Document:

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                                                                   EXHIBIT 10.19

                           PURCHASE AND SALE AGREEMENT

                                 by and between

                               OCEAN ENERGY, INC.
                                    (Seller)

                                       and

                              ENERGY PARTNERS, LTD.
                                     (Buyer)

                                   ----------

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

                                   ----------

                             Dated January 26, 2000
                            Effective January 1, 2000

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                           PURCHASE AND SALE AGREEMENT

                                LIST OF EXHIBITS

Exhibit A         Assets

         A-1 - Leases

         A-2 - Other Interests and Contracts

Exhibit B         Assignment and Conveyance of Oil and Gas Leases

         B-1      Assignment and Conveyance - OCS Leases

         B-2      Assignment and Conveyance - Louisiana State Leases

         B-3      Assignment and Conveyance - Private Landowner Leases

         B-4      Assignment and Conveyance - BLM Lease

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

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

         B-7      Assignment and Conveyance - Louisiana State Surface Leases

         B-8      Assignment and Conveyance - Private Surface Leases

         B-9      Assignment of Subsurface Agreements

         B-10     Assignment of Overriding Royalty

Exhibit C         Assignment and Assumption of Contracts

Exhibit D         Bill of Sale of Facilities and Movables

Exhibit E         Letter-in-Lieu

Exhibit F         Nonforeign Affidavit

Exhibit G         Pending Litigation and Claims

Exhibit H         [Intentionally Omitted]

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Exhibit I         Production Handling Agreement

Exhibit J         Trust Agreement

Exhibit K         Qualified Intermediary

         K-1      Seller's Assignment Notice

         K-2      Buyer's Assignment Notice

Exhibit L         Seismic Information and Data

Exhibit M         Excluded Pipeline

Exhibit N         Employee List

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                                TABLE OF CONTENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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                           PURCHASE AND SALE AGREEMENT

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

                                   WITNESSETH:

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

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

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

                                    ARTICLE I
                                   DEFINITIONS

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

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

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

         1.2.1 The Leases;

         1.2.2 The Personal Property and Other Interests; and

         1.2.3 The Inventory Hydrocarbons.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1.22 "Excluded Assets" means the following:

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

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

                                       3
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         1.22.3 Except as otherwise provided in Section 15.1, all Claims and
causes of action of Seller (i) arising from acts, omissions or events, or damage
to or destruction of the Assets, occurring prior to the Effective Time, or (ii)
with respect to any of the Excluded Assets.

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

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

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

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

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

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

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

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

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

                                       4
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         1.22.13 All rights, obligations, benefits, awards, judgments, and
settlements, if any, applicable to the litigation and proceedings listed under
"Seller's Responsibility" of Exhibit "H".

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

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

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

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

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

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

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

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

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

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

                                       5
<PAGE>   13

1.30 [Intentionally omitted]

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

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

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

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

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

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

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

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

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

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

                                       6
<PAGE>   14

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

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

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

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

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

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

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

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

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

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

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

                                       7
<PAGE>   15

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       8
<PAGE>   16

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

                                   ARTICLE II
                                PURCHASE AND SALE

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

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

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

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

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

                                       9
<PAGE>   17

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

                                   ARTICLE III
                           PURCHASE PRICE AND PAYMENT

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

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

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

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

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

                                       10
<PAGE>   18

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

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

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

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

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

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

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

                                       11
<PAGE>   19

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

                                   ARTICLE IV
                     SELLERS' REPRESENTATIONS AND WARRANTIES

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

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

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

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

                                       12
<PAGE>   20

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

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

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

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

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

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

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

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

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

                                       13
<PAGE>   21

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

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

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

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

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

                                       14
<PAGE>   22

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

                                    ARTICLE V
                     BUYER'S REPRESENTATIONS AND WARRANTIES

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

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

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

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

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

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

                                       15
<PAGE>   23

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

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

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

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

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

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

                                   ARTICLE VI
                      ACCESS TO INFORMATION AND INSPECTION

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

                                       16
<PAGE>   24

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

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

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

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

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

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

                                       17
<PAGE>   25

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

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

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

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

                                       18
<PAGE>   26

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

                                   ARTICLE VII
                             TITLE AND OTHER MATTERS

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

                                       19
<PAGE>   27

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

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

                                  ARTICLE VIII
                    PREFERENTIAL PURCHASE RIGHTS AND CONSENTS

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

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

                                       20
<PAGE>   28

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

                                   ARTICLE IX
                               COVENANTS OF SELLER

         9.1 Covenants of Seller Pending Closing.

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

                                       21
<PAGE>   29

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

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

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

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

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

                                    ARTICLE X
                               CLOSING CONDITIONS

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

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

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

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

                                       22
<PAGE>   30

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

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

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

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

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

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

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

             10.1.9 At or prior to Closing, Buyer will furnish all bonding or
other security required by the SMB in order to own or operate leases of the
State of Louisiana.

                                       23
<PAGE>   31

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

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

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

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

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

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

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

             (b)    Commercial General Liability Insurance (including
                    contractual liability coverage) with a combined bodily
                    injury and property damage limit of not less than
                    $25,000,000.00 for each occurrence and Pollution Liability
                    Insurance with a coverage of not less than $25,000,000.00
                    for each occurrence. Such insurance shall include coverage
                    for all liability assumed by Seller under the terms of this
                    Agreement with limits not less than those set out above.

                                       24
<PAGE>   32

             (c)    Onshore/Offshore Energy Package including physical damage
                    coverage for onshore/offshore properties and Assets, removal
                    of wreck and debris, care, custody and control, operator's
                    extra expense, protection and indemnity, collision, business
                    interruption, and excess liability.

             10.2.6 Seller shall furnish Buyer with certificates of insurance on
forms reasonably acceptable to Buyer, listing all such insurance policies
required in Section 10.2.5 during the Interim Period. Seller shall ensure that
its insurers waive all rights of recovery or subrogation against Buyer, its
parent, subsidiaries, affiliates, co-lessees, co-venturers, and all of their
agents, directors, officers, employees or servants, with respect to this
Agreement and the Assets. Neither failure to comply nor full compliance with,
the insurance provisions of this Agreement shall limit or relieve Seller from
holding Buyer harmless in accordance with this Agreement.

         10.3 General Closing Conditions. The obligations of Buyer and Seller to
close under this Agreement, as provided in Article XI, are specifically
conditioned upon the receipt of all material waivers, consents, approvals,
permits, waivers of preferential purchase rights and authorizations and actions
of third parties (other than the governmental consents which are to be handled
pursuant to Sections 17.1 and 17.2 and approvals and other consents routinely
acquired after a transfer, including the non-transferability requirement of any
license, permit, right-of-way, franchise or easement and other consents and
approvals that by federal, state, or local law, rules, regulation, agreement or
by their inherent nature are required to be obtained to complete the purchase
and sale contemplated herein.

         10.4 Conditions. The inclusion in this Agreement of conditions to
Seller's and Buyer's obligations at Closing shall not, in and of itself,
constitute a covenant of either Seller or Buyer to satisfy the conditions to the
other Party's obligations at Closing.

                                   ARTICLE XI
                                     CLOSING

         11.1 Closing. The actions and events described in this Article XI are
the "Closing" of this transaction which shall be held beginning at 10:00 a.m.
local time at Seller's offices located at 3861 Ambassador Caffery Parkway, Suite
100, Lafayette, Louisiana, 70503, on March 31, 2000, or on such earlier or later
date or at such other place as the Parties agree in writing ("Closing Date").
Time is of the essence and the Closing Date shall not be extended unless by
written agreement of the Parties. All events of Closing shall each be deemed to
have occurred simultaneously with the other, regardless of when actually
occurring, and each shall be a condition precedent to the other. If the Closing
occurs, all conditions of Closing shall be deemed to have been satisfied or
waived.

                                       25
<PAGE>   33

         11.2 Seller's Closing Obligations.

              11.2.1 At Closing, except to the extent comprising the Excluded
Assets, Seller shall execute and deliver to Buyer the following:

              (a)   Assignment and conveyance of lease(s), and such other
                    documents as may be reasonably necessary to convey Seller's
                    interest in the Assets to Buyer and for Buyer to assume all
                    obligations thereunder in accordance with the provisions
                    hereof, including the following:

                    (i)    Assignment and Conveyance of OCS Leases,
                           substantially in the form of Exhibit "B-1";

                    (ii)   Assignment and Conveyance of Louisiana State Mineral
                           Board Leases, substantially in the form of Exhibit
                           "B-2";

                    (iii)  Assignment and Conveyance of private landowner oil,
                           gas and mineral leases, substantially in the form of
                           Exhibit "B-3";

                    (iv)   Assignment and Conveyance of BLM Lease, substantially
                           in the form of Exhibit "B-4";

                    (v)    Assignment and Conveyance of OCS pipeline
                           rights-of-way, substantially in the form of Exhibit
                           "B-5";

                    (vi)   Assignment and Conveyance of State of Louisiana
                           pipeline rights-of-way, substantially in the form of
                           Exhibit "B-6";

                    (vii)  Assignment and Conveyance of State of Louisiana
                           surface leases, substantially in the form of Exhibit
                           "B-7";

                    (viii) Assignment and Conveyance of private landowner
                           surface leases, substantially in the form of Exhibit
                           "B-8";

                    (ix)   Assignment of Subsurface Agreements, substantially in
                           the form of Exhibit "B-10".

              (b)   The Assignment and Assumption of Contracts, substantially in
                    the form of Exhibit "C," under which Buyer is assigned and
                    transferred Seller's rights and interests in all contracts
                    and agreements included in the Assets and Buyer assumes all
                    obligations thereunder in accordance with the provisions
                    hereof, including, but not limited to, the operating
                    agreements and other agreements and contracts described on
                    Exhibit "A-2" whether or not of record or on file;

              (c)   A Bill of Sale, substantially in the form of Exhibit "D,"
                    for the wells,

                                       26
<PAGE>   34

                    platforms, facilities, pipelines, and other fixtures,
                    equipment and movables included in the Assets;

              (d)   Such other appropriate assignments, bills of sale, deeds or
                    instruments necessary to transfer the Assets to Buyer or to
                    effect and support this transaction including without
                    limitation any conveyances on official forms and related
                    documentation necessary to transfer the Assets to Buyer in
                    accordance with requirements of governmental regulations;

              (e)   If necessary, letters-in-lieu of transfer orders,
                    substantially in the form of Exhibit "E," directing all
                    purchasers of production to pay Buyer the proceeds of
                    production produced from the Assets from and after the
                    Effective Time;

              (f)   A non-foreign affidavit, substantially in the form of
                    Exhibit "F";

              (g)   Such designation of operator forms as are necessary to
                    transfer operations to Buyer for those Assets that are
                    operated by Seller which will be operated by Buyer;

              (h)   The Production Handling Agreement; and,

              (i)   The Trust Agreement.

              11.2.2   At Closing, Seller shall deliver to Buyer the following:

              (a)   Incumbency certificates and copies of the powers of attorney
                    or other authorization for the representatives of Seller
                    executing this Agreement and the instruments delivered at
                    Closing, or other evidence of the authority of Seller to
                    enter into this Agreement and close the transaction
                    contemplated hereby in a form and having content
                    satisfactory to Buyer and its counsel;

              (b)   Seller's arrangements to deliver to Buyer the following
                    (except to the extent constituting Excluded Assets):

                    (i)    Copies of all of the files, contracts, and documents
                           affecting  title to the Leases to which Seller has
                           access and to which Buyer is entitled;

                    (ii)   Copies of all books, records, production records,
                           information, and engineering data relating to the
                           Assets to which Buyer is entitled, except insofar as
                           Seller is prevented from transferring same by
                           contractual obligations to third parties, or which
                           constitute Excluded Assets and;

                    (iii)  Copies of all other files, data, and records
                           pertaining to the Assets to which Buyer is entitled.

