be in conflict with, or
         result in a breach, or trigger a default (or an event that, with the
         lapse of time or notice or both, would constitute a default) under the
         provisions of any material agreement or instrument to which Purchaser
         is a party or by which Purchaser is bound, or the organizational and
         governing documents of Purchaser, or any judgment, decree, order or
         Applicable Law applicable to Purchaser or by which Purchaser is bound,
         non-compliance with which would have a material and adverse effect on
         the ability of Purchaser to consummate the transactions contemplated
         herein. This Agreement has been, and the documents provided for herein
         to be executed and delivered by Purchaser to Seller at the Closing will
         be, duly executed and delivered on behalf of Purchaser and constitute
         or shall constitute the legal, valid and binding obligations of
         Purchaser enforceable in accordance with their respective terms,
         subject to the effects of bankruptcy, insolvency, reorganization,
         moratorium, and similar laws, as well as to principles of equity
         (regardless of whether such enforceability is considered in a
         proceeding in equity or at law).

7.4      Brokers. Purchaser has incurred no obligation or liability, contingent
         or otherwise, for brokers' or finders' fees relating to the matters
         provided for in this Agreement which will be the responsibility of
         Seller; and any such obligation or liability of Purchaser that might
         exist shall be the sole obligation of Purchaser.

7.5      Distribution. Purchaser is an experienced and knowledgeable investor in
         the oil, gas and mineral resources industry that has previously
         expended substantial amounts in the acquisition and development of oil
         and gas properties. Prior to entering into this Agreement, Purchaser
         has been advised by its counsel and such other persons as it has deemed
         appropriate concerning this Agreement. The Assets to be acquired by
         Purchaser pursuant to this Agreement are being acquired by Purchaser
         for its own account, for investment, and not with a view to
         distribution or resale of securities within the meaning of the
         Securities Act of 1933, or any other applicable securities law, rule,
         regulation or order that could impose any liabilities on Seller.

                                       28
<PAGE>

7.6      Claims and Litigation. There is no claim, legal or administrative
         proceeding, or investigation now pending before any court or any
         administrative body or, to Purchaser's knowledge, threatened against
         Purchaser or any Affiliate of Purchaser, or to which Purchaser or any
         Affiliate of Purchaser is a party, which has, or may reasonably be
         expected to have, a material and adverse effect on Purchaser's ability
         to consummate the transactions contemplated by this Agreement.

7.7      Financial Ability to Perform. Purchaser has, or has arranged to have at
         the Closing, sufficient funds and credit arrangements to consummate the
         transactions contemplated by this Agreement.

7.8      Bonds. Purchaser has obtained or will obtain by Closing bonds or
         sureties equivalent to those set forth on the attached Exhibit J.

                      8. PRE-CLOSING OBLIGATIONS OF SELLER

8.1      Operations. From the date of this Agreement until the Closing Date (the
         "Interim Period"), Seller shall continue to operate the Properties in a
         good and workmanlike manner and in accordance with the terms and
         conditions of the applicable oil, gas and mineral leases, Existing
         Contracts, and Applicable Laws until such operations are turned over to
         and become the responsibility of Purchaser. However, Seller will have
         no obligation to operate any portion of the Properties after the
         Interim Period except as provided for in Section 8.4 of this Agreement.
         Seller will pay all costs and expenses incurred and billed in the
         operation of the Properties prior to the Effective Date. During the
         Interim Period, Seller will, to the extent it controls the operation of
         the Properties, maintain the lease equipment in the same condition,
         working order and state of repair as currently exists, subject to
         ordinary wear and tear. During the Interim Period and thereafter until
         operations are transferred to Purchaser, without prior written consent
         of Purchaser, Seller will not (i) cause the Properties to be developed,
         maintained or operated in a manner substantially inconsistent with
         prior operations, (ii) abandon any part of the Properties, (iii)
         commence any operation on the Properties anticipated to cost, net to
         Seller's interest in the relevant Property, in excess of $100,000,
         except emergency operations, operations required under presently
         existing contractual obligations, the on-going commitments under the
         AFE's described in Exhibit K hereto and operations undertaken to avoid
         any penalty provision of any applicable agreement or order (with
         respect to emergency operations, Seller shall notify Purchaser of said
         emergency as soon as reasonably practical), or (iv) convey or dispose
         of any part of the Properties (other than personal property and
         equipment replaced with items of comparable or superior quality and
         oil, gas and other liquid products produced from the Properties in the
         regular course of business).

8.2      Contracts. Seller will not, without the prior written consent of
         Purchaser, (a) sell, convey, assign or transfer any interest in the
         Properties, (b) sell oil, gas or other minerals from the Properties

                                       29
<PAGE>

         except sales made in the ordinary course of business, or (c) enter into
         any agreement amending, modifying, releasing, or terminating any of the
         Properties (including, without limitation, any oil and gas lease
         included therein) or any of the Existing Contracts.

8.3      Compensation of Seller. Seller shall conduct operations from and after
         the Effective Date for and on behalf of Purchaser, and Seller shall
         make appropriate charges to Purchaser pursuant to any applicable
         operating agreement. In the absence of any applicable operating
         agreement, for any such services as operator of the Properties (or
         portions thereof) performed by Seller from and after the Effective
         Date, Purchaser shall pay to Seller, in accordance with the 1984 COPAS
         Onshore Model Accounting Procedure, which is hereby incorporated by
         reference, all reasonable and necessary expenses incurred by Seller in
         connection with the operation, protection or maintenance of the
         Properties (including, without, limitation, the salaries, wages, and
         personal expenses of technical employees of Seller directly employed on
         the Assets), as well as an overhead charge of $450 per producing oil or
         gas Well per month, such overhead charge not to exceed, in the
         aggregate for any month, $36,000.00. Any such charges and expenses
         shall be recovered by Seller as part of Closing or post-Closing
         adjustments, as appropriate. Except in the event of an emergency,
         Seller will have no obligation to make capital expenditures or
         extraordinary operating expenditures in connection with the Properties
         during the Interim Period. If Purchaser is ultimately selected as
         operator of the Properties which Seller currently operates, Purchaser
         will additionally reimburse Seller for the amounts of any unpaid
         operating expenses and capital expenditures of other working interests
         owners paid by Seller and attributable to operations during the Interim
         Period. Seller will be entitled to retain any overhead payments
         received from other working interest owners and attributable to
         operations during the Interim Period.

8.4      Operation of Certain Properties After Interim Period. Purchaser and
         Seller recognize that Seller may remain the record title owner of
         certain portions of the Properties after the Interim Period. If Seller
         is required to remain the owner of the affected Properties until the
         required consents or approvals are obtained, the operation of the
         affected Properties shall be governed by the terms of Section 3.10.3.

8.5      Permissions. During the Interim Period, Seller shall use reasonable
         efforts to obtain all permissions, approvals, and consents by federal,
         state and local governmental authorities and others as may be required
         to consummate the sale contemplated by this Agreement (excluding
         governmental permissions, approvals and consents which are customarily
         obtained after the assignment of an oil and gas interest which shall be
         the responsibility of Purchaser to obtain).

                                       30
<PAGE>

8.6      Best Efforts. Seller will use its reasonable best efforts to cause its
         representations and warranties under this Agreement to be true and
         correct on and as of the Closing Date and otherwise to cause the
         conditions set forth in Article 11 for which Seller is responsible to
         be fulfilled as of the Closing Date.

8.7      Defaults. Seller shall give prompt written notice to Purchaser of any
         notice of material default (or written threat of material default,
         whether disputed or denied by Seller) received or given by Seller
         subsequent to the Effective Date under any instrument or agreement
         affecting the Properties to which Seller is a party or by which it or
         any of the Properties is bound.

8.8      Operatorship. It is understood that, with respect to the Properties,
         Seller does not possess the absolute right to effect the transfer of
         the operatorship for such Properties to a purchaser from Seller.
         However, Seller will exercise commercially reasonable efforts to assist
         Purchaser to be elected as the successor operator of the Properties
         following the Closing. To the extent that an Affiliate of Seller own
         interests in any of the Properties subject to a joint operating
         agreement to be assumed by Purchaser, Seller agrees to cause such
         Affiliate to execute, and Seller will deliver at Closing, a ballot
         voting for Purchaser as successor operator of the relevant
         Property(ies).

8.9      Geological and Geophysical Information. During the Interim Period, with
         respect to any right, title and interest of Seller in any item of
         geological and geophysical information:

8.9.1    Seller shall use all reasonable efforts to determine whether such item
         of geological and geophysical information is subject to a contractual
         restriction on transfer or confidentiality obligation (including,
         without limitation, contacting appropriate parties in cases where
         Seller's files are not clear in this regard).

8.9.2    Seller shall use reasonable efforts to obtain consents or waivers of
         any such contractual restriction on transfer or confidentiality
         obligation, but in no event shall Seller be required to make any
         payment to the holder(s) of such right to obtain such waiver or
         consent.

8.9.3    At the Closing, Seller shall assign and deliver possession to Purchaser
         of all such items of geological and geophysical information for which
         waivers or consents have been obtained.

8.9.4    Seller shall retain at Closing all other geological and geophysical
         information and the Parties shall mutually agree as to the method of
         handling the balance of such information.

8.10     Financial Statements. During the Interim Period, Seller shall promptly
         furnish and make available to Purchaser and its auditors all books,
         records, invoices, reports and other data pertaining to the Properties
         and the Wells (collectively, the "Work Papers") for (i) the calendar
         years ended December 31, 2004, and 2005 and (ii) for the nine (9)

                                       31
<PAGE>

         months ended September 30, 2006 (or all of calendar year 2006, if the
         Closing Date is extended beyond the Scheduled Closing Date pursuant to
         Section 12.2). Purchaser and its auditors shall utilize the Work Papers
         to prepare, at Purchaser's sole expense, an audited Statement of
         Combined Revenues and Direct Lease Operating Expenses for the years
         ended December 31, 2004 and 2005 and an unaudited Statement of Combined
         Revenues and Direct Lease Operating Expenses for the nine months ended
         September 30, 2006 (collectively, the "Financial Statements");
         provided, however, that if the Closing Date is extended beyond the
         Scheduled Closing Date pursuant to Section 12.2, the Financial
         Statements shall consist of an audited Statement of Combined Revenues
         and Direct Lease Operating Expenses for the years ended December 31,
         2004, 2005, and 2006. Seller agrees to make reasonable efforts to
         assist and cooperate with Purchaser in the timely preparation of the
         Financial Statements.

                     9. PRE-CLOSING OBLIGATIONS OF PURCHASER

9.1      Return of Data. Purchaser agrees that if this Agreement is terminated
         for any reason whatsoever, Purchaser, at Seller's request, shall return
         promptly to Seller all information and data furnished to Purchaser, its
         officers, employees, and representatives in connection with this
         Agreement or Purchaser's investigation of the Assets, and Purchaser
         agrees not to retain any copies of such information or data.

9.2      Best Efforts. Purchaser shall use its reasonable best efforts to cause
         its representations and warranties under this Agreement to be true and
         correct on and as of the Closing Date and otherwise to cause the
         conditions set forth in Article 10 and Section 11.7 to be fulfilled on
         and as of the Closing Date.

                       10. CONDITIONS OF SELLER TO CLOSING

      The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject, at the option of Seller, to the fulfillment, on or
prior to the Closing Date of each of the following conditions:

10.1     Representations. The representations and warranties of Purchaser
         contained in this Agreement shall be true and correct in all material
         respects on the date when made and again on the Closing Date as though
         made on and as of such date; provided, however, that for purposes of
         this Section 10.1, all qualifications relating to materiality contained
         in such representations and warranties shall be disregarded.

10.2     Performance. Purchaser shall have performed in all material respects
         all obligations, covenants and agreements hereunder and shall have
         complied in all material respects with all covenants and conditions
         contained in this Agreement to be performed or complied with by it at
         or prior to Closing.

                                       32
<PAGE>

10.3     Certificate. Purchaser shall have delivered to Seller a certificate of
         its authorized corporate officer, dated as of the Closing Date,
         certifying on behalf of Purchaser that, to Purchaser's knowledge, the
         conditions set forth in Sections 10.1 and 10.2 have been fulfilled.

10.4     Pending Matters. No suit, action, or other proceeding shall be pending,
         or to Seller's knowledge, threatened which seeks substantial damages
         from Seller in connection with, or to restrain, enjoin, or otherwise
         prohibit, the consummation of the transactions contemplated by this
         Agreement.

10.5     Governmental Consents. Seller shall have received all consents,
         authorizations, waivers, and approvals required to be obtained by
         Seller prior to the Closing by any court or governmental authority
         having jurisdiction under any applicable law, rule, or regulation
         concerning the transactions contemplated herein.

10.6     Opinion. Purchaser shall have delivered to Seller an opinion of its
         counsel, dated as of the Closing Date, in form and substance reasonably
         satisfactory to Seller, to the effect that:

10.6.1   Purchaser is a corporation duly formed, legally existing, and in good
         standing under the laws of the State of Nevada with corporate power to
         own its assets and to transact its business as presently being
         conducted and is duly qualified to carry on its business and is in good
         standing in the states where the Assets are located;

10.6.2   This Agreement and the transactions contemplated by this Agreement have
         been duly authorized by all necessary corporate action of Purchaser and
         constitute valid and binding obligations of Purchaser enforceable in
         accordance with their respective terms, subject to the effects of
         bankruptcy, insolvency, reorganization, moratorium, and similar laws,
         as well as to principles of equity (regardless of whether such
         enforceability is considered in a proceeding in equity or at law);

10.6.3   Except for such as have been obtained, no authorization, approval or
         consent of, or declaration or filing with, any governmental entity,
         regulatory body or any other person is necessary or required of
         Purchaser in connection with the execution and delivery of this
         Agreement or the performance by Purchaser of its obligations hereunder;
         and

10.6.4   This Agreement and all documents and instruments executed by Purchaser
         at Closing have been duly executed and delivered by Purchaser. In
         giving this opinion, Purchaser's counsel may rely upon certificates of
         governmental officials and of Purchaser's officers as to matters of
         fact, and may qualify the opinion with such other assumptions and
         exceptions as are reasonable under the circumstances.

                                       33
<PAGE>

                     11. CONDITIONS OF PURCHASER TO CLOSING

      The obligations of Purchaser to consummate the transactions contemplated
by this Agreement are subject, at the option of Purchaser, to the fulfillment,
on or prior to the Closing Date, of each of the following conditions:

11.1     Representations. The representations and warranties of Seller contained
         in this Agreement shall be true and correct in all material respects on
         the date when made and again on the Closing Date as though made on and
         as of such date; provided, however, that for purposes of this Section
         11.1 all qualifications relating to materiality contained in such
         representations and warranties shall be disregarded.

11.2     Performance. Seller shall have performed in all material respects all
         obligations, covenants and agreements hereunder and shall have complied
         in all material respects with all covenants and conditions contained in
         this Agreement to be performed or complied with by it at or prior to
         Closing.

11.3     Officer's Certificate. Each of Statex I and Gleeson shall have
         delivered to Purchaser a certificate of its general partner, dated as
         of the Closing Date, certifying on behalf of such Party that, to the
         knowledge of Statex I and Gleeson, as applicable, the conditions set
         forth in Sections 11.1 and 11.2 have been fulfilled.

11.4     Pending Matters. No suit, action or other proceeding by a third party
         or a governmental authority shall be pending or, to Purchaser's
         knowledge, threatened which seeks substantial damages from Purchaser in
         connection with, or seeks to restrain, enjoin or otherwise prohibit,
         the consummation of the transactions contemplated by this Agreement.

11.5     Governmental Consents. Purchaser shall have received all consents,
         authorizations, waivers, and approvals required to be obtained by
         Purchaser prior to the Closing by any court or governmental authority
         having jurisdiction under any applicable law, rule, or regulation
         concerning the transactions contemplated herein.