                                       27
<PAGE>   35

              (c)   Certificates of insurance confirming the existence of the
                    insurance coverages by Seller pursuant to Sections 10.2.5
                    and 10.2.6 confirming that Buyer is named as an additional
                    insured thereunder;

         11.3 Buyer's Closing Obligations.

              11.3.1.  At Closing, Buyer shall execute and deliver to Seller:

              (a)   Assignment and Conveyance of OCS Leases, substantially in
                    the form of Exhibit "B-1";

              (b)   Assignment and Conveyance of Louisiana State Mineral Board
                    Leases, substantially in the form of Exhibit "B-2";

              (c)   Assignment and Conveyance of private landowner oil, gas and
                    mineral leases, substantially in the form of Exhibit "B-3";

              (d)   Assignment and Conveyance of BLM Lease, substantially in the
                    form of Exhibit "B-4";

              (e)   Assignment and Conveyance of OCS pipeline rights-of-way,
                    substantially in the form of Exhibit "B-5";

              (f)   Assignment and Conveyance of State of Louisiana pipeline
                    rights-of-way, substantially in the form of Exhibit "B-6";

              (g)   Assignment and Conveyance of State of Louisiana surface
                    leases, substantially in the form of Exhibit "B-7";

              (h)   Assignment and Conveyance of private landowner surface
                    leases, substantially in the form of Exhibit "B-8";

              (i)   Assignment of Overriding Royalty to fund the trust account
                    pursuant to the Trust Agreement, substantially in the form
                    of Exhibit "B-9";

              (j)   The Assignment and Assumption of Contracts, substantially in
                    the form of Exhibit "C" under which Buyer is assigned and
                    transferred Seller's rights and interests in all contracts
                    and agreements included in the Assets and Buyer assumes
                    Seller's obligations thereunder, including but not limited
                    to the operating agreements and other agreements and
                    contracts described on Exhibit "A-2" whether or not of
                    record or on file;

              (k)   [Intentionally omitted];

                                       28
<PAGE>   36

              (l)   The Production Handling Agreement substantially in the form
                    of Exhibit "I";

              (m)   The Trust Agreement as required in Section 17.2.3
                    substantially in the form of Exhibit "J";

              (n)   Such designation of operator forms as are necessary to
                    transfer operations to Buyer for those Assets that are
                    operated by Seller which will be operated by Buyer;

              (o)   Assignment of Subsurface Agreements, substantially in the
                    form of Exhibit "B-10".

              11.3.2. At Closing, Buyer shall deliver to Seller:

              (a)   The Purchase Price, as adjusted by the amount shown on the
                    Preliminary Settlement Statement, less the Performance
                    Deposit which shall be retained by Seller and credited
                    towards the Purchase Price, by wire transfer in immediately
                    available funds to:

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

              (b)   Evidence acceptable to Seller that Buyer is qualified to
                    hold title to the Leases with the MMS and the BLM and to
                    operate (should Buyer become the operator of the Assets or a
                    portion thereof) the platforms, wells, pipelines and
                    facilities associated therewith;

              (c)   Certificate(s) of insurance confirming the existence of the
                    insurance coverages by Buyer pursuant to Sections 10.1.5 and
                    10.1.6 confirming that Seller is named as an additional
                    insured thereunder;

              (d)   Incumbency certificates and copies of the powers of attorney
                    or other authorization for the representatives of Buyer
                    executing this Agreement and the instruments delivered at
                    Closing, or other evidence of the authority of Buyer to
                    enter into this Agreement and close the

                                       29
<PAGE>   37

                    transaction contemplated hereby in a form and having content
                    satisfactory to Seller and its counsel;

              (e)   The Seller's Bond designating Seller as obligee or such
                    other security satisfactory to Seller as required in Section
                    17.2.2.

              (f)   Buyer's list of employees as required in Section 17.19.

         11.4 Joint Closing Obligations. Both Parties at Closing shall execute a
Settlement Statement evidencing the amounts actually wire transferred into such
accounts as are designated above or by the receiving Party in writing prior to
Closing. Seller and Buyer shall also execute, acknowledge (if necessary) and
exchange, as applicable, any applications necessary to transfer governmental or
regulatory permits to which the Assets are subject, and which Seller has agreed
to transfer under this Agreement.

         11.5 Failure to Close. If Closing does not occur for any reason other
than the failure of Buyer to perform the obligations to be performed by it prior
to and on the Closing Date, as such Closing Date may be extended in accordance
herewith, then Seller shall return the Performance Deposit to Buyer with five
percent (5%) per annum simple interest from the date of this Agreement within
three (3) Business Days of receipt of the notice of termination by wire transfer
in immediately available funds to:

                          ---------------------------

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                                   ARTICLE XII
                                EFFECT OF CLOSING
                   ASSUMED AND RETAINED RIGHTS AND OBLIGATIONS

         12.1 Buyer's Rights After Closing. Upon and after Closing, Buyer will
receive all of Seller's right, title and interest in the Assets, with effect as
of the Effective Time.

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<PAGE>   38

         12.2 Buyer's Obligations After Closing.

              12.2.1 Description of Obligations. Upon and after Closing, Buyer
will assume, pay and perform (i) the Plugging and Abandonment Obligations (as
defined in Section 12.4), (ii) the Environmental Obligations (as defined in
Section 12.5), (iii) all the obligations, liabilities and duties with respect to
the ownership and (if applicable) operation of the Assets that are attributable
to periods at and after the Effective Time, whether or not the required
governmental consents and approvals described in Sections 17.1 and 17.2 are
obtained; and, (iv) all other obligations assumed by Buyer under this Agreement,
(collectively, "Buyer's Assumed Obligations"). The Buyer's Assumed Obligations
include without limitation:

              (a)   Responsibility for payment of all operating expenses and
                    capital expenditures related to the Assets and attributable
                    to the period at and after the Effective Time;

              (b)   Responsibility for performance of all express and implied
                    obligations and covenants under the terms of the Leases,
                    other instruments in the chain of title, the contracts and
                    agreements listed on Exhibits "A-1" and "A-2", and all other
                    orders and contracts to which the Assets are subject arising
                    at and after the Effective Time;

              (c)   Responsibility for payment of all Burdens, rentals, shut-in
                    payments and other burdens, charges or encumbrances to which
                    the Assets are subject that are attributable to periods at
                    and after the Effective Time;

              (d)   Responsibility for proper accounting for and disbursement of
                    production proceeds from the Assets attributable to periods
                    at and after the Effective Time;

              (e)   Responsibility for compliance with all applicable laws,
                    ordinances, rules and regulations pertaining to the Assets,
                    and the procurement and maintenance of all permits required
                    by any Governmental Body or other public authorities in
                    connection with the Assets at and after the Effective Time;

              (f)   Responsibility for all obligations for imbalances which may
                    occur with respect to third parties for production or
                    processing of Hydrocarbons attributable to Seller's interest
                    (prior to Closing, and Buyer's interest after Closing) in
                    and ownership of Hydrocarbons produced from the Assets after
                    the Effective Time;

                                       31
<PAGE>   39

              (g)   Responsibility for any and all Claims for personal injury,
                    death or damage to movable property arising directly or
                    indirectly from or incident to the use, occupation,
                    ownership, operation or maintenance of the Assets or the
                    condition thereof on, prior to or after the Effective Time,
                    except to the extent that such Claims arise from Seller's
                    ownership or operation of the Assets and are asserted by
                    third parties in writing against Seller or Buyer within one
                    (1) year of the Closing Date.

              12.2.2 Non-Operator's Obligations. Buyer assumes full
responsibility and liability for Buyer's Assumed Obligations without regard to
whether the obligation (i) relates to an Asset as to which Buyer is not the duly
elected operator or which is a non-operating interest or (ii) relates to a
period of time during which Seller was not the owner or operator of the Asset.

         12.3 Seller's Obligations After Closing.

              12.3.1 Description of Obligations. After Closing, Seller will
retain responsibility for all liabilities, obligations and duties with respect
to the ownership and (if applicable) operation of the Assets that are
attributable to periods before the Effective Time, except as otherwise
specifically provided in this Agreement ("Seller's Retained Obligations"). The
Seller's Retained Obligations include without limitation:

              (a)   Responsibility for the payment of all operating expenses and
                    capital expenditures related to the Assets and attributable
                    to the period prior to the Effective Time;

              (b)   Responsibility for performance of all express and implied
                    obligations and covenants under the terms of the Leases,
                    other instruments in the chain of title, the contracts and
                    agreements listed on Exhibits "A-1" and "A-2", and all other
                    orders and contracts to which the Assets are subject arising
                    before the Effective Time;

              (c)   Responsibility for payment of all Burdens, rentals, shut-in
                    payments and encumbrances to which the Assets are subject
                    that are attributable to periods before the Effective Time;

              (d)   Responsibility for proper accounting for and disbursement of
                    production proceeds from the Assets attributable to periods
                    before the Effective Time;

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<PAGE>   40

              (e)   Responsibility for the exclusions from the Environmental
                    Obligations described in Section 12.5.2;

              (f)   Responsibility for all obligations for imbalances which may
                    exist at the Effective Time with respect to third parties
                    for production or processing of Hydrocarbons attributable to
                    Seller's interest in and ownership of Hydrocarbons produced
                    from the Assets prior to the Effective Time;

              (g)   Responsibility for any and all claims for personal injury,
                    death or damage to movable property arising directly or
                    indirectly from or incident to the use, occupation,
                    ownership, operation or maintenance of the Assets or the
                    condition thereof prior to the Effective Time to the extent
                    that such claims are (i) asserted in writing against Seller
                    or Buyer within one (1) year of the Closing Date, and (ii)
                    arise from Seller's ownership or operation of the Assets;
                    and,

              (h)   Responsibility for any offsite storage and disposal, prior
                    to the Effective Time by Seller of Hazardous Materials
                    produced from the Assets, and stored or disposed of, on, in
                    or below any property which does not form a part of the
                    Assets, for which and to the extent that remediation is
                    required by any Environmental or Conservation Law in effect
                    as of the Effective Time.

              12.3.2 Non-Operator's Obligations. Seller retains full
responsibility and liability for Seller's Retained Obligations without regard to
whether the obligation relates to (i) any periods of time before the Effective
Time during which Seller was not the owner or operator of the Assets, or (ii)
any non-operating interests in the Assets.

         12.4 Plugging and Abandonment Obligations.

              12.4.1 Buyer's Obligations. Upon and after Closing, Buyer assumes
full responsibility and liability for the following plugging and abandonment
obligations related to the Assets ("Plugging and Abandonment Obligations"),
regardless of whether they are attributable to the ownership or operation of the
Assets before or after the Effective Time:

              (a)   The necessary and proper plugging, replugging and
                    abandonment of all wells on the Assets, whether plugged and
                    abandoned before or after the Effective Time;

                                       33
<PAGE>   41

              (b)   The necessary and proper removal, abandonment, and disposal
                    of all platforms, structures, pipelines, equipment,
                    movables, immovables, abandoned property and junk located on
                    or comprising part of the Assets;

              (c)   The necessary and proper capping and burying of all
                    associated flow lines located on or comprising part of the
                    Assets;

              (d)   The necessary and proper restoration of the Assets, both
                    surface, sea floor and subsurface, to such condition as may
                    be required by applicable laws, regulation or contract;

              (e)   Any necessary clean-up or disposal of Assets contaminated by
                    naturally occurring radioactive material ("NORM") as may be
                    required by applicable laws, regulation or contract; and

              (f)   All obligations arising from contractual requirements and
                    demands made by authorized Governmental Bodies or parties
                    claiming a vested interest in the Assets.

              12.4.2 Standard of Operations. Buyer shall conduct all plugging,
replugging, abandonment, removal, disposal and restoration operations in a good
and workmanlike manner and in compliance with all applicable laws and
regulations.

              12.4.3 Buyer's Bonds and Seller's Remedies. Buyer's liability and
obligations under this Section 12.4 are included in the liabilities and
obligations to be secured by the bonds, supplemental or additional bonds, trust
account, and/or pledge of securities, as may be established pursuant to Sections
17.1 and 17.2. If Buyer defaults in the performance of its obligations pursuant
to this Section 12.4, Seller, at its option, and after reasonable notice, may
complete, or have completed, the plugging, replugging, abandonment, removal,
disposal, capping, burying, and restoration operations at Buyer's expense.
Exercise of Seller's rights hereunder shall in no way limit Seller's rights to
seek recovery for any uncompensated damages resulting from such default or to
exercise any other legal rights and remedies hereunder.

         12.5 Environmental Obligations.

              12.5.1 Buyer's Obligations. Except as provided in Section 12.5.2,
upon and after Closing, Buyer assumes full responsibility and liability for the
following conditions, occurrences, events and activities on or related to the
Assets ("Environmental Obligations"), regardless of whether arising from the
ownership or operation of the Assets before or after

                                       34
<PAGE>   42

the Effective Time, and regardless of whether resulting from any acts or
omissions of Seller or the condition of the Assets when acquired:

              (a)   Environmental pollution or contamination, including
                    pollution or contamination of the Assets, soil, sea,
                    groundwater, surface water, or air by Hazardous Materials,
                    Hydrocarbons, brine, NORM or otherwise;

              (b)   Underground injection activities and waste disposal;

              (c)   Clean-up responses, including, but not limited to, the cost
                    of investigation removal, remediation, control, assessment
                    or compliance with respect to surface, sea floor, and
                    subsurface pollution caused by spills, pits, ponds or
                    lagoons;

              (d)   Failure to comply with applicable land use, surface
                    disturbance, licensing or notification requirements;

              (e)   Disposal, Release or presence of any Hazardous Materials,
                    including, but not limited to, hazardous substances, wastes,
                    materials and products generated by or used in connection
                    with the ownership or operation of the Assets before or
                    after the Effective Time;

              (f)   Non-compliance with environmental or land use rules,
                    regulations, demands or orders of appropriate state or
                    federal regulatory agencies, including Environmental and
                    Conservation Laws;

              (g)   The presence of asbestos in, on or as part of the Assets
                    which require special methods of handling and special
                    methods of performing work.

              12.5.2 Exclusions from Buyer's Obligations. Buyer's Environmental
Obligations do not include:

              (a)   Claims for any civil or criminal fine or penalty that may be
                    levied against Seller or Buyer by any Governmental Body for
                    any violation of Environmental and Conservation Laws
                    resulting solely from Seller's ownership or operation of the
                    Assets before the Effective Time which are asserted within
                    one (1) year after Closing, all of which shall remain the
                    responsibility of Seller;

              (b)   Claims against Seller or Buyer by third Persons, including
                    any Governmental Body, of which Seller is notified in
                    writing by Buyer

                                       35
<PAGE>   43

                    within one (1) year after Closing, resulting from the
                    Environmental Obligations, which arose and are asserted
                    prior to the Effective Time and are attributable to the
                    ownership or operation of the Assets by Seller prior to the
                    Effective Time. Seller shall have no obligation to Buyer
                    under this Section 12.5.2(b) for any matter for which Seller
                    is not notified in writing by Buyer within one (1) year
                    after Closing. It is agreed and understood, moreover, that
                    this exclusion and Seller's indemnity obligations with
                    respect to the same under this Agreement shall be limited
                    only to Claims against Buyer by third Persons, including any
                    Governmental Body;

              (c)   For purposes of Sections 12.5.2(a) and (b), Claims shall be
                    deemed asserted at the time the order requiring payment of a
                    fine or penalty or requiring cleanup or remediation has been
                    issued in writing by the appropriate Governmental Body or
                    Seller or Buyer has been notified in writing that Seller or
                    Buyer is a potentially responsible party by a Governmental
                    Body;

              (d)   The indemnification obligation set forth in Section 13.4.1
                    in this Agreement with respect to the exclusions in Sections
                    12.5.2 (a) and (b) shall, after the Closing, be the sole and
                    exclusive remedies of Buyer with respect to the matters
                    addressed in this Sections 12.5.2 (a) and (b), regardless of
                    any of Seller's warranties or representations.

         12.6 Revenues and Expenses.

              12.6.1 Revenues. To the extent not accounted for in Buyer's and
Seller's Credits and adjustments under Section 3.2 hereof, all proceeds,
accounts receivable, income, revenues and other items included in or
attributable to the Excluded Assets and the Assets prior to the Effective Time
shall belong to and be retained or paid to Seller, and all other proceeds,
accounts receivable, income, revenues and other items included in or
attributable to the Assets after the Effective Time shall belong to and be paid
over to the Buyer.

              12.6.2 Expenses. To the extent not accounted for in Buyer's and
Seller's Credits and adjustments under Section 3.2 hereof, all accounts payable
and other costs and expenses with respect to the Excluded Assets and Seller's
interest in the Assets which are attributable under generally accepted
accounting principles to the period prior to the Effective Time shall be the
obligations of and be paid by Seller. Those accounts payable, costs and expenses
which are attributable to the period commencing after the Effective Time shall
be the obligation of and be paid and discharged by Buyer.

                                       36
<PAGE>   44

              12.6.3 Post Closing Obligations. If any funds are received by a
Party hereto, which belong to the other Party, the Party receiving such funds
shall immediately pay the funds over to the other Party entitled thereto. If an
invoice or other obligation to be discharged is under the terms of this
Agreement partially the obligation of Seller and partially the obligation of
Buyer, the Party receiving such invoice or request to discharge the obligation
shall promptly notify the other Party which shall promptly pay over its share
thereof after receipt of such notice.

         12.7 Seller Operated Properties. After Buyer assumes operations of the
Assets, Seller shall be granted access and reasonable ingress and egress onto
and across the Assets without any requirement of payment by Seller to Buyer but
otherwise at Seller's sole risk, cost and expense in order that Seller may
remove from the Assets the Excluded Assets, and any such access, ingress and
egress shall be covered by Seller's indemnity provided in Section 13.4.3. Seller
shall make its personnel available to Buyer as may be reasonably necessary to
assist in the transition of operations, and any such assistance shall be covered
by Buyer's indemnity provided in Section 13.3.2.

                                  ARTICLE XIII
                                   INDEMNITIES

         13.1 Definition of Claims. As used in this Agreement, the term "Claims"
means any and all losses, liabilities, damages, punitive damages, obligations,
expenses, fines, penalties, costs, claims, causes of action and judgments for:
(i) breaches of contract; (ii) loss or damage to property, injury to or death of
persons, and other tortuous injury; and (iii) violations of applicable laws,
rules, regulations, orders or any other legal right or duty actionable at law or
equity. The term "Claims" also includes reasonable attorneys fees, court costs,
and other reasonable costs of litigation resulting from the defense of any claim
or cause of action within the scope of the indemnities in this Agreement.

         13.2 Application of Indemnities.

              13.2.1 Covered Claims and Parties. All indemnities set forth in
this Agreement extend to the officers, directors, employees, parents,
subsidiaries and affiliates of the Party indemnified. Unless this Agreement
expressly provides to the contrary, the indemnities set forth in this Agreement
apply regardless of whether the indemnified Party (or its employees, agents,
contractors, successors or assigns) causes, in whole or part, an indemnified
Claim, including indemnified Claims arising out of or resulting, in whole or
part, from the condition of the Assets or the indemnified Party's (or its
employees', agents', contractors', successors' or assigns') sole or concurrent
negligence, strict liability or fault. However, the indemnities set forth in
this Agreement do not extend to any part of an indemnified Claim that (i) is the
result of the gross negligence, willful misconduct or fraud

                                       37
<PAGE>   45

of the indemnified Party, (ii) is the result of the imposition of punitive or
consequential damages on the indemnified Party arising from the acts of the
indemnified Party, or (iii) is the result of the imposition of civil or criminal
fines or penalties by any court or regulatory authority on the indemnified Party
due to the indemnified Party's failure to comply with applicable laws,
regulations or orders.

              13.2.2 Other Limitations. The indemnities of the indemnifying
Party in this Agreement do not cover or include any amounts that the indemnified
Party may legally recoup from other third party owners under applicable joint
operating agreements or other agreements, or for which the indemnified Party is
reimbursed by any third party. The indemnities in this Agreement do not relieve
the Parties to this Agreement from any obligations to third parties. The
indemnities of the Parties in this Agreement do not relieve the indemnified
Party from, or extend to cover, any obligations of the indemnified Party under
the terms of any operating agreement or other cost-sharing arrangement which is
applicable to any Claim. There will be no upward or downward adjustment in the
Purchase Price as a result of any matter for which Buyer or Seller is
indemnified under this Agreement.

         13.3 Buyer's Indemnity. Buyer shall indemnify, defend and hold Seller
harmless from and against any and all Claims caused by, resulting from, or
incidental to:

              13.3.1 Buyer's Assumed Obligations, including without limitation
the Plugging and Abandonment Obligations and the Environmental Obligations;

              13.3.2 Seller's operation of the Assets and any assistance in the
transition of ownership of operations under Section 9.2 of this Agreement (if
applicable), except to the extent caused by Seller's gross negligence or willful
misconduct;

              13.3.3 Any obligations for a brokerage or finder's fee or
commission incurred by Buyer in connection with its purchase of the Assets;

              13.3.4 Any violation by Buyer of state or federal securities laws,
or Buyer's dealings (including any dealings in breach of Buyer's warranties and
representations in Section 5.1.8) with its partners, investors, financial
institutions, assignees and other third parties in connection with the
transaction under this Agreement, or any subsequent sale or other disposition of
the Assets (or portion thereof) by Buyer, its affiliates or assignees;

              13.3.5 Buyer's ownership or operation of any portion of the Assets
that may be reconveyed or reassigned to Seller due to failure to obtain
requisite consents or government approvals, except to the extent any such Claim
is the direct result of Seller's ownership or operation of the Assets before the
Effective Time;

                                       38
<PAGE>   46

              13.3.6 Buyer's inspection of the Assets under Section 6.4 and any
other provisions of this Agreement, except to the extent caused by Seller's
gross negligence or willful misconduct; and,

              13.3.7 Buyer's calculation and payment of Burdens on the
Leases and the calculation and payment of severance taxes, if any, on the
production of Hydrocarbons from the Leases after the Effective Time.

         13.4 Seller's Indemnity. Seller shall indemnify, defend and hold Buyer
harmless from and against any and all Claims caused by, resulting from or
incidental to:

              13.4.1 Seller's Retained Obligations as defined in Section 12.3
and the exclusions from the Environmental Obligations assumed by Buyer in
Sections 12.5.2(a) and 12.5.2(b);

              13.4.2 Seller's operation of the Assets under Section 9.1.1 of
this Agreement (if applicable), to the extent caused by Seller's gross
negligence or willful misconduct; and

              13.4.3 Seller's access to the Assets after Closing for the
purposes described in Sections 12.7 (if applicable) and 17.11, except to the
extent caused by Buyer's gross negligence or willful misconduct.

         13.5 Notices and Defense of Indemnified Claims. Each Party shall
immediately notify the other Party of any Claim of which it becomes aware and
for which it is entitled to indemnification from the other Party under this
Agreement. The indemnifying Party shall be obligated to defend at the
indemnifying Party's sole expense any litigation or other administrative or
adversarial proceeding against the indemnified Party relating to any Claim for
which the indemnifying Party has agreed to indemnify and hold the indemnified
Party harmless under this Agreement. However, the indemnified Party shall have
the right to participate with the indemnifying Party in the defense of any such
Claim at its own expense. In the event it is necessary for either Party to
institute suit to enforce any right of defense and indemnity against the other
Party arising from or incidental to the indemnity obligations in this Agreement,
then the prevailing Party shall be entitled to recover reasonable attorney's
fees, court costs and expenses related thereto.