11.6     Opinion of Seller's Counsel. Each of Statex I and Gleeson shall have
         delivered to Purchaser an opinion of such Party's general counsel, in
         form and substance reasonably satisfactory to Purchaser, dated as of
         the Closing Date, to the effect that:

11.6.1   Each of Statex I and Gleeson is a limited partnership duly organized
         and validly existing under the laws of the State of Texas with limited
         partnership power to own the Assets and to transact business as
         presently being conducted and is duly qualified to carry on business in
         the states where the Assets are located;

                                       34
<PAGE>

11.6.2   This Agreement and the transactions contemplated hereby have been duly
         authorized by all necessary limited partnership action on the part of
         Seller and constitute valid and binding obligations of Seller,
         enforceable in accordance with their respective terms, subject to the
         effects of bankruptcy, insolvency, reorganization, moratorium, and
         similar laws, as well as to principles of equity (regardless of whether
         such enforceability is considered in a proceeding in equity or at law);

11.6.3   Except for such as have been obtained, no authorization, approval or
         consent of, or declaration or filing with, any governmental entity,
         regulatory body or any other person is necessary or required of Seller
         in connection with the execution and delivery of this Agreement or the
         performance by Seller of its obligations hereunder; and

11.6.4   This Agreement and all documents and instruments executed by Seller at
         Closing have been duly executed and delivered on behalf of Seller. In
         giving this opinion, Seller's counsel may rely upon certificates of
         governmental officials and of Seller's officers as to matters of fact,
         and may qualify the opinion with such other assumptions and exceptions
         as are reasonable under the circumstances.

11.7     Financial Statements. Purchaser shall be in possession of the Financial
         Statements, in form and substance reasonably satisfactory to Purchaser
         and its auditors.

                                   12. CLOSING

12.1     Time and Place of Closing. If the conditions to Closing have been
         satisfied or waived, the consummation of the transactions contemplated
         by this Agreement (the "Closing") shall occur at 10:00 a.m. on February
         9, 2007, ("Scheduled Closing Date") or such other date as provided for
         in Section 12.2 hereof (the Scheduled Closing Date, as the same may be
         extended pursuant to Section 12.2, being referred to herein as the
         "Closing Date"), at the offices of Jackson Walker L.L.P., 1401
         McKinney, Suite 1900, in Houston, Texas, or such other place as the
         Parties may agree upon.

12.2     Change of Closing Date. The Closing may be changed to an earlier date
         as may be fixed by mutual agreement of the Parties, with such earlier
         date as is mutually agreed upon to become the Closing Date. If, as of
         the Scheduled Closing Date, Purchaser has not fulfilled the conditions
         set forth in Article 10 or in Section 11.7, Purchaser may, at its sole
         option, elect to extend the date for the Closing for a period of thirty
         (30) days after the Scheduled Closing Date by giving written notice of
         such desire to extend to Seller no later than the Scheduled Closing
         Date. The date to which the Closing is extended shall thereupon become
         the Closing Date for purposes of this Agreement.

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<PAGE>

12.3     Calculation of Preliminary Amount. Seller shall prepare, in accordance
         with the provisions of this Agreement, a statement substantially in the
         form attached hereto as Exhibit C (the "Closing Adjustment Statement")
         setting forth each adjustment to the Purchase Price to the best of
         Seller's knowledge, whether upward or downward, as may be required to
         determine the Preliminary Amount in accordance with the provisions of
         Section 2.5 of this Agreement. Seller shall submit the Closing
         Adjustment Statement to Purchaser no later than five (5) business days
         prior to the Closing Date and shall include, upon Purchaser's request,
         appropriate supporting documentation for the Closing Adjustment
         Statement.

12.4     Failure to Close. If the Conditions to Closing of a Party have been
         satisfied or waived on or before the Closing Date, and such Party fails
         to close, then subject to the right of Purchaser to extend the Closing
         Date under Section 12.2, the Party failing to close shall be deemed to
         have breached the obligations it has undertaken hereunder to perform at
         Closing, and to be subject to the provisions of Article 14.

12.5     Closing Obligations. At the Closing:

12.5.1   Seller and Purchaser shall execute, acknowledge (and Seller shall
         deliver to Purchaser) the General Assignment (as hereinafter defined),
         which will convey title to the Assets to Purchaser, and deliver
         possession thereof to Purchaser.

12.5.2   Seller shall provide to Purchaser a listing showing all net proceeds
         and receivables related to production attributable to the Assets which
         are currently held in suspense because of lack of identity or address
         of owners, title defects, change of the ownership or similar reasons.
         Upon Closing, Purchaser shall be responsible for the proper
         distribution of all the suspended funds to the parties lawfully
         entitled thereto, and indemnify and hold Seller and the Seller Group
         harmless from and against any Costs associated with Purchaser's
         distribution of such suspended funds, but only to the extent of the
         funds for which the Purchase Price shall have been adjusted pursuant to
         the provisions of Section 2.5.13 hereof.

12.5.3   Seller shall deliver to Purchaser all waivers of preferential rights to
         purchase, third party consents to assignment, and similar matters
         obtained by Seller prior to the Closing and shall execute such other
         instruments and take such other action as may be necessary to carry out
         its obligations under this Agreement.

12.5.4   Purchaser shall pay the Preliminary Amount in the manner set forth in
         Section 2.6.

12.5.5   Seller and Purchaser shall execute, acknowledge and deliver federal,
         state and Indian forms of lease assignments, if necessary or expedient.

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<PAGE>

12.5.6   Seller and Purchaser shall execute, acknowledge and deliver transfer
         orders or letters-in-lieu thereof directing all purchasers of
         production to make payment to Purchaser of proceeds attributable to
         production from the Assets for the period of time on and after the
         Effective Date.

12.5.7   Purchaser shall execute such other instruments and take such other
         action as may be necessary to carry out its obligations under this
         Agreement.

12.5.8   Except as otherwise provided in this Agreement, Purchaser shall take
         possession of the Assets, and, as provided in this Agreement, subject
         to applicable provisions of the Existing Contracts, take over all
         operations of the Assets for which Seller is designated Operator.

12.5.9   Seller shall deliver to Purchaser the Officer's Certificate provided
         for in Section 11.3, the opinion of counsel provided for in Section
         11.6.

12.5.10  Purchaser shall deliver to Seller the Officer's Certificate provided
         for in Section 10.3, the opinion of counsel provided for in Section
         10.6, and certified copies of the resolution of its Board of Directors
         authorizing this transaction.

12.5.11  Each Party shall have delivered to the other Party a certificate of
         incumbency for the officers executing this Agreement and each of the
         documents and agreements to be delivered at Closing pursuant hereto.

12.5.12  Each of Statex I and Gleeson shall have delivered to Purchaser a
         non-foreign affidavit meeting the requirements of Section 1445(b)(2) of
         the Code and the regulations thereunder.

12.5.13  Each of Statex I and Gleeson shall have delivered to Purchaser an
         appropriate form (such as IRS Form W-9) certifying that such Seller is
         exempt from backup withholding.

Sellers and Purchaser shall execute such other instruments and take such other
         actions as may be necessary to carry out their respective obligations
         under this Agreement.

12.6     Conveyance.

12.6.1   The documents to be executed and delivered by Seller to Purchaser at
         Closing transferring title to the Properties shall be without
         representation or warranty of title, express or implied, except that
         Seller specially warrants and agrees to defend the title to the Assets
         against the lawful claims and demands of all persons claiming the same,
         or any part thereof, by, through or under Seller but not otherwise,
         subject to and excepting all Permitted Encumbrances. The damages
         recoverable for a breach of such special warranty of title with respect
         to any Asset shall not exceed the Allocated Value of the relevant Asset
         (except for claims of or liabilities to third parties, in which case
         such limitation shall not apply).

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<PAGE>

12.6.2   Seller shall execute and deliver to Purchaser at the Closing sufficient
         counterparts of the Assignment, Bill of Sale and Conveyance in
         substantially the form attached hereto as Exhibit L, ("General
         Assignment") to enable the recording of a counterpart of the General
         Assignment in each of the counties where the Assets are located,
         conveying to Purchaser all of the Properties and related oil and gas
         Assets. Such General Assignment shall grant to Purchaser full rights
         (to the extent so transferable) to enforce the covenants and warranties
         (including title-related warranties) to which Seller (or any present or
         prior affiliate of Seller) is entitled. As reasonably requested by
         Purchaser, Seller also agrees to execute and deliver at the Closing
         such other assignments, bills of sale, certificates of title,
         letters-in-lieu and other matters which are appropriate to transfer
         ownership of the Assets to Purchaser. Ownership of all personal
         property and fixtures shall be transferred by Seller to Purchaser "AS
         IS, WHERE IS", WITHOUT REPRESENTATION OR WARRANTY OF MERCHANTABILITY,
         FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF
         MATERIALS.