         13.6 Pending Litigation and Claims. Notwithstanding anything in this
Agreement to the contrary, Seller shall indemnify, defend and hold Buyer
harmless from and against any Claims resulting from the litigation and Claims
listed on Exhibit "G" under the section entitled "Seller Responsibility," except
as may otherwise be expressly provided in that Exhibit. Buyer shall indemnify,
defend and hold Seller harmless from and against any Claims resulting from the
litigation and Claims listed on Exhibit "G" under the section

                                       39
<PAGE>   47

entitled "Buyer Responsibility," except as may otherwise be expressly provided
in that Exhibit.

         13.7 Waiver of Consequential and Punitive Damages. Neither Buyer nor
Seller shall be entitled to recover from the other, respectively, for any
losses, costs, expenses, or damages arising under this Agreement or in
connection with or with respect to the transactions contemplated in this
Agreement any amount in excess of the actual compensatory damages, court costs
and reasonable attorney fees, suffered by such Party. Buyer and Seller both
waive any right to recover punitive, special, exemplary and consequential
damages arising in connection with or with respect to the transactions
contemplated in this Agreement.

                                   ARTICLE XIV
                     LIMITATIONS OF WARRANTIES AND REMEDIES

         14.1 Limitations. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT
LIMITATION ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY,
NATURE, CLASSIFICATION, VALUE OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR
OTHER HYDROCARBONS IN OR UNDER THE LEASES, OR THE ENVIRONMENTAL CONDITION OF THE
ASSETS. THE ITEMS OF PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND
APPURTENANCES CONVEYED AS PART OF THE ASSETS ARE SOLD HEREUNDER "AS IS, WHERE
IS", AND NO WARRANTIES OR REPRESENTATIONS WHATSOEVER OR OF ANY KIND OR
CHARACTER, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF CONDITION, QUALITY,
QUANTITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, OR FREEDOM FROM REDHIBITORY VICES OR DEFECTS,
ARE GIVEN BY OR ON BEHALF OF SELLER. IT IS UNDERSTOOD AND AGREED THAT PRIOR TO
CLOSING BUYER SHALL HAVE INSPECTED THE ASSETS FOR ALL PURPOSES AND HAVE FULLY
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE
AND SUBSURFACE, INCLUDING, BUT NOT LIMITED TO, CONDITIONS SPECIFICALLY RELATED
TO THE PRESENCE, RELEASE, DISPOSAL OR DISCHARGE OF HAZARDOUS MATERIALS, AND THE
CONDITION OF ANY WELL CASING, TUBING OR DOWNHOLE EQUIPMENT, AND THAT BUYER
ACCEPTS SAME IN ITS "AS IS, WHERE IS" CONDITION. THE WARRANTIES OF SELLER
CONTAINED IN THIS

                                       40
<PAGE>   48

AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
AND BUYER HEREBY WAIVES AND SELLER HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, FREEDOM FROM REDHIBITORY VICES OR
DEFECTS, OR CONFORMITY TO SAMPLES. THERE ARE NO WARRANTIES THAT EXTEND BEYOND
THE FACE OF THIS AGREEMENT.

         14.2 NORM. BUYER ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND
GAS PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL
(NORM). SCALE FORMATION OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON
EQUIPMENT AND OTHER ASSETS. SOME OR ALL OF THE EQUIPMENT, MATERIALS AND OTHER
ASSETS SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND
LEVELS. A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THIS EQUIPMENT, MATERIALS
AND OTHER ASSETS BY REASON THEREOF. THEREFORE, BUYER MAY NEED TO FOLLOW SAFETY
PROCEDURES WHEN HANDLING THIS EQUIPMENT, AND OTHER ASSETS.

         14.3 Assignment Disclaimers. The assignments and bills of sale, leases,
subleases, deeds and other documents of conveyance to be delivered at or after
Closing by Seller shall expressly include the disclaimers and waivers of
representations and warranties and limitations included in this Agreement and
shall expressly state that the Assets have been used for oil and gas drilling
and producing operations, related oilfield operations and the production
treatment, storage, compression and transportation of oil, gas and Hazardous
Materials.

         14.4 Survival. Except for the representations and warranties of Seller
provided in Sections 4.1.7, 4.1.8, 4.1.9, 4.1.10, 4.1.11, 4.1.13, 4.1.14 and
4.1.15 which shall terminate upon Closing, all representations, warranties,
covenants, indemnities, and agreements made herein shall survive the Closing and
shall not be merged into or superseded by any assignments or other documents
delivered at Closing.

                                   ARTICLE XV
                         CASUALTY LOSS AND CONDEMNATION

         15.1 Casualty Loss. If, prior to the Closing, any of the Assets are
substantially damaged or destroyed by fire or other casualty or, if any
substantial portion of the Assets are taken by condemnation or under the right
of eminent domain (all of which are herein called

                                       41
<PAGE>   49

"Casualty Loss" and are limited to property damage or taking only), Seller shall
notify Buyer promptly after Seller learns of such event. Seller shall have the
right, but not the obligation, to cure the Casualty Loss by repairing them with
equivalent items, no later than the Closing Date, all to Buyer's reasonable
satisfaction. If any uncured Casualty Loss exists at the Closing, Buyer shall
proceed to purchase the Assets affected thereby, and upon receipt thereof,
Seller shall pay to Buyer all sums paid to Seller by third parties by reason of
the damage or taking of such Assets, and to the extent Seller is not
contractually prohibited from doing so, Seller shall assign, transfer and set
over unto Buyer all of the right, title and interest of Seller in and to any
claims, unpaid proceeds or other payments from third parties arising out of such
damage or taking. Notwithstanding the foregoing, if the aggregate value in the
reduction of the Assets on account of such uncured Casualty Loss exceeds twelve
(12%) percent of more of the Purchase Price, either Buyer or Seller shall have
the right to terminate this agreement by so notifying the other party in writing
prior to Closing. Upon termination, Seller shall return the Performance Deposit
to Buyer with five percent (5%) per annum simple interest from the date of this
Agreement within three (3) Business Days of receipt of the notice of
termination.

         15.2 Limitation. Anything in this Agreement or in the documents to be
delivered at Closing to the contrary notwithstanding, Buyer shall only be
entitled to proceeds with respect to Seller's casualty insurance coverage
described in Section 10.2.5 or other sums paid to Seller by third parties (or an
assignment of claims related thereto) upon or after the Closing of the
transactions contemplated herein.

                                   ARTICLE XVI
                              DEFAULT AND REMEDIES

         16.1 Seller's Remedies. Upon failure of Buyer to perform the
obligations to be performed by it prior to and on the Closing Date, as such
Closing Date may be extended in accordance herewith, Seller, at its sole option,
may (i) enforce specific performance or (ii) terminate this Agreement and retain
the Performance Deposit as agreed liquidated damages and not as a penalty, as
Seller's sole and exclusive remedies for such default, all other remedies
(except as expressly retained in Section 16.3) being expressly waived by Seller.

         16.2 Buyer's Remedies. Upon failure of Seller to perform the
obligations to be performed by it by the Closing Date, as such Closing Date may
be extended in accordance herewith, Buyer, at its sole option, may (i) enforce
specific performance or (ii) Seller shall return the Performance Deposit to
Buyer with five percent (5%) per annum simple interest

                                       42
<PAGE>   50

from the date of this Agreement within three (3) Business Days of receipt of the
notice or termination as Buyer's sole and exclusive remedies for such default,
all other remedies (except as expressly retained in Section 16.3) being
expressly waived by Buyer.

         16.3 Effect of Termination. Anything herein to the contrary
notwithstanding, in the event of termination of this Agreement, the transaction
shall not close, and this Agreement shall become void and have no further effect
whatsoever, and neither Buyer nor Seller shall have any further right or duty to
the other hereunder, except as provided in Sections 16.1, 16.2 and 16.4.

         16.4 Other Remedies. Notwithstanding the provisions of Sections 16.1,
16.2 and 16.3 termination of this Agreement shall not prejudice or impair
Buyer's obligations under Sections 6.3 (and the confidentiality agreements
referenced therein) and 6.4 and such other portions of this Agreement as are
necessary to the enforcement and construction of Sections 6.3 and 6.4.

                                  ARTICLE XVII
                                  MISCELLANEOUS

         17.1 Certain Governmental Approvals. Seller shall cooperate with Buyer
and Buyer will use all commercially reasonable efforts after Closing to obtain
the unconditional approval by the MMS, the BLM and the SMB of the assignments
and conveyances of lease(s) attached hereto as Exhibits "B-1", "B-2", "B-4",
"B-5", "B-6" and "B-7". In the event Buyer operates or is elected successor
operator under the operating agreements applicable to any of the Leases, if
applicable, Buyer also obligates itself to make application to the MMS to
qualify or continue (if any further qualification is necessary or required by
MMS) as operator with respect to the Assets, as well as for a right of use and
easement as to the pipeline(s) and platforms included in the Assets. Buyer shall
take any actions reasonably required of Buyer by the MMS or any other regulatory
agencies or Governmental Body to obtain all requisite regulatory approvals,
including but not limited to, the purchase and posting of any and all bonds,
supplemental bonds or other securities which may be required of Buyer pursuant
to 30 CFR Parts 250 and 256 in excess of any existing lease, pipeline or
area-wide bond(s). Until all of the governmental approvals with respect to the
assignments described in this Section 17.1 are obtained, however, the following
shall occur:

              17.1.1 As necessary, Seller shall continue to hold record title to
the Assets as nominee for Buyer;

              17.1.2 Buyer's indemnity under Section 13.3.1 shall include any
and all Claims, costs and expenses of any kind or character relating to such
Assets accruing after Closing;

                                       43
<PAGE>   51

              17.1.3 Seller shall act as Buyer's nominee but shall be authorized
to act only upon and in accordance with Buyer's specific written instructions,
and Seller shall have no authority, responsibility or discretion to perform any
tasks or functions with respect to the Assets other than those which are purely
administrative or ministerial in nature, unless otherwise specifically requested
and authorized by Buyer in writing; and

              17.1.4 Buyer shall continue to maintain and provide at its cost
the insurance coverages with minimum limits of liability as set forth in Section
10.1.5 of this Agreement.

         17.2 Bonding and Trust Account.

              17.2.1 Adequacy of Supplemental Bonds or Arrangements for the
Pledge of Securities. Upon execution hereof, Buyer shall confer with the MMS
regarding the amounts and terms for the posting of supplemental bonds or pledge
of securities pursuant to the provisions of 30 CFR Parts 250 and 256, and within
thirty (30) days of any MMS determination pursuant to such regulations Buyer
shall satisfy the MMS requirements concerning same.

              17.2.2 Seller's Bond. Upon closing, Buyer shall post with Seller
and thereafter maintain additional irrevocable bonding in the face amount of
$50,000,000.00 (the "Seller's Bond"), subject to adjustment as provided in the
Trust Agreement, from a good and sufficient commercial surety included on the
list of acceptable sureties for Federal bonds as certified by the U.S.
Department of the Treasury (pursuant to Treasury Circular No. 570), and
acceptable to Seller, in its reasonable discretion, with Seller (and/or its
designee) named as obligee to secure all obligations of Buyer to be responsible
for and comply with all duties and obligations of Seller with respect to the
Assets, including any governmental request or requirement to plug, re-plug,
and/or abandon any well, platform, pipeline, structure, piling, foundation or
other related facility existing on the Assets, on or after the Effective Time,
of whatsoever type, status or classification, or to take any environmental
remediation, clean-up or other action with respect to the Assets, including the
removal of all or any structures, wells, foundations, platforms or pilings. The
Seller's Bond shall be in addition to any other bonding obligations which Buyer
may owe to the MMS, BLM, SMB or any other Person or Governmental Body and shall
relate solely and exclusively to the Assets to the exclusion of all other
properties owned or operated by Buyer. In satisfaction of up to $10,000,000.00
of the bonding required of Buyer under this Section 17.2.2, Seller will accept
an irrevocable letter of credit, in a form and content satisfactory to Seller,
in its sole discretion, from an acceptable federally insured banking institution
acceptable to Seller, in its sole discretion.