                          13. POST-CLOSING OBLIGATIONS

13.1     Post-Closing Adjustments.

13.1.1   As soon as reasonably practicable after the Closing, but in no event
         later than ninety (90) days after the Closing Date, Seller shall
         prepare, in accordance with this Agreement, and deliver to Purchaser a
         statement setting forth each adjustment to the Purchase Price made
         pursuant hereto (the "Post-Closing Adjustment Statement"). The
         Post-Closing Adjustment Statement will include any adjustments
         necessary in connection with any changes in the gas imbalances, as of
         the Effective Date, from those set forth in Exhibit H as determined in
         accordance with Section 13.1.3, and any other adjustments required
         under the terms of Section 2.5. As soon as reasonably practicable, but
         in no event later than thirty (30) days after receipt of the
         Post-Closing Adjustment Statement from Seller, Purchaser shall deliver
         to Seller any objections that Purchaser has to the Post-Closing
         Adjustment Statement. If Purchaser fails to object to such Post-Closing
         Statement within the thirty (30) day time period, the Post-Closing
         Adjustment Statement shall be conclusively deemed to be final and
         accepted by both Parties. The Parties shall undertake to agree on the
         final Adjusted Purchase Price no later than one hundred eighty (180)
         days after the Closing Date. If Purchaser and Seller are unable to
         agree upon the adjustments in the Post-Closing Adjustment Statement
         within one hundred eighty (180) days after the Closing Date, the
         Accounting Firm shall conduct an audit of the Post-Closing Adjustment
         Statement and determine the post-Closing adjustment amount. The
         decision of such independent accounting firm shall be binding upon
         Seller and Purchaser and the fees and expenses of such independent
         accounting firm shall be borne one-half by Seller and one-half by
         Purchaser.

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<PAGE>

13.1.2   The date upon which agreement is reached on the Adjusted Purchase Price
         shall be called herein the "Final Settlement Date." Within five (5)
         business days after the Final Settlement Date, those credits agreed
         upon by Purchaser and Seller shall be netted and the final settlement
         shall be paid in cash by the Party owing same, via wire transfer as
         directed in writing by the receiving Party.

13.1.3   If either Party determines prior to the delivery of the Post-Closing
         Adjustment Statement that production imbalances or imbalances with
         respect to any gas pipeline, storage, or processing facility
         attributable to Wells included in the Assets as of the Effective Date
         are other than as set forth in Exhibit H hereto, subject to
         verification of the other Party, the Purchase Price shall be adjusted
         upward or downward in connection with the Post-Closing Adjustment
         Statement, depending upon whether there is a net overproduction or a
         net underproduction attributable to such Wells. The amount to be paid
         by Purchaser to Seller with respect to any underproduction, or by
         Seller to Purchaser with respect to any overproduction, shall be the
         present value of the net cash flow attributable to all such volumes of
         gas recoverable without cash balancing as determined by Netherland
         Sewell & Associates, Inc., or another petroleum engineer mutually
         agreed upon by both Parties (the "Imbalance Engineer") using (i) an
         agreed upon pricing index, (ii) an annual discount rate of ten percent
         (10%), and (iii) the maximum rate of recovery permitted under the
         applicable gas balancing agreements. Upon the final determination of
         the quantity of overproduction and/or underproduction attributable to a
         Property as of the Effective Date, the Parties will submit all relevant
         information to the Imbalance Engineer for valuation as described above.

13.2     Receipts and Credits. Following the final adjustment of the Purchase
         Price, except as otherwise provided in this Agreement, all monies,
         proceeds, receipts, credits and income attributable to the Assets for
         all periods of time on and after the Effective Date shall be the sole
         property of Purchaser, and, to the extent received by Seller, Seller
         shall fully disclose, account for and transmit the same promptly to
         Purchaser. Except as otherwise provided in this Agreement, all monies,
         proceeds, receipts and income attributable to the Assets, for all
         periods of time prior to the Effective Date, shall be the sole property
         of Seller, and, to the extent received by Purchaser, Purchaser shall
         fully disclose, account for and transmit the same promptly to Seller.
         Except as otherwise provided in this Agreement, all costs, expenses,
         disbursements, obligations and liabilities attributable to the Assets
         for periods of time prior to the Effective Date, regardless of when due
         or payable, shall be the sole obligation of Seller, and Seller shall
         promptly pay, or if paid by Purchaser, promptly reimburse Purchaser for
         and hold Purchaser, its successors and assigns, harmless from and

                                       39
<PAGE>

         against the same. Except as otherwise provided in this Agreement, all
         costs, expenses, disbursements, obligations, and liabilities
         attributable to the Assets for periods of time on and after the
         Effective Date, regardless of when due or payable, shall be the sole
         obligation of the Purchaser, and Purchaser shall promptly pay, or if
         paid by Seller, promptly reimburse Seller for and hold Seller, its
         successors and assigns, harmless from and against same.

13.3     Assumption; Survival; Indemnification; Certain Limitations.

13.3.1   If Closing occurs, Purchaser shall assume and be responsible for any
         and all Assumed Obligations. As used herein, "Assumed Obligations"
         means all liabilities, duties, and obligations that arise from or
         relate to (i) the ownership or operation of, and the production of oil,
         gas, and other minerals or substances from or allocable to, the Assets
         occurring on or after the Effective Date; (ii) Plugging and Abandonment
         (as hereinafter defined); (iii) any contracts or agreements affecting
         the Assets in existence as of the Effective or Closing Dates,
         including, but not limited to, the Existing Contracts; (iv) the
         Environmental Obligations (as hereinafter defined), (v) imbalances due
         to overproduction of gas by Seller or pipeline gas imbalances owed by
         Seller under transportation agreements, subject, however, to the
         provisions of Section 13.1.3 hereof; and (vi) obligations otherwise
         assumed by Purchaser under this Agreement. As used herein,
         "Environmental Obligations" means any obligations or liability for
         claims arising from the following occurrences, events and activities on
         or related to the Assets, regardless of whether the acts, omissions,
         events, or circumstances giving rise thereto arose, occurred, or
         existed prior to, at, or after to the Closing Date, or the condition of
         the Assets at Closing: (w) environmental pollution or contamination
         with respect to the air, land, soil, surface, subsurface strata,
         surface water, ground water, and sediments; (x) the failure of the
         Assets to be in compliance, or the owner or operator of the Assets to
         comply, in all material respects with all applicable Environmental Laws
         with respect to the Assets, or the failure of the owner or operator of
         the Assets to obtain or maintain in full force and effect all
         governmental permits required under applicable Environmental Laws with
         respect to the Assets; (y) underground injection activities and waste
         disposal; or (z) necessary Remediation, and the cost of such
         Remediation, or any control, assessment, or compliance with respect to
         any pollution or contamination. Environmental Obligations include,
         without limitation, any Environmental Defects properly asserted by
         Purchaser pursuant to Article 5 during the Due Diligence Period, but
         exclude the remedies to which Purchaser is entitled pursuant to Article
         5 with respect to such Environmental Defects and excluding all Retained
         Environmental Obligations. As used herein, "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 (including,
         without limitation, wetlands and marsh restoration), site clearance,
         and disposal of the Wells, well cellars, structures, and other Personal
         Property located on or associated with the Assets (whether drilled or
         placed on an Asset prior to, on, or after the Effective Date), the

                                       40
<PAGE>

         removal and capping of all associated flowlines, the restoration of the
         surface, site clearance, and any disposal of related waste materials,
         including, without limitation, naturally occurring radioactive material
         (NORM) and asbestos, all in accordance with all Applicable Laws and the
         terms and conditions of the Properties and Existing Contracts;
         provided, however, this definition of Plugging and Abandonment is not
         intended to preclude Purchaser from raising an Environmental Defect as
         provided in Article 5.