                                       44
<PAGE>   52

              17.2.3 Trust Account. Upon Closing, Buyer shall fund and
thereafter maintain a trust account as additional security for the Plugging and
Abandonment Obligations and the Environmental Obligations according to the terms
of the Trust Agreement (the "Trust Agreement") attached hereto as Exhibit "J"
and the Assignment of Overriding Royalty attached hereto as Exhibit "B-9."

              17.2.4 Shell Bond and Trust Account. Buyer agrees to cooperate
with Seller in Seller's effort to secure a release and termination of the Shell
Trust Agreement through the addition of Shell Offshore Inc. as an additional
beneficiary under the Trust Agreement and the substitution of Seller's Bond with
the designation of Shell Offshore Inc. as an additional obligee for the
performance bond presently posted with Shell Offshore Inc.

         17.3 Public Announcements. Buyer shall secure the prior written
approval of Seller of the text of any public announcement or statement to be
made solely by Buyer prior to making any public announcement or statement with
respect to the execution of this Agreement, or the pending or closing of the
transaction contemplated by this Agreement. Any other public announcement or
statement by Buyer concerning the Assets shall not reference Seller. Nothing
contained in this paragraph shall be construed to require either Party to obtain
approval of the other Party hereto to disclose information with respect to the
transaction contemplated by this Agreement to any state or federal governmental
authority or agency to the extent required by applicable law or by any
applicable rules, regulations or orders of any governmental authority or agency
having jurisdiction or necessary to comply with disclosure requirements of the
New York Stock Exchange and applicable securities laws.

         17.4 Filing and Recording of Assignments, etc. Buyer shall be solely
responsible for all filings and recording of assignments and other documents
(including change of operator filings) related to the Assets and for all fees
connected therewith, except as otherwise provided in this Agreement. Buyer shall
furnish Seller with copies of all filings made by it pursuant to this Agreement
and of the pertinent recording data pertaining to same. Seller shall not be
responsible for any loss to Buyer because of Buyer's failure to file or record
documents correctly or promptly. Buyer shall promptly file all appropriate forms
or declarations with the MMS, DOC, SMB, DEQ and BLM and any other applicable
Governmental Body relative to this Agreement and its assumption of the Leases
(and operations, if Buyer becomes the operator), and Seller shall cooperate with
Buyer in connection with such filings.

         17.5 Further Assurances and Records.

              17.5.1 After the Closing, each of the Parties will execute,
acknowledge and deliver to the other such further instruments, and take such
other action, as may be reasonably requested in order to more effectively assure
to said Party all of the respective properties, rights, titles, interests,
estates and privileges intended to be assigned, delivered or inuring to the
benefit of such party in consummation of the transactions contemplated hereby.

                                       45
<PAGE>   53

              17.5.2 Buyer agrees to maintain the files and records of Seller
that are acquired pursuant to this Agreement for a minimum of six (6) years
after expiration or termination of the last Lease to expire or terminate. Buyer
shall provide Seller and its representatives reasonable access to and the right
to copy such files and records for the purposes of (i) preparing and delivering
any accounting provided for under this Agreement and adjusting, prorating and
settling the charges and credits provided for in this Agreement, (ii) complying
with any contract or agreement, law, rule or regulation affecting Seller's
interest in the Assets prior to the Closing Date, (iii) preparing any audit of
the books and records of any third party relating to Seller's interest in the
Assets prior to the Closing Date, or responding to any audit prepared by such
third parties, (iv) preparing tax returns, (v) responding to or disputing any
tax audit, or (vi) asserting, defending or otherwise dealing with any Claim or
dispute under this Agreement. Buyer recognizes that Seller is required to
maintain certain files and records relating to the Assets pursuant to agreements
with a prior owner/operator. Buyer will undertake to secure a release of Seller
from such agreements or the right to substitute Buyer for Seller thereunder, in
which event Seller will deliver originals of the files described in Section
1.37.6 to Buyer upon Buyer's assumption of Seller's obligations with respect
thereto, reserving Seller's right to retain copies thereof.

              17.5.3 Buyer agrees that, as soon as practicable after the
Closing, it will remove or cause to be removed the names and marks (if any) used
by Seller and all variations and derivatives thereof and logos relating thereto
from the Assets and will not thereafter make any use whatsoever of such names,
marks and logos.

              17.5.4 To the extent not obtained or satisfied as of Closing,
Seller agrees to continue to use all reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer access to files, records and
data relating to the Assets in the possession of either Seller or third parties.

              17.5.5 Buyer shall comply with all current and subsequently
amended applicable laws, ordinances, rules, and regulations applicable to the
Assets and Buyer's ownership or operation thereof, and shall promptly obtain and
maintain all permits required by governmental authorities in connection with the
Assets.

         17.6 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and any communication or delivery hereunder shall be deemed to have been duly
given and received when actually delivered to the address set forth below of the
Party to be notified, addressed as follows or when a legible facsimile copy is
received, during ordinary business hours, by the Party's facsimile equipment at
the number shown below:

                  If to Seller:     Ocean Energy, Inc.
                                    3861 Ambassador Caffery Parkway
                                    Suite 100
                                    Lafayette, Louisiana  70503
                                    Telephone:  (318) 993-4300
                                    Fax:  (318) 993-4319
                                    Attention: Mr. Stephen T. Laperouse

                                       46
<PAGE>   54

                  with a copy to:   Mr. Daniel G. Fournerat
                                    Onebane, Bernard, Torian, Diaz,
                                    McNamara & Abell
                                    P. O. Box 3507
                                    Lafayette, LA  70502
                                    Telephone:  (318) 266-1158
                                    Fax:  (318) 266-1232

                  If to Buyer:      Energy Partners, Ltd.
                                    201 St. Charles Avenue
                                    Suite 3400
                                    New Orleans, LA  70170
                                    Telephone:  (504) 569-1875
                                    Fax:  (504) 569-1874
                                    Attention:  Mr. Richard A. Bachmann

Provided, however, that any notice required or permitted under this Agreement
will be effective if given verbally within the time provided, so long as such
verbal notice is followed by written notice thereof in the manner provided
herein within twenty-four (24) hours following the end of such time period. Any
Party may, by written notice so delivered to the other, change the address or
facsimile number to which delivery shall thereafter be made.

         17.7 Incidental Expenses. Buyer shall bear and pay (i) all state or
local government sales, transfer, gross proceeds, or similar taxes incident to
or caused by the transfer of the Assets to Buyer, (ii) all documentary, transfer
and other state and local government taxes incident to the transfer of the
Assets to Buyer, (iii) all filing, recording or registration fees for any
assignment or conveyance delivered hereunder, and (iv) all normal costs or fees
required to obtain consent to assign the Leases. Each Party shall bear its own
respective expenses incurred in connection with the negotiation and Closing of
this transaction, including its own consultants' fees, attorneys' fees,
accountants' fees, and other similar costs and expenses.

         17.8 Entire Agreement. Except for the confidentiality agreements
referenced in Section 6.3, this Agreement (including Exhibits "A" through "N")
embodies the entire agreement between the Parties (superseding all prior
agreements, arrangements and understandings related to the subject matter
hereof), and may be supplemented, altered, amended, modified or revoked by
writing only, signed by the Parties hereto. The headings herein are for
convenience only and shall have no significance in the interpretation hereof.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give to any person or entity (other than the Parties and their permitted
successors and assigns) any rights or remedies under or by reason of this
Agreement.

         17.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.

                                       47
<PAGE>   55

         17.10 Exhibits. All Exhibits hereto, and the terms thereof, which are
referred to herein are hereby made a part hereof and incorporated herein by
reference.

         17.11 Audits Access to Assets. Seller shall have the right, during
reasonable business hours, to audit all records (excepting federal tax records
and records subject to the attorney/client privilege) of Buyer pertaining to the
Assets for a period of two years from Closing. Buyer shall have the right,
during reasonable business hours, to audit all records (excepting federal tax
records and records subject to the attorney/client privilege) of Seller
pertaining to the Assets for a period of two years from Closing. Seller at its
sole cost shall have the right at any time after Closing to reasonable access to
the Assets for the purpose of inspecting Buyer's compliance with the terms of
this Agreement; provided, however, Seller shall repair any damage to the Assets
resulting from such inspections and any such access shall be covered by Seller's
indemnity provided in Section 13.4.3.

         17.12 Counterparts. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one and the same Agreement.

         17.13 Waiver. Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived only by a written instrument
executed by the Party waiving compliance. Except as otherwise expressly provided
in this Agreement, the failure of any Party at any time or times to require
performance of any provisions hereof shall in no manner affect such Party's
right to enforce the same. No waiver by any Party of any condition, or of the
breach of any term, provision, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any such
condition or breach or waiver of any other condition or of the breach of any
other term, provision, covenant, representation or warranty.

         17.14 Binding Effect: Assignment. All the terms, provisions, covenants,
obligations, indemnities, representations, warranties and conditions of this
Agreement shall be enforceable by the Parties hereto and their respective
permitted successors and assigns. Neither this Agreement nor any obligation,
covenant, or liability hereunder may be assigned, transferred or delegated to
any other Person without the prior, express and written consent of the other
Party, and such consent may be withheld for any reason including convenience,
nor shall Buyer grant a security interest in its rights under this Agreement
without the prior, express and written consent of Seller. Any assignment,
transfer, or grant of security interest without consent shall be void ab initio.
In the event Buyer sells or assigns all or a portion of the Assets, (i) this
Agreement shall remain in effect between Buyer and Seller as to all the Assets
regardless of such assignment (and Buyer shall not be thereby released, but
shall remain obligated hereunder), and (ii) Buyer shall require its successors
and assigns expressly to assume its duties, responsibilities and obligations
under this Agreement, to the extent related or applicable to the Assets or the
portion thereof acquired by them, but such assumption shall not release Buyer
from any such assumed obligations.

                                       48
<PAGE>   56

         17.15 Taxes.

               17.15.1 Apportionment of Ad Valorem and Property Taxes. All ad
valorem, real property taxes and personal property taxes, including interest and
penalties, attributable thereto ("Property Taxes"), attributable to the Assets
with respect to the tax assessment period ("Tax Period") during which the
Effective Time occurs shall be apportioned as of the Effective Time between the
Buyer and the Seller, with the Seller paying a fraction thereof based upon the
number of days in the Tax Period prior to the Effective Time and the Buyer
paying the balance thereof. The owner of record on the assessment date shall
file or cause to be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to all the taxing authorities
all Property Taxes relating to the Tax Period during which the Effective Time
occurs. If the Seller is the owner of record on the assessment date, then the
Buyer shall pay to the Seller Buyer's pro rata portion of Property Taxes within
thirty (30) days after the receipt of the Seller's invoice therefor, except to
the extent taken into account as a Purchase Price adjustment pursuant to Section
3.2. If Buyer is the owner of record on the assessment date, then the Seller
shall pay to the Buyer Seller's pro rata portion of Property Taxes within thirty
(30) days after the receipt of the Buyer's invoice therefor, except to the
extent taken into account as a Purchase Price adjustment pursuant to Section
3.2.

               17.15.2 Sales Taxes. Buyer represents that the transactions
contemplated herein will result in a "casual sale" and no Louisiana sales or use
taxes shall be due as a result of such transactions. The Purchase Price provided
hereunder excludes and the Buyer shall be liable for, any Transfer Taxes (as
defined below) required to be paid in connection with the sale of the Assets
pursuant to the Agreement. As used here, the term "Transfer Taxes" shall mean
any sales, use, excise, stock, stamp, document, filing, recording, registration,
authorization, and similar taxes, fees and charges.