13.3.2   All representations, warranties, covenants, agreements, and indemnities
         of Purchaser and Seller shall survive the Closing and the delivery of
         the General Assignment, shall not be merged with or into the General
         Assignment, and shall remain in force and effect as provided in this
         Section 13.3.2. Such survival does not obligate any Party to make any
         further representation or warranty after the Closing Date, or to cause
         any representation or warranty made hereunder to remain true and
         correct after the Closing Date. If the Closing occurs, and except for
         matters relating to taxes, which are governed exclusively by Article
         15, the indemnities provided by each Party to the other Party under
         Section 13.3 hereof (i) shall constitute the sole and exclusive remedy
         for such Party with respect to the inaccuracy in or breach of any
         representation or warranty made by the other Party hereunder and (ii)
         in addition to the indemnities contained in Sections 3.1, 3.10.2,
         5.2.2, 12.5.2, and 13.2, shall constitute the sole and exclusive remedy
         for such Party with respect to the breach or default in the performance
         by such other Party of any covenant or agreement of such other Party
         under this Agreement, and each Party hereby waives any claim or cause
         of action that it may otherwise have under common law, any statute, or
         otherwise against the other Party arising from or out of any such
         breach, inaccuracy, or default. Except to the extent otherwise provided
         in Article 15 with respect to taxes, neither Purchaser nor Seller shall
         be entitled to seek indemnification from the other Party with respect
         to the inaccuracy in or breach of any representation or warranty made
         by such Party hereunder unless the Party seeking indemnification gives
         written notice of the alleged inaccuracy or breach to the Party from
         whom indemnification is sought no later than the 180th day after the
         Scheduled Closing Date. Except to the extent otherwise provided in
         Article 15 with respect to taxes, and except as provided hereinafter,
         neither Purchaser nor Seller shall be entitled to seek indemnification
         from the other Party with respect to the breach or default in the
         performance by such Party of any covenant or agreement of such Party
         contained in this Agreement unless the Party seeking indemnification
         gives written notice of the alleged breach or default to the Party from
         whom indemnification is sought no later than the 180th day after the
         Closing Date; provided, however, that with respect a claim for
         indemnification with respect to a breach or default in the performance
         by a Party of the terms of Section 13.1, Section 13.2, or Section 13.9,
         such claim for indemnification must be given no later than the 270th
         day after the Closing Date; and provided further that there shall be no
         time limitation on the right of a Party entitled to indemnification to
         assert its claim for indemnification or other rights arising under
         Section 3.1, 3.10.2, 3.10.3, Section 5.2.2, clauses (a), (b), (c), (d),
         (e), and (f) of Section 13.3.3, or clauses (a), (b), (c), and (d) of
         Section 13.3.4. The deadlines for asserting claims for indemnification

                                       41
<PAGE>

         specified in the preceding two sentences of this Section 13.3.2 shall
         be referred to herein as the "Survival Dates." Except as otherwise
         provided in this Agreement and the General Assignment, the sole and
         exclusive remedies of Purchaser with respect to Title Defects, Casualty
         Losses, and Environmental Defects shall be as stated in Articles 3, 4,
         and 5, and in no event shall any other provision of this Agreement
         entitle Purchaser to any other remedy with respect to Title Defects,
         Casualty Losses, or Environmental Defects.

13.3.3   Subject to the terms of Section 14.2, and in addition to the
         indemnities by Purchaser of Seller under the terms of Sections 3.1,
         5.2, 12.5.2, and 13.2, Purchaser hereby indemnifies and agrees to
         defend and hold harmless Seller and the Seller Group from and against
         all Costs based upon, arising out of, in connection with, or relating
         to (i) any inaccuracy in or breach of any representation or warranty of
         Purchaser contained in this Agreement (provided, however, that for
         purposes of this Section 13.3.3, all qualifications relating to
         materiality contained in such representations and warranties shall be
         disregarded); and (ii) any breach or default in the performance by
         Purchaser of any covenant or agreement of Purchaser contained in this
         Agreement. If the Closing occurs, Purchaser shall indemnify, defend and
         hold harmless Seller and the Seller Group from and against all Costs
         based upon, arising out of, in connection with, or relating to the
         following:

         (a)   the Environmental Obligations;

         (b)   any dispute or claim arising in connection with preferential
               purchase rights on Assets conveyed to Purchaser at the Closing;

         (c)   the Assumed Obligations;

         (d)   with respect to the affected Asset, any Title Defect and any
               Casualty Loss for which Purchaser has received, as applicable, a
               Title Indemnity Payment or Casualty Loss Amount;

         (e)   the obligations incurred by Seller in connection with any Asset
               as to which Seller continues to hold title for the benefit of
               Purchaser pending the receipt of an outstanding consent to
               assignment as contemplated in Section 3.10.3, except for matters
               indemnified by Seller under Section 3.10.2 and except for matters
               relating to the gross negligence, criminal or fraudulent
               behavior, or willful misconduct of Seller; and

         (f)   except to the extent covered by Seller's indemnification
               obligation under clause (c) of Section 13.3.4, all Costs and
               claims relating to Purchaser's performance of its obligations
               under Section 3.10.3.

13.3.4   Subject to the terms of Section 14.2, and in addition to the
         indemnities by Seller of Purchaser under the terms of Section 3.10.2,
         Seller hereby indemnifies and agrees to defend and hold harmless
         Purchaser and the Purchaser Group from and against all Costs based
         upon, arising out of, in connection with, or relating to (i) any

                                       42
<PAGE>

         inaccuracy in or breach of any representation or warranty of Seller
         contained in this Agreement (provided, however, that for purposes of
         this Section 13.3.4, all qualifications relating to materiality
         contained in such representations and warranties shall be disregarded),
         and (ii) any breach or default in the performance by Seller of any
         covenant or agreement of Seller contained in this Agreement. If the
         Closing occurs, Seller shall indemnify, defend, and hold harmless
         Purchaser and the Purchaser Group from and against all Costs based
         upon, arising out of, in connection with, or relating to the following:

         (a)   except for Assumed Obligations and Environmental Obligations, and
               except for Title Defects, Casualty Losses, and Environmental
               Defects for which Purchaser's sole remedies are provided under
               Articles 3, 4, and 5, all claims and Costs relating to the
               ownership, operation, or use of the Assets for the period prior
               to the Closing Date, including, without limitation, (1) all Costs
               and claims against or suffered by Seller or its Affiliates that
               relate in any way to injury to or death of any person, persons,
               or other living things, or loss or destruction of or damage to
               property affecting or relating to the Assets, to the extent that
               such claims or Costs, or the acts or omissions giving rise
               thereto, arose, occurred, or existed prior to the Closing Date,
               (2) all claims and Costs relating to the non-payment or improper
               payment of royalties, overriding royalties, and other burdens on
               production from the Properties prior to the Closing Date, whether
               based on allegations of improper valuation, underpayment,
               improper measurement, improper calculation, overpayment,
               wrongdoing, or otherwise, and (3) all Costs relating to or
               arising out of any joint interest audit of any of the Assets to
               the extent attributable to the period prior to the Effective
               Date; and

         (b)   any Costs and obligations relating to the offsite disposal,
               during the period of Seller's ownership of the Assets prior to
               the Closing Date, of Hazardous Substances used in connection with
               or otherwise related to the Assets, including, without
               limitation, any Remediation related thereto;

         (c)   except to the extent covered by Purchaser's indemnification
               obligation under clause(e) of Section 13.3.3, all Costs and
               claims relating to Seller's performance of its obligations under
               Sections 3.10.2 and 3.10.3; and

         (d)   all Costs, liabilities, obligations, and claims arising out of or
               related in any way to the Excluded Assets.

13.3.5   Notwithstanding the terms of Section 13.3.4, Purchaser shall not be
         entitled to indemnification under Section 13.3.4 with respect to the
         inaccuracy in or breach of any representation or warranty of Seller
         hereunder or any breach or default in the performance by Seller of any
         covenant of Seller hereunder, nor shall Purchaser be entitled to

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<PAGE>

         receive, either by direct payment or as a reduction of the Purchaser
         Price, any Title Indemnity Payment, Environmental Indemnity Payment, or
         any Casualty Loss Amount unless and until the total amount of all such
         Title Indemnity Payments, Environmental Indemnity Payments, Casualty
         Loss Amounts, and indemnified claims relating to Seller's
         representations, warranties, and covenants hereunder exceed
         $1,250,000.00 (the Basket Deductible"). In no event shall Seller's
         aggregate liability for indemnification under Section 13.3.4 with
         respect to claims asserted by Purchaser in accordance with the terms of
         Section 13.5 on or before the applicable Survival Date exceed ten
         percent (10%) of the Purchase Price, over and above the Basket
         Deductible.

13.4     Disclaimer. PURCHASER'S OBLIGATIONS UNDER SECTION 13.3.1 AND THE
         OBLIGATIONS OF THE INDEMNIFYING PARTY UNDER SECTION 13.3 SHALL APPLY
         REGARDLESS OF THE FAULT OR NEGLIGENCE (OTHER THAN THE GROSS NEGLIGENCE
         OR WILLFUL MISCONDUCT) OF THE OTHER PARTY, INCLUDING STRICT OR
         STATUTORY LIABILITY OF THE OTHER PARTY UNDER ANY APPLICABLE LAW.