               17.15.3 Other Taxes. All other federal, state, and local taxes
(including interest and penalties attributable thereto) on the ownership or
operation of the Assets which are imposed with respect to period or portions of
periods prior to the Effective Time shall be paid by the Seller and all such
taxes imposed with respect to periods or portions of periods beginning on or
after the Effective Time shall be paid by the Buyer.

               17.15.4 IRS Form 8594. If the Buyer and the Seller mutually agree
that the filing of IRS Form 8594 is required, the Parties will confer and
cooperate in the preparation and filing of their respective forms to reflect a
consistent reporting of the agreed upon allocation of the value of the Assets.

         17.16 Gas Transportation\Processing. Following Closing, Buyer shall be
responsible for the transportation and processing of Hydrocarbons produced from
the Assets.

         17.17 Mediation and Arbitration. Compliance with this Section 17.17
shall constitute a condition precedent to either Party seeking judicial
enforcement of any provisions of this Agreement. Any dispute concerning this
Agreement (other than claims by a third party under which a Party hereto is
claiming indemnity, and such third party claim is in litigation) shall be
resolved under the mediation and binding arbitration procedures of this Section
17.17. Buyer and Seller will first

                                       49
<PAGE>   57

attempt in good faith to resolve all disputes by negotiations between management
level persons who have authority to settle the controversy. If either Party
believes further negotiations are futile, such Party may initiate the mediation
process by so notifying the other Party in writing. Both Parties shall then
attempt in good faith to resolve the dispute by mediation in Lafayette,
Louisiana, employing management level persons with authority to settle the
dispute, in accordance with the Center for Public Resources Model Procedure for
Mediation of Business Disputes, as such procedure may be modified by agreement
of the Parties. If the dispute has not been resolved pursuant to mediation
within sixty (60) days after initiating the mediation process, the dispute shall
be finally resolved through binding arbitration, as follows:

               17.17.1 If any dispute or controversy shall arise between the
Parties out of this Agreement, the alleged breach thereof or any tort in
connection therewith, or out of the refusal to perform the whole or any part
thereof, and the Parties shall be unable to agree with respect to the matter or
matters in dispute or controversy, the same shall be submitted to arbitration
before a panel of arbitrators in accordance with the Louisiana Arbitration Law,
(La. R.S. 9.4201, et seq.) and the provisions in this Section 17.17. The panel
of arbitrators shall be chosen as follows: Upon the written demand of either
Party and within ten (10) working days from the date of such demand, each Party
shall name an arbitrator and these two so named shall promptly thereafter choose
a third. If either Party shall fail to name an arbitrator within ten (10)
working days from such demand, the other Party shall name the second arbitrator
as well as the first, or if the two arbitrators shall fail within ten (10)
working days from their appointment to agree upon and appoint the third
arbitrator, then upon written application by either Party such third arbitrator
may be appointed by the senior Judge in active service of the United States
District Court for the Southern District of Texas, Houston Division; and if said
Judge shall fail to act, then such third arbitrator shall be appointed by the
President of the Center for Public Resources, Inc. The arbitrators selected to
act hereunder shall be qualified by education, experience, and training to pass
upon the particular matter or matters in dispute.

               17.17.2 The panel of arbitrators so chosen shall proceed promptly
to hear and determine the matter or matters in dispute, after giving the Parties
due notice of hearing and a reasonable opportunity to be heard. The procedure of
the arbitration proceedings shall be in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, as may be
modified by the panel of arbitrators. Unless otherwise determined by the
arbitrators, the hearing and presentations of the Parties shall not exceed two
days cumulative. The location of all arbitration proceedings hereunder shall be
Houston, Harris County, Texas, unless the panel of arbitrators determines that
another venue is more appropriate. The award of the panel of arbitrators or a
majority thereof shall be made within forty-five (45) days after the appointment
of the third arbitrator, subject to any reasonable delay due to unforeseen
circumstances. In the event of the panel or a majority thereof failing to make
an award within sixty (60) days after the appointment of the third arbitrator,
new arbitrators may at the election of either Party be chosen in like manner as
if none had been previously selected.

               17.17.3 The award of the arbitrators, or a majority thereof,
shall be in writing, determined in accordance with the substantive law of the
State of Louisiana, and shall be final and

                                       50
<PAGE>   58

binding on the Parties as to the question or questions submitted, and the
Parties shall abide by such award and perform the conditions thereof. The award
of the arbitrators shall be based on the applicable law and facts, the merits of
the Parties' positions in the controversy or dispute, and the arbitrators'
assessment of the fairness and reasonableness of any settlement proposal of any
Party. The award shall not provide or create any rights or benefits in any
person or entity which is not a Party to this Agreement, as this Agreement and
any arbitration thereunder shall not be construed as a third party beneficiary
contract. Unless otherwise determined by the arbitrators, all expenses in
connection with such arbitration shall be divided equally between the Parties
thereto, except that the expenses of counsel, witnesses, and employees of each
Party shall be borne solely by the Party incurring them, and the compensation of
any arbitrator named by a Party shall be borne solely by such Party; provided
that if court proceedings to stay litigation or compel arbitration are
necessary, the Party who unsuccessfully opposes such proceedings shall pay all
reasonable associated costs, expenses and attorney's fees of such court
proceedings.

               17.17.4 The arbitrators may but shall not be required to explain
reasons for the award. No transcript or other recording shall be made of the
arbitration proceedings. Except (i) in connection with a suit for enforcement of
the award, (ii) as required by law, court order or regulation, (iii) when
reasonably necessary to explain the terms and conditions of the award to outside
attorneys, auditors, and insurers, or (iv) as part of good faith compliance with
disclosure obligations under applicable law, the arbitration proceedings, the
award, and the Parties' actions in connection with the arbitration are
confidential and shall not be disclosed to third parties, and no disclosure of
or reference to the arbitration, the award, or of the parties' statements or
actions in connection with the arbitration shall be made to any third party. All
offers, promises, conduct, statements, and evidence, whether oral or written,
made in the course of the arbitration by any of the Parties, their agents,
employees, experts, or attorneys are confidential. Such offers, promises,
conduct, statements, and evidence shall be considered inadmissible under Rule
408 of the Federal Rules of Evidence and any similar state provisions, and shall
be inadmissible for any purpose, including impeachment. However, evidence that
is otherwise admissible shall not be rendered inadmissible as a result of its
use in the arbitration.

               17.17.5 The award of the panel of arbitrators and the obligation
to abide by same and perform the conditions thereof shall be enforceable in the
Louisiana state district courts in Lafayette Parish, Louisiana, the Texas state
district courts in Harris County, Texas, or in any federal court having
jurisdiction. Each Party shall bear its own attorneys' fees in connection with
any appeal of an arbitration award, or in any other court litigation arising out
of this Agreement.

               17.17.6 The provisions of this Section 17.17 shall not limit the
obligation of a Party to defend, indemnify of hold harmless another Party
against court proceedings or other claims, losses, damages or expenses as
provided in Article XIII.

         17.18 No Third Party Beneficiaries. It is expressly intended that there
shall be no third party beneficiaries of the covenants, agreements,
representations, warranties, obligations or indemnities herein contained.

                                       51
<PAGE>   59

         17.19 Employee Matters. Buyer may offer employment, to be effective
upon the Closing, to those employees of Seller and/or its affiliates that are
primarily involved in the operations of the Assets and that are listed on
Exhibit N hereto (the "Employees"). Prior to Closing, Buyer shall provide to
Seller a written list of those Employees to whom Buyer has made offers of
employment. Except as hereinafter provided, Buyer shall have full discretion in
determining the terms, conditions and benefits relating to such employment. At
Buyer's sole option, Buyer shall provide severance benefits to each Employee
employed by Buyer or its affiliates (i) who is a Covered Employee (as such term
is defined in the Ocean Energy, Inc. 1999 Change of Control Severance Plan, as
amended, previously provided to Buyer by Seller, such plan being hereinafter
referred to as the "Severance Plan") as of Closing, and (ii) whose employment is
subject to an Involuntary Termination (as such term is defined in the Severance
Plan) prior to April 1, 2001 equal to the severance benefits such Employee would
have received under the Severance Plan (as in effect as of Closing); provided,
however, that Seller shall reimburse Buyer for the cost of any severance
benefits provided to such Employee which Buyer is obligated to provide to said
employee prior to April 1, 2001. Buyer agrees that in the event that Buyer, or
its contract operator of the Assets, hires, within twelve (12) months after
Closing, any Employee not on the list provided by Buyer under Section 11.3.2(f)
who received severance benefits from Seller pursuant to the Severance Plan,
Buyer shall immediately reimburse Seller for the cost of any severance benefits
provided.

                                  ARTICLE XVIII
                               REDHIBITION WAIVERS

         18.1 Waiver of Louisiana Rights in Redhibition. BUYER EXPRESSLY WAIVES
THE WARRANTY OF FITNESS FOR INTENDED PURPOSES OR GUARANTEE AGAINST HIDDEN OR
LATENT REDHIBITORY VICES UNDER LOUISIANA LAW, INCLUDING LOUISIANA CIVIL CODE
ARTICLES 2520 (1870) THROUGH 2548 (1870), AND THE WARRANTY IMPOSED BY LOUISIANA
CIVIL CODE ARTICLES 2476; WAIVES ALL RIGHTS IN REDHIBITION PURSUANT TO LOUISIANA
CIVIL CODE ARTICLE 2520, ET SEQ.; ACKNOWLEDGES THAT THIS EXPRESS WAIVER SHALL BE
CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS SALE AND THE CONSIDERATION
THEREOF; AND ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO THE ATTENTION OF
BUYER AND EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY AND KNOWINGLY
CONSENTED TO THIS WAIVER OF WARRANTY OF FITNESS AND/OR WARRANTY AGAINST
REDHIBITORY VICES AND DEFECTS FOR THE ASSETS.

         18.2 Buyer's Acknowledgment. BUYER ACKNOWLEDGES THAT THE WAIVERS IN
THIS ARTICLE XVIII ARE CONSPICUOUS.

                                       52
<PAGE>   60

         IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.

WITNESSES:                              SELLER:
                                        OCEAN ENERGY, INC.

                                        By:
-------------------------------            -------------------------------------
                                        Name:   Richard G. Zepernick, Jr.
                                        Title:  Senior Vice President - Gulf of
                                                Mexico
                                        TIN:    72-1210660
-------------------------------

WITNESSES:                              BUYER:
                                        ENERGY PARTNERS, LTD.

                                        By:
-------------------------------            -------------------------------------
                                        Name:   Richard A. Bachmann
                                        Title:  Chairman, President and
                                                Chief Executive Officer
-------------------------------         TIN:    72-1409562

                                       53
<PAGE>   61

                                 ACKNOWLEDGMENTS

STATE OF LOUISIANA     )
                       )
PARISH OF LAFAYETTE    )

         On this the __ day of January, 2000, before me the undersigned officer,
personally appeared Richard G. Zepernick, Jr. known to me (or satisfactorily
proven) to be the person whose name is subscribed as Senior Vice President -
Gulf of Mexico for Ocean Energy, Inc., a Louisiana corporation, and acknowledged
that he, as such Senior Vice President - Gulf of Mexico, being authorized so to
do, executed the foregoing instrument as the act of his principal for the
purposes therein contained, by signing the name of the corporation by himself as
Senior Vice President - Gulf of Mexico.

         In witness whereof, I hereunto set my hand and official seal.

                                 -----------------------------------------------
                                 Notary Public in and for the State of Louisiana
                                 My Commission is for Life

STATE OF LOUISIANA      )
                        )
PARISH OF ORLEANS       )

         On this the __ day of January, 2000, before me the undersigned officer,
personally appeared Richard A. Bachmann, known to me (or satisfactorily proven)
to be the Chairman, President and Chief Executive Officer of Energy Partners,
Ltd., a Delaware corporation, and acknowledged that he, as such Chairman,
President and Chief Executive Officer, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself as Chairman, President and Chief Executive Officer.

         In witness whereof, I hereunto set my hand and official seal.

                                 -----------------------------------------------
                                 Notary Public in and for the State of Louisiana
                                 My Commission is for Life

                                       54<PAGE>   1
                                                                   EXHIBIT 10.20

                               FARMOUT AGREEMENT

                                     BETWEEN

                               CHEVRON U.S.A. INC.

                                        &

                              KEWANEE INDUSTRIES, INC.

                                       AND

                              ENERGY PARTNERS, LTD.

                               DATED JUNE 9, 1998

                           MAIN PASS BLOCKS 122 & 133
                               OFFSHORE LOUISIANA

<PAGE>   2

                                FARMOUT AGREEMENT

                                TABLE OF CONTENTS

1.     DEFINITIONS ................................................... 1
       1.1.    Farmout Lease(s) ...................................... 1
       1.2.    Farmout Well(s) ....................................... 1
       1.3.    Optional Well(s) ...................................... 1
       1.4.    Authorization for Expenditure (AFE) ................... 1
       1.5.    Original AFE .......................................... 1
       1.6.    Supplemental AFE ...................................... 1
       1.7.    Subsequent AFE ........................................ 2
       1.8.    AFE Operations ........................................ 2
       1.9.    AFE Equipment ......................................... 2
       1.10.   Earning Well(s) ....................................... 2
       1.11.   Payout Amount ......................................... 2
       1.12.   Net Proceeds Amount ................................... 2
       1.13.   Gross Proceeds ........................................ 2
       1.14.   Chargeable Expenditures ............................... 2
       1.15.   Paying Quantities ..................................... 2

2.     TERMINATION OF LETTER AGREEMENT ............................... 3

3.     RIGHTS AND ACCESS ............................................. 3

4.     FARMOUT WELLS ................................................. 3

5.     OPTIONAL WELLS ................................................ 5

6.     EARNING ....................................................... 5

7.     OPERATIONS AFTER EARNING WELL COMPLETION ...................... 7

8.     PURCHASE AND SALE OF OIL AND GAS .............................. 8

9.     PAYOUT ACCOUNT ................................................ 8

10.    DRILLING AND GEOLOGICAL REQUIREMENTS .......................... 9

11.    REPORTS AND STATEMENTS ........................................ 9
       11.1.   Notice of Commencement ................................ 9
       11.2.   Inventory of Material and Equipment ................... 9

12.    TAX MATTERS ...................................................10

13.    COMPLIANCE ....................................................10

14.    INSURANCE .....................................................10
       14.1.   Provision of Certificate ..............................10
       14.2.   Specific Insurance of Farmout Risks ...................10

15.    INDEMNITY .....................................................10

16.    PRIOR OBLIGATIONS MAINTAINED ..................................11

17.    NO LIENS OR ENCUMBRANCES ......................................11

18.    NO PLEDGES ....................................................11

19.    PAYMENT OF DEBTS, CHARGES .....................................11

20.    BREACH ........................................................11

21.    OTHER RIGHTS, REMEDIES RESERVED ...............................11

22.    NO WAIVER .....................................................11

23.    AUDIT RIGHTS ..................................................12

                                      -i-
<PAGE>   3

24.    ASSIGNMENTS ...................................................12

25.    FORCE MAJEURE .................................................12

26.    NOTICES .......................................................12

27.    AMENDMENTS ....................................................12

28.    TOPICAL HEADINGS ..............................................12

EXHIBITS
       'A'     FARMOUT LEASES, FARMOUT WELLS AND OPTIONAL WELLS
       'B'     TAX PARTNERSHIP
       'C'     DRILLING AND GEOLOGICAL REQUIREMENTS
       'D'     INSURANCE PROVISIONS
       'E'     ORIGINAL AFES
       'F'     FORM ASSIGNMENT

                                      -ii-
<PAGE>   4
                                FARMOUT AGREEMENT

     THIS AGREEMENT is made and entered into DATED JUNE 9, 1998, by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation (hereinafter sometimes referred
to as "Chevron"), KEWANEE INDUSTRIES, INC., a Pennsylvania corporation
(hereinafter sometimes referred to as "Kewanee"), and ENERGY PARTNERS, LTD., a
Delaware corporation (hereinafter sometimes referred to as "EPL").

                                   WITNESSETH

     WHEREAS, Chevron owns certain mineral rights and interests created by a
certain oil and gas lease covering Main Pass Block 122, and Chevron, Kewanee and
Mobil Oil Exploration & Producing Southeast Inc. ("Mobil") own certain mineral
rights and interests created by a certain oil and gas lease covering Main Pass
Block 133 (both being collectively referred to as the "Farmout Leases"), both
being Offshore Louisiana and further described on the attached Exhibit `A'.
Pursuant to said Farmout Leases, Chevron and Kewanee have the right to conduct
operations including, but not limited to, the drilling, recompletion, reworking,
reconditioning, sidetracking and completion (and associated downhole operations)
of wells which are the subject of this Agreement (the "Farmout Wells"), and to
own the production obtained from such wells; and

     WHEREAS, Chevron and EPL have entered into a Letter Agreement dated April
9, 1998 (the "Letter Agreement") pursuant to which EPL agreed to pay the costs,
and physically manage the conduct of specific downhole well activities approved
pursuant to the provisions of this Agreement (such activities being sometimes
hereinafter referred to as "AFE Operations") in an effort to re-establish
production from the above-referenced wells, with EPL recouping costs (as fully
described herein); and

     WHEREAS, Chevron and EPL desire to execute this Agreement to supersede said
Letter Agreement, and to include the detailed provisions necessary to realize
the intents generally outlined in said Letter Agreement, as well as to allow
Kewanee to ratify such intents;

     NOW, THEREFORE, in consideration of the mutual benefits and advantages
accruing to the parties hereto, Chevron, Kewanee and EPL have agreed and do
hereby agree, as follows:

1.   DEFINITIONS

     As used in this Agreement, the following words and terms shall be defined
     as follows:

     1.1.  FARMOUT LEASE(S)

           The oil and gas lease(s) governing operations in and on the Farmout
           Wells, being OCS-G 13964 (covering Main Pass Block 122) and OCS-G
           1633 (covering Main Pass Block 133).

     1.2.  FARMOUT WELL(S)

           Each well (listed on Exhibit "A" attached) in which EPL has the
           obligation to conduct operations in accordance with the terms of this
           Agreement, with the intent of establishing production in Paying
           Quantities.

     1.3.  OPTIONAL WELL(S)

           Each well (listed on Exhibit "A" attached) in which EPL has the
           option to conduct operations in accordance with the terms of this
           Agreement, with the intent of establishing production in Paying
           Quantities. An AFE for an Optional Well must be approved by Chevron,
           Kewanee and EPL prior to conducting operations on said well.

     1.4.  AUTHORIZATION FOR EXPENDITURE (AFE)

           A written summary, approved by Chevron and Kewanee and in a format
           similar to that which is standard in the oil and gas industry, of a
           proposed AFE Operation to be performed by EPL in an effort to
           establish a well capable of producing in Paying Quantities. Said
           summary shall include, but not be limited to, the estimated cost
           associated with the conduct of such Operation and the method by which
           the Operation shall be conducted. An AFE under this Agreement can be
           an Original AFE, a Supplemental AFE or a Subsequent AFE. Each
           Original AFE for the Farmout Wells is attached hereto as Exhibit 'E',
           and shall be considered approved by Chevron, Kewanee and EPL for
           purposes of this Agreement.

     1.5.  ORIGINAL AFE

           An AFE covering the first AFE Operation on a Farmout Well pursuant to
           this Agreement.

     1.6.  SUPPLEMENTAL AFE

           An AFE which expands or changes the cost or scope in an Original AFE
           for a specific Farmout Well, which plan is commenced within thirty
           (30) days of the completion of operations under an Original AFE for
           the same well.

                                      -1-
<PAGE>   5

     1.7.  SUBSEQUENT AFE

           Each AFE (other than an Original or Supplemental AFE) for a specific
           Farmout or Optional Well which is approved and implemented following
           the complete implementation of the Original AFE and any Supplemental
           AFE for such well.

     1.8.  AFE OPERATIONS

           All activities set forth on the attached Original AFEs, and on any
           other approved Original, Supplemental or Subsequent AFEs, which are
           conducted on the Farmout and/or Optional Wells. All AFE Operations
           must be approved by Chevron, Kewanee and EPL. AFE Operations shall
           not include plugging and abandonment of any Farmout Well, unless
           separately agreed to in writing by Chevron, Kewanee and EPL. AFE
           Operations shall include only those operations conducted under
           Original, Supplemental or Subsequent AFEs, whether conducted by
           Chevron or EPL (and if by Chevron, for cost purposes only as set
           forth on such Original AFEs).

     1.9   AFE EQUIPMENT

           All equipment (including but not limited to pipelines, flowlines,
           risers, structures, processing vessels and wellheads) and materials
           for AFE Operations in, on or in support of the Farmout Wells pursuant
           to this Agreement. The acquisition and installation (pursuant to an
           AFE) of all AFE Equipment must be approved by Chevron, Kewanee and
           EPL.

     1.10. EARNING WELL(S)

           The Farmout Well(s) that EPL or Chevron has caused to produce oil
           and/or gas in Paying Quantities, the production from which EPL shall
           recover costs paid by EPL to generate said production.

     1.11. PAYOUT AMOUNT

           The total aggregate amount of money to be recouped by EPL, from EPL's
           Net Proceeds Amount, for costs of AFE Operations conducted and AFE
           Equipment installed. Such aggregate amount shall be the total of the
           following:

           (a) one hundred twenty percent (120%) of the actual costs paid or
               incurred by EPL for AFE Operations performed and AFE Equipment in
               and on the Farmout Wells and Farmout Leases; plus

           (b) 120% of all actual costs incurred due to emergencies or force
               majeure occurrences; minus

           (c) any applicable "E&S Penalty" or "Additional Mechanical Costs", as
               more fully described in Article 6.3 below.

     1.12. NET PROCEEDS AMOUNT

           The amount by which EPL's share of "Gross Proceeds" (as defined
           below) exceed EPL's share of "Chargeable Expenditures" (as defined
           below) for any accounting month.

     1.13. GROSS PROCEEDS

           The total aggregate amount received by EPL from the sale of its
           working interest share of oil, gas, casinghead gas, associated
           hydrocarbon liquids and all other salable products obtained from or
           attributable to the Earning Well(s) prior to its recovery of the
           Payout Amount, less ordinary and reasonable expenses of marketing the
           product therefrom.

     1.14. CHARGEABLE EXPENDITURES

           As used herein, Chargeable Expenditures shall be EPL's share of (1)
           lease royalties that are applicable to its working interest in the
           Earning Well(s), (2) severance, production, excise and other
           non-income taxes attributable to its working interest in said
           production, and 3) its share of lease operating expenses associated
           with a Mobil non-consented interest, if any, acquired by EPL pursuant
           to Article 4.4 of this Agreement.

     1.15. PAYING QUANTITIES

           For the purpose of this Agreement, a Farmout Well shall be considered
           as being capable of producing in Paying Quantities (and therefore
           classified as an Earning Well) when production of oil, gas or both at
           the wellhead is producible in quantities sufficient to yield the
           oil/gas equivalent of 25 BOPD based on initial production well tests
           conducted for regulatory reporting purposes. The gas to oil
           conversion rate for this determination shall be 6 MCF for 1 barrel of
           oil. Notwithstanding anything to the contrary, no well shall be
           considered as producing in Paying Quantities if the produced water
           volume exceeds the produced oil volume or gas equivalent by a
           multiple higher than twenty to one, without the written approval of
           Chevron and Kewanee.