13.5     Method of Asserting Claims. All claims for indemnification under this
         Agreement shall be asserted and resolved as follows provided that the
         provisions of Sections 13.5 through 13.6 shall be covenants and not
         conditions to the defense and indemnity obligations to which they
         apply:

13.5.1   In the event that any claim is asserted, whether by a third party (a
         "Third Party Claim") or by the other Party hereto (a "Non-Third Party
         Claim"), for which a Party providing indemnification (the "Indemnifying
         Party") would be liable to a Party or any of its officers, directors,
         employees, agents or representatives entitled to indemnification
         hereunder (the "Indemnified Party"), 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
         (including a copy of the written claim, if any), to the extent then
         feasible (which estimate shall not be conclusive of the final amount of
         such claim) (the "Claim Notice").

13.5.2   Upon its receipt of a timely Claim Notice for a Third Party Claim, the
         Indemnifying Party shall have thirty (30) days from its receipt of such
         Claim Notice (the "Notice Period") to notify the Indemnified Party (i)
         whether or not it disputes its liability to the Indemnified 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 Third Party
         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, submission or document which it shall deem
         necessary or appropriate to protect its interests. In the event that
         the Indemnifying Party notifies the Indemnified Party within the Notice
         Period that it does not dispute such liability and desires to defend
         against such Third Party Claim or demand, then, except as hereinafter
         provided, the Indemnifying Party shall have the right to defend such

                                       44
<PAGE>

         Third Party Claim 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 (other than liability determined pursuant to a final,
         non-appealable judicial decision to result from the gross negligence or
         willful misconduct of the Indemnified Party). 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 Third
         Party Claim, or elects not to defend against such Third Party 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 Third Party Claim, and the amount of any such Third
         Party 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.

13.5.3   Upon receipt of a timely Claim Notice involving a Non-Third Party
         Claim, the Indemnified Party and the Indemnifying Parties shall meet
         and use their respective best efforts to agree on the validity and the
         amount of the Non-Third Party Claim covered by the Claim Notice. If,
         within 30 days after the Indemnifying Party's receipt of such Claim
         Notice, the Parties cannot agree on the validity and the amount of the
         Non-Third Party Claim, the validity and the amount of the Non-Third
         Party Claim shall be determined by arbitration as provided below in
         Section 13.5.4.

13.5.4   All disputes between Seller and Purchaser with respect to any matter
         relating to indemnification under this Agreement shall be determined by
         arbitration using the procedure for determining the arbitrator and
         other procedures for the arbitration contained in Section 3.9 of this
         Agreement, which provisions are incorporated herein mutadis mutandis.

13.6     Payment. Payments under this Article 13 and under any other indemnity
         provision of this Agreement shall be made as follows:

13.6.1   In the event that the Indemnifying Party is required to make any
         payment hereunder, the Indemnifying Party shall promptly pay the
         Indemnified Party the amount so determined. If there should be dispute
         as to the amount or manner of determination of any indemnity obligation
         owed hereunder, 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 hereunder and the portion, if
         any theretofore paid, shall bear interest at the Agreed Rate (as

                                       45
<PAGE>

         provided in Section 13.6.2). 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 this claim.

13.6.2   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 upon 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. As used herein,
         "Agreed Rate" means a rate per annum calculated on a 360-day basis
         which is equal to the lesser of (a) a rate which is two percent (2%)
         above the prime rate of interest of Chase Manhattan Bank, New York, New
         York, as announced or published by such bank from time to time
         (adjusted from time to time to reflect any changes in such rate
         determined hereunder), or (b) the maximum rate from time to time
         permitted by Applicable Law.

13.7     Limitation on Damages. For the breach or non-performance by any Party
         of any representation, warranty, covenant, or agreement contained in
         this Agreement, the liability of the obligor shall be limited to direct
         actual damages only, except to the extent that the obligee is entitled
         to specific performance or injunctive relief. AS BETWEEN THE PARTIES,
         NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER
         SELLER NOR PURCHASER SHALL BE LIABLE TO THE OTHER PARTY AS THE RESULT
         OF A BREACH OR A VIOLATION OF ANY REPRESENTATION, WARRANTY, COVENANT,
         AGREEMENT, OR CONDITION CONTAINED IN THIS AGREEMENT FOR SPECIAL,
         CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES,
         LOST PROFITS, OR OTHER BUSINESS INTERRUPTION DAMAGES, IN TORT, IN
         CONTRACT, UNDER ANY INDEMNITY PROVISION, ARISING BY OPERATION OF LAW
         (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY), OR OTHERWISE. WITH
         RESPECT TO CLAIMS BY THIRD PERSONS, A PARTY MAY RECOVER FROM THE OTHER
         PARTY ALL COSTS, EXPENSES, OR DAMAGES (INCLUDING, WITHOUT LIMITATION,
         SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT
         DAMAGES), LOST PROFITS, AND OTHER BUSINESS INTERRUPTION DAMAGES IN
         ADDITION TO ACTUAL DIRECT DAMAGES PAID OR OWED TO ANY SUCH THIRD PERSON
         IN SETTLEMENT OR SATISFACTION OF CLAIMS AS TO WHICH THE RELEVANT PARTY
         IS ENTITLED TO INDEMNIFICATION HEREUNDER.

13.8     Recording. As soon as practicable after Closing, Purchaser shall record
         all General Assignments covering the Properties in the appropriate
         counties and provide Seller, at its expense, with copies of all
         recorded General Assignments.

13.9     Cooperation and Further Assurances. After Closing, Seller and Purchaser
         agree to take such further actions and to execute, acknowledge and
         deliver all such further documents that are necessary or useful in

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<PAGE>

         carrying out the purposes of this Agreement or of any document
         delivered pursuant to this Agreement, including but not limited to the
         execution of state change of operator forms and other required state
         regulatory filings. Each Party also agrees to cooperate with each other
         by providing reasonable information which may be required by the other
         Party for the purpose of administering the Assets and preparing or
         reviewing the Post Closing Adjustment Statement.

                                 14. TERMINATION

14.1     Right of Termination. This Agreement may be terminated at any time at
         or prior to the Closing:

14.1.1   By mutual consent of the Parties;

14.1.2   By the Party not in material breach or material default of its
         obligations under this Agreement if, prior to the Closing Date, the
         other Party is in material breach or material default of its
         obligations under this Agreement;

14.1.3   By Purchaser pursuant to the provisions of Section 3.8, if applicable;

14.1.4   By Purchaser if the Closing does not occur because (i) any of the
         conditions contained in Article 11 hereof is not fulfilled by Seller or
         waived by Purchaser on or before the Closing Date, and (ii) all of the
         conditions set forth in Article 10 hereof have been fulfilled on or
         before the Closing Date; or.

14.1.5   By Seller if the Closing does not occur because (i) any of the
         conditions contained in Article 10 hereof is not fulfilled by Purchaser
         or waived by Seller on or before the Closing Date, and (ii) all of the
         conditions set forth in Article 11 hereof have been fulfilled on or
         before the Closing Date.

14.2     Effect of Termination. If this Agreement is terminated pursuant to
         Section 14.1 above, this Agreement shall become void and of no further
         force or effect (except for the provisions of Sections 2.3, 9.1, 13.7,
         16.10, and this Section 14.2, which shall continue in full force and
         effect). If this Agreement is terminated pursuant to Section 14.1.1 or
         Section 14.1.3, or by Seller pursuant to Section 14.1.5 if Seller is
         unable to fulfill the condition set forth in Section 10.5, or by
         Purchaser pursuant to Section 14.1.4 if Purchaser is unable to fulfill
         the condition set forth in Section 11.5, neither Party shall have any
         further liability to the other Party as the result of such termination.
         If Seller terminates this Agreement pursuant to Section 14.1.2 or
         Section 14.1.5 as the result of Purchaser's failure to fulfill any
         other condition set forth in Article 10 or in Section 11.7, then in
         addition to such right of termination, the sole and exclusive remedy of
         Seller with respect to such failure by Purchaser to fulfill such
         conditions shall be the right to retain the Performance Deposit in
         accordance with Section 2.3 hereof. If Purchaser terminates this
         Agreement pursuant to Section 14.1.2 or Section 14.1.4 as the result of

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<PAGE>

         Seller's failure to fulfill any condition set forth in Article 11 for
         which Seller is responsible (other than Section 11.5 and Section 11.7,
         for which Purchaser is responsible), then in addition to such right of
         termination and the right to the return of the Performance Deposit
         under Section 2.3 hereof, Purchaser shall be entitled to pursue any and
         all remedies available to Purchaser at law or in equity (but not
         including specific performance); provided, however, that any damages
         recovered by Purchaser from Seller with respect to such failure to
         fulfill such conditions shall be limited to direct, actual damages in
         an amount not to exceed the amount of the Performance Deposit.
         Notwithstanding anything to the contrary contained in this Agreement,
         upon any termination of this Agreement pursuant to Section 14.1, Seller
         shall be free immediately to enjoy all rights of ownership of the
         Assets and to sell, transfer, encumber or otherwise dispose of the
         Assets to any third party without any restriction under this Agreement;
         and Purchaser shall be liable to Seller for all actual, incidental and
         consequential damages (including, without limitation, lost profits) if
         it attempts to interfere in any way with any such enjoyment or action
         by Seller; provided that the institution of a lawsuit by Purchaser
         against Seller for the recovery of damages as contemplated in this
         Section 14.2 shall not be deemed to be an attempt to interfere with
         such enjoyment or action by Seller, as long as Purchaser, upon written
         request by Seller, provides reasonable assurances to any third party
         (as designated by Seller) contemplating the purchase of the Assets or
         any portion thereof from Seller, that Purchaser claims no interest in
         the Assets by virtue of a right to enforce specific performance under
         this Agreement and shall waive any rights it may have to enjoin the
         sale of the Assets, unless Purchaser has reasonable cause to believe
         that the party in question has tortiously interfered with its rights
         under this Agreement.

                                    15. TAXES

15.1     Apportionment of Ad Valorem and Property Taxes. All ad valorem taxes,
         real property taxes, personal property taxes and similar tax
         obligations (the "Property Taxes") with respect to the Assets for the
         tax period in which the Effective Date occurs shall be apportioned,
         based on the Effective Date, between Seller and Purchaser and, if
         already paid by Seller, an appropriate increase in the Purchase Price
         shall be made pursuant to Section 2.5.5. If such Property Taxes are not
         already paid, but the tax liability is known or can be reasonably
         estimated, Seller's portion of such Property Taxes shall be credited to
         Purchaser's account pursuant to Section 2.5.11. Purchaser shall pay or
         cause to be paid to the taxing authorities all Property Taxes of which
         it has knowledge not already paid relating to the tax period in which
         the Effective Date occurs, and if appropriate adjustments pursuant to
         Section 2.5 were not made to the Purchase Price at Closing or in
         connection with the Post-Closing Adjustment Statement, Purchaser shall
         invoice Seller (with copies of applicable tax bills and assessments to
         confirm same) for Seller's apportioned share of such Property Taxes,
         and Seller shall pay the same within thirty (30) days of receipt of

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<PAGE>

         said notice. Purchaser shall defend, indemnify, and hold Seller
         harmless with respect to the payment of such Property Taxes of which
         Purchaser has knowledge and which Purchaser is obligated to pay to the
         applicable taxing authorities (including any interest or penalties
         assessed thereon), provided Seller pays its share (as apportioned
         hereunder) within thirty (30) days of being properly invoiced (with
         accompanying documents to support the invoice) by Purchaser. For the
         tax period in which the Effective Date occurs, Seller agrees (i) to
         immediately forward to Purchaser Property Tax reports and returns
         received by Seller after Closing and (ii) to provide Purchaser with
         appropriate information which is necessary for the Purchaser to file
         any required Property Tax reports and returns. For non-operated
         properties, (excepting that portion of those Property Taxes paid by
         Seller or others attributable to non-operated production burdens as set
         forth in Section 15.2 below), the Property Taxes will be allocated
         between Seller and Purchaser upon the receipt of joint interest
         billings in which such Property Taxes are charged. All tax
         apportionments determined under this Section 15.1 and Section 15.2
         shall be deemed a final settlement of Property Taxes between the
         Parties.

15.2     Taxes Paid for Others. To the extent Purchaser has a right to do so,
         Purchaser agrees to withhold from future income distributions to
         royalty owners, overriding royalty interest owners and other production
         burden holders as to the Assets amounts sufficient to reimburse Seller
         for various taxes (e.g., Property Taxes, severance, environmental
         excise, etc.) paid by Seller on behalf of such interest holders while
         Seller owned the Assets, (which shall include withholdings for
         co-working interest owners where Seller has paid their taxes and has
         not previously collected such taxes through joint interest billings).
         Seller will provide Purchaser with sufficient documentation to allow
         Purchaser to confirm amounts to be withheld and will indemnify and hold
         Purchaser harmless from liability for deducting such sums as directed
         by Seller. Purchaser agrees promptly to forward to Seller such sums
         which are withheld pursuant to this Section 15.2.

15.3     Sales Taxes. The Purchase Price is net of any sales taxes or other
         transfer taxes in connection with the sale of the Assets. Purchaser
         shall pay all sales and/or transfer taxes, if any, including, without
         limitation, any applicable conveyance, transfer and recording fees, and
         real estate transfer stamps or taxes imposed on the transfer of the
         Assets pursuant to this Agreement.

15.4     Other Taxes. All production, severance, excise, and other similar taxes
         relating to production of oil, gas and condensate attributable to the
         Assets 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 Purchaser. This Section shall not apply to income
         taxes, Property Taxes, sales taxes, and any other taxes specifically
         dealt with herein.

15.5     Cooperation. Each Party shall provide the other Party with reasonable
         information which may be required by the other Party for the purpose of
         preparing tax returns and responding to any audit by any taxing
         jurisdiction. Each Party shall cooperate with all reasonable requests
         of the other Party made in connection with contesting the imposition of

                                       49
<PAGE>

         taxes. Notwithstanding anything to the contrary in this Agreement,
         neither Party shall be required at any time to disclose to the other
         Party any tax returns or other confidential tax information.

15.6     Tax Indemnity. Each Party shall indemnify and hold the other Party
         harmless with respect to the payment of any of those taxes, including
         any interest or penalties assessed thereon, for which the indemnifying
         Party is responsible pursuant to the provisions of this Article 15.

15.7     Exculsivity; Limitations. The indemnities contained in this Article 15
         shall constitute the sole and exclusive remedies of Seller and
         Purchaser with respect to the breach or default by the other Party of
         any representation, warranty, or covenant relating to taxes contained
         in this Agreement. Neither Seller nor Purchaser shall be entitled to
         assert a claim for indemnification under this Article 15 unless the
         Party seeking indemnification gives written notice of the claim for
         indemnification to the Party from whom indemnification is sought no
         later than the 180th day after the expiration of the applicable statute
         of limitations for the assessment of the relevant tax.

                                16. MISCELLANEOUS

16.1     Entire Agreement. This Agreement, the Confidentiality Agreement dated
         August 7, 2005, between Statex I, Purchaser, and Thomas Kaetzer (the
         "Confidentiality Agreement"), the documents to be executed pursuant to
         this Agreement, the attached Exhibits and Schedules, and the documents
         and agreements executed concurrently herewith constitute the entire
         agreement between the Parties pertaining to the subject matter of this
         Agreement and supersede all prior agreements, understandings,
         negotiations and discussions of the Parties, whether oral or written,
         and there are no warranties, representations or other agreements
         between the Parties in connection with the subject matter of this
         Agreement except as specifically set forth herein or in documents
         delivered pursuant hereto. No supplement, amendment, alteration,
         modification, or waiver of this Agreement shall be binding unless
         executed in writing by the Parties.

16.2     Waiver. No waiver of any of the provisions of this Agreement shall be
         deemed or shall constitute a waiver of any other provisions of this
         Agreement (whether or not similar), nor shall such waiver constitute a
         continuing waiver unless otherwise expressly provided.

16.3     Headings. The headings of articles and sections used in this Agreement
         are for convenience only and shall not be considered a part of or
         affect the construction or interpretation of any provision of this
         Agreement. References herein to articles, sections, exhibits, and
         schedules are to articles, sections, exhibits, and schedules to this
         Agreement unless expressly stated otherwise.

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<PAGE>

16.4     Assignment. Prior to Closing, no Party shall assign all or any part of
         this Agreement, nor shall any Party assign or delegate any of its
         rights or duties hereunder, without the prior written consent of the
         other Party and any assignment made without such consent shall be void
         and such purported assignee shall have no rights, directly or
         indirectly, to enforce the rights of its purported assignor under this
         Agreement. Except as otherwise provided in this Section 16.4, this
         Agreement shall be binding upon and inure to the benefit of the Parties
         and their respective permitted successors, assigns and legal
         representatives. No assignment or designation shall relieve the
         assigning Party from any obligation hereunder unless expressly so
         agreed by the other Party.

16.5     No Third Party Beneficiaries. Nothing in this Agreement shall entitle
         any party other than Purchaser and Seller and their duly authorized
         successors or assigns (to the extent permitted by Section 16.4) to any
         claim, cause of action, remedy or right of any kind.

16.6     Governing Law. This Agreement, other documents delivered pursuant
         hereto, and the legal relations between the Parties shall be governed
         and construed in accordance with the laws of the State of Texas
         applicable to agreements made and to be performed wholly within the
         State of Texas. The validity of the various assignments or conveyances
         affecting the title to the Properties (and the warranties of title
         thereunder) shall be governed by and construed in accordance with the
         laws of the jurisdiction in which the Properties are located.

16.7     Notices. Any notice, communication, request, instruction or other
         document required or permitted by this Agreement shall be given in
         writing by certified mail, return receipt requested, postage prepaid,
         or by prepaid air express, telegram, hand delivery, or facsimile
         (except that notice given by facsimile shall be effective upon receipt
         only if received during normal business hours, and if received after
         normal business hours, such notice shall be deemed given at the
         commencement of normal business hours on the next business day) as
         follows:

If to Seller:                              If to Purchaser:
-------------                              ----------------
Statex Petroleum I, L.P.                   Baseline Oil & Gas Corp.
1801 Royal Lane, Suite 606                 3 Park Avenue, 16th Floor
Dallas, Texas 75229                        New York, New York  10016
Attention: Mr. Dhar Carman                 Attention: Mr. Richard M. Cohen
Telephone: (972)869-2800                   Telephone: (212) 561-3626
Facsimile: (972)869-2900                   Facsimile: (212) 779-9928

      and

Charles W. Gleeson LP
24 Smith Road, Suite 222
Midland, Texas 79705
Attention: Mr. Charles W. Gleeson
Telephone: (432)682-1456
Facsimile: (432)682-1354

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<PAGE>

(or at such other address or in care of such other person as either the other)
         and shall be deemed to have been given as date of receipt by the
         intended Party.

16.8     Execution in Counterparts. This Agreement may be executed in any number
         of counterparts, and each such counterpart shall be deemed to be an
         original instrument, but such counterparts together shall constitute
         for all purposes one agreement.

16.9     Expenses. Except as otherwise provided in this Agreement, each Party
         shall be solely responsible for all expenses incurred by it in
         connection with this transaction (including, without limitation, fees
         and expenses of its own counsel and accountants) and shall not be
         entitled to reimbursement therefor from the other Party.

16.10    Confidentiality.

16.10.1  Seller's and Purchaser's respective obligations under the
         Confidentiality Agreement shall terminate upon the Closing. Purchaser
         agrees that if this Agreement is terminated for any reason whatsoever,
         Purchaser's obligations under the Confidentiality Agreement shall
         continue in accordance with the terms thereof.

16.10.2  After the Closing, Seller agrees not to disclose geological, seismic
         and other proprietary data related to the Assets, or other information
         that Seller would treat as confidential if it were the owner of the
         Assets or any confidential information provided by Purchaser to Seller,
         and Purchaser agrees not to disclose proprietary or confidential
         information provided by Seller to Purchaser other than the Records and
         other data and information relating to the Assets unless (i) the Party
         to which the confidentiality obligation is owed shall have consented
         thereto in writing, (ii) disclosure is required pursuant to a court
         order or by subpoena or similar legal process, or (iii) disclosure is
         made on advice of its counsel, pursuant to a request by a governmental
         agency or authority, pursuant to applicable laws and regulations, or to
         comply with the rules and regulations of any stock exchange; or (iv)
         such information has been previously made public (except as a result of
         a breach of this Agreement); provided, however, each Party may disclose
         such information to its representatives, agents, attorneys,
         consultants, auditors, and lenders as needed, but in such event the
         relevant Party shall use reasonable efforts to cause such persons to
         keep such information confidential. Notwithstanding any other provision
         hereof to the contrary, the obligations of the Parties regarding
         confidentiality set forth in Section 5.2.1 shall survive the Closing
         and remain in effect as provided herein.

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<PAGE>

16.11    Exhibits and Schedules. All references in this Agreement to Exhibits
         shall be deemed to be references to such Exhibits as the same may be
         amended and supplemented by mutual agreement of the Parties through and
         as of the Closing and all such Exhibits, as amended and supplemented,
         are hereby incorporated into this Agreement by reference.

16.12    Publicity. Prior to making any press or other similar release or public
         announcements regarding the transactions contemplated by this
         Agreement, each Party shall consult with the other Party regarding the
         proposed contents thereof, but no approval thereof shall be required.

16.13    Use of Seller's Names. Purchaser agrees to use reasonable efforts as
         soon as practicable after the Closing, but in any case prior to one
         hundred eighty (180) days after the Closing, to remove or cause to be
         removed, to the extent it has knowledge of the existence of same, the
         following names and marks used by Seller and all variations and
         derivatives thereof and logos relating thereto from the Assets and will
         not thereafter make any commercial use of such names, marks, and logos:
         Statex Petroleum I, L.P., Statex Operating, LLC, Statex Petroleum,
         Inc., and Charles W. Gleeson, Inc.

16.14    Severability. If any term or other provision of this Agreement is
         invalid, illegal or incapable of being enforced by any rule of law or
         public policy, all other conditions and provisions of this Agreement
         shall nevertheless remain in full force and effect so long as the
         economic or legal substance of the contemplated transactions is not
         affected in any material adverse manner to either Party. Upon such
         determination that any term or other provision is invalid, illegal or
         incapable of being enforced, the Parties shall negotiate in good faith
         to modify this Agreement so as to effect the original intent of the
         Parties as closely as possible in an acceptable manner to the end that
         the contemplated transactions are fulfilled to the extent possible.

16.15    Affiliate. For purposes of this Agreement, the term "Affiliate"
         (whether capitalized or not) shall mean, when used with respect to a
         person or entity, any other person or entity (i) which directly or
         indirectly (through one or more intermediaries) controls, or is
         controlled by, or is under common control with, such first mentioned
         person or entity, or (ii) which beneficially owns, holds or controls
         fifty percent (50%) or more of the interest of such first mentioned
         person or entity. The term "control" (including the terms "controlled
         by" and "under common control with") means the possession, directly or
         indirectly or as trustee or executor, of the power to direct or cause
         the direction of the management policies of a person or entity, whether
         through the ownership of stock, as trustee or executor, by contract or
         credit arrangement or otherwise.

16.16    INTENTIONALLY OMITTED.

16.17    Attorney's Fees. Any Party successfully pursing a claim for the
         enforcement of any provision of this Agreement, including without
         limitation agreements of indemnity contained herein, or any of the
         instruments or documents to be delivered pursuant hereto, shall be

                                       53
<PAGE>

         entitled to recover from the unsuccessful Party reasonable attorneys'
         fees, court costs and other expenses incurred by the successful Party
         in such action.

                                       54
<PAGE>

      IN WITNESS WHEREOF, Purchaser and Seller have executed and delivered this
Agreement as of the date first written above but effective as of the Effective
Date.

SELLER:

Statex Petroleum I, L.P.

BY: Statex Operating, LLC, General Partner

By: /s/ Dhar Carman
    -----------------------------
    Dhar Carman
    Manager

Charles W. Gleeson LP

By: Charles W. Gleeson Management, LLC, General Partner

By: /s/ Charles W. Gleeson
    -----------------------------
    Charles W. Gleeson
    President

<PAGE>

                   SIGNATURE PAGE FOR BASELINE OIL & GAS CORP.
                   TO PURCHASE AND SALE AGREEMENT DATED AS OF
               DECEMBER 20, 2006, AMONG STATEX PETROLEUM I, L.P.,
                    AND CHARLES W. GLEESON LP, AS SELLER, AND
                       BASELINE OIL & GAS CORP., AS BUYER

PURCHASER:

BASELINE OIL & GAS CORP.

BY: /s/ Barrie Damson
    -----------------------------
    Barrie Damson
    Chairman and Chief Executive Officer

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