                                      -2-
<PAGE>   6

2.   TERMINATION OF LETTER AGREEMENT

     Concurrent with the effective date of this Agreement, the Letter Agreement
     dated April 9, 1998 between Chevron and EPL shall be superseded by this
     Agreement. Any and all AFE Operations or issues associated with the Letter
     Agreement shall be governed by this Agreement, whether or not such AFE
     Operations or issues occurred prior to or after the execution date of this
     Agreement.

3.   RIGHTS AND ACCESS

     3.1.  Chevron and Kewanee agree to designate EPL as operator of the Farmout
           Leases as to the Farmout Wells, and to make a good-faith effort to
           obtain such designations from Mobil. At such time as EPL becomes a
           operator qualified by the Minerals Management Service (MMS) to
           conduct all of the operations contemplated by this Agreement, Chevron
           and Kewanee hereby grant EPL the right of access to, entry upon and
           use of the Farmout Leases, the Farmout Wells, the Main Pass 133 'A'
           Platform and associated properties and facilities, when and as
           necessary for the purpose of conducting AFE Operations pursuant to
           this Agreement. Each party shall make a good-faith effort to conduct
           its operations in a manner as to not interfere with any other
           operations on or impacted by the Main Pass 133 'A' Platform.

     3.2.  EPL shall have exclusive charge, control and supervision of its
           operations on the Farmout Wells, together with all obligations
           arising from its AFE Operations. Chevron and Kewanee retain the right
           to access EPL's operations conducted pursuant to this Agreement at
           all times, except as detrimental to EPL's operations.

     3.3.  EPL's right to receive the Payout Amount shall terminate only upon
           the earlier of (i) EPL's receipt of such Payout Amount, or (ii) the
           expiration of all rights of EPL to conduct or propose operations in
           the Farmout Wells.

4.   FARMOUT WELLS

     4.1.  This Agreement shall become effective upon the satisfaction of all of
           the following conditions (the "Effective Time"):

           (i)   Execution of this Agreement and all executable exhibits by the
                 parties;

           (ii)  Receipt by EPL of Mobil's written release of EPL to EPL's
                 reasonable satisfaction relating to operations by EPL pursuant
                 to this Agreement;

           (iii) Receipt of all consents and agreements of both Mobil and
                 Kewanee pursuant to their joint operating agreements with
                 Chevron and any other related agreements; and

           (iv)  The filing and effectiveness of the designations of EPL for
                 operatorship of the Farmout Wells as contemplated by this
                 Agreement.

           EPL shall assume control of the Farmout Well upon which operations
           are being conducted by Chevron at the Effective Time within
           seventy-two (72) hours (excluding weekends and force majeure) of the
           Effective Time. EPL shall finish AFE Operations on said Farmout Well
           in accordance with the applicable attached AFE. Failure to timely
           commence AFE Operations as described in this Article 4.1 shall
           terminate this Agreement in its entirety immediately.

     4.2.  Chevron will provide EPL with all pertinent data and information
           (which it has the right to provide) relevant to said Farmout Well(s)
           on which AFE Operations are proposed, and which is necessary to
           assist EPL in the conduct of the AFE Operations required hereunder.
           All data and information shared by Chevron with EPL shall be subject
           to that certain Confidentiality Agreement between Chevron and EPL
           dated March 25, 1998.

     4.3.  EPL must commence AFE Operations on the fourth (4th) Farmout Well
           within fifteen (15) days of completion of its AFE Operations on the
           prior well (subject to force majeure, and subject to any limitations
           necessary to obtain the consent or non-consent of Mobil). For the
           purpose of this Article 4.3, EPL shall have completed AFE Operations
           on a Farmout Well at such time as the well is completed through the
           christmas tree or at such time as the well is temporarily abandoned
           by EPL or turned over to Chevron and Kewanee in accordance with
           Article 4.6 herein. Failure to commence timely such AFE Operations,
           or failure to conduct same in accordance with the approved AFE
           without prior notice and approval of any significant, adverse
           deviation from such AFE by Chevron or Kewanee (except for emergencies
           or force majeure occurrences), shall terminate this Agreement as to
           all Farmout Wells in which operations have not been commenced prior
           to said termination.

     4.4.  EPL shall conduct AFE Operations strictly as proposed in the AFE for
           each Farmout Well, with due diligence and in a workmanlike manner.
           EPL shall conduct such AFE Operations in a good

                                      -3-
<PAGE>   7
           faith effort to produce oil and/or gas from each such well pursuant
           to the terms hereof. All contractors or subcontractors of EPL shall
           be taken from the Chevron approved contractors list. EPL shall be
           obligated for, and shall coordinate the provision of and the payment
           for, the cost of all AFE Equipment and services used in AFE
           Operations. Notwithstanding any provision to the contrary contained
           herein, it is agreed that in the event of an emergency situation, EPL
           shall use its best efforts to contact Chevron but shall have the
           right to utilize all services and procure all materials and equipment
           reasonably necessary in light of the circumstances, which costs shall
           be recouped by EPL pursuant to the payout provisions of this
           Agreement.

           Should Mobil non-consent (under the terms of the JOA) any AFE
           Operation conducted by EPL in any Farmout Well, EPL shall pay all
           costs of the AFE Operation by EPL associated with Mobil's
           non-consented interest as though the interest was farmed out by
           Chevron and Kewanee to EPL pursuant to this Agreement. EPL shall
           recoup a) 120% of such costs, and b) all of the amounts recoupable
           from Chevron's and Kewanee's interest as provided herein. However,
           Mobil's share of the cost of non-consent well operations shall be
           recouped only out of One Hundred Percent (100%) of Mobil's share of
           such production, less Mobil's share of lease operating expense and
           MMS royalties. It is the intention of the parties that should EPL's
           recovery of the Payout Amount occur prior to recoupment by EPL of the
           costs associated with Mobil's non-consented interest, EPL shall
           continue to receive its Net Proceeds Amount hereunder until full
           recoupment of the Mobil non-consent interest or until the well
           bearing the penalty is abandoned with no future utility by EPL. EPL
           shall not have the right to recoup its Mobil non-consent penalty from
           the Net Proceeds Interest until the Payout Amount is recouped, and
           then (individually or collectively) only from the well(s)
           non-consented by Mobil.

           If Mobil elects to participate, EPL may (at its option) cash call
           Mobil. If Mobil will not allow EPL to cash call Mobil's interest
           directly, then upon payment of the cash calls by Mobil to Chevron,
           Chevron will promptly forward such amount to EPL for credit against
           Mobil's share of costs incurred by EPL. EPL shall prepare Joint
           Interest Billings for the "Joint Account" (being Chevron, Mobil,
           Kewanee and EPL) for AFE Operations in compliance with the Joint
           Operating Agreement and Accounting Procedure currently governing the
           leases subject to this Agreement. EPL shall reconcile the cash calls
           attributable to Mobil's share against Joint Interest Billings for
           Mobil's share of any operations approved by Mobil. EPL shall forward
           copies of its Joint Interest Billings and cash call reconciliations
           directly to Mobil, and provide informational copies to Chevron.
           However, Chevron shall not be liable for any differences in such cash
           call/Joint Interest Billing Cost reconciliations. EPL shall also
           retain Joint Account records in accordance with the Joint Operating
           Agreement and Accounting Procedure currently governing the leases
           subject to this Agreement. Chevron, Kewanee, Mobil and EPL shall have
           the right to audit each other's Joint Account records in accordance
           with the previously referenced Accounting Procedure. EPL shall
           indemnify and hold harmless Chevron and Kewanee from and against any
           and all losses incurred as a result of accounting errors made by EPL
           with respect to the computation of Mobil's interest in the Farmout
           Wells.

           If at any time a Farmout Well fails to produce or ceases to produce
           in Paying Quantities prior to full recovery of the Payout Amount by
           EPL, that well shall cease to be considered part of this Agreement,
           and EPL's interest in each such well and associated Farmout Lease
           acreage will immediately be reassigned to Chevron and Kewanee (if any
           such assignment has previously been made), unless EPL proposes a new
           workover program acceptable to Chevron and Kewanee within ninety (90)
           days of last operations or production (whichever occurs later) on
           said well. Any other operations for that well (other than those
           approved under a Subsequent AFE) not allowed under this Agreement
           shall require new and separate negotiations unless added to the scope
           of this Agreement by the mutual consent of all parties.

     4.5.  No AFE Operations shall be conducted in a Farmout Well without
           Chevron's and Kewanee's express consent. Chevron and Kewanee shall
           not unreasonably withhold consent to EPL's rework of a Farmout Well
           during such time as EPL is recouping the Payout Amount. The
           expenditure for such rework which has been approved by Chevron and
           Kewanee through an AFE shall be added to the Payout Amount to be
           recouped by EPL as provided in Article 6 below.

           Either Chevron or Kewanee shall have the sole discretion to suspend
           the AFE Operations upon reasonable notice to EPL, as Chevron or
           Kewanee deem reasonably necessary and prudent for safe operations, or
           for the economical or successful completion or temporary abandonment
           of any of said Farmout Wells, provided EPL shall receive the Payout
           Amount for work completed. Any AFE Operation may be modified by
           Chevron and Kewanee pursuant to a Supplemental AFE prepared by EPL,
           which shall require the approval of EPL only if the change in scope
           creates costs and risks to EPL in excess of those approved under the
           Original AFE Operation. If EPL does not approve a proposed
           Supplemental AFE requested by Chevron or Kewanee, Chevron and/or
           Kewanee shall have the right to conduct said operations at its/their
           sole cost, risk and expense, and in compliance with all laws, rules
           and regulations bearing thereon, with the

                                      -4-
<PAGE>   8

           right to utilize the contracts, materials and equipment (to the
           extent possible) in place at the time that the approved AFE
           Operations were completed, and with the right to utilize the drilling
           services contracted by EPL at the time of Chevron's and/or Kewanee's
           takeover on a day-rate basis consistent with those rates charged
           hereunder. In such case, EPL shall pay for all costs it incurs to
           conduct the AFE Operation, and Chevron and/or Kewanee shall pay and
           be responsible for (outside the terms of this Agreement) all
           additional operations which Chevron conducts that EPL does not
           approve. The Net Proceeds Amount payable to EPL from any Earning Well
           completed by Chevron pursuant to AFE Operations not approved by EPL
           shall be suspended, as to such Earning Well, until such time as
           Chevron has recovered 100% of its costs associated with said
           operations. Additionally, EPL may propose modifications to the AFE
           Operations, which if approved by Chevron shall be set forth in a
           Supplemental AFE executed by the parties.

     4.6.  If a Farmout Well is incapable of producing in Paying Quantities
           after AFE Operations have been conducted by EPL, or if EPL chooses,
           at its sole discretion, not to complete or recomplete the well, said
           Farmout Well shall be dropped from this Agreement (subject to the
           option to commence additional AFE Operations as provided in Paragraph
           4 of Article 4.4 above). Chevron and Kewanee shall have forty-eight
           (48) hours of rig standby time at EPL's cost (and subject to recovery
           as part of the Payout Amount), plus whatever amount of rig standby
           time they wish to utilize at Chevron's and Kewanee's cost, after
           receiving notice from EPL of its intent to temporarily abandon the
           well in which to inform EPL as to whether Chevron and Kewanee wish to
           take over the well and associated rig, or allow EPL to proceed with
           its temporary abandonment efforts. If Chevron and Kewanee take over
           the well, EPL shall release the rig to Chevron and Kewanee and shall
           have no further responsibility or liability for the rig costs upon
           the retransfer of operating rights to Chevron and Kewanee, and the
           well shall be owned by Chevron and Kewanee. In addition, Chevron and
           Kewanee shall have sole responsibility and liability for the well
           operations thereafter, including the plugging and permanent
           abandonment of said wells. EPL shall bear no obligation for the
           plugging and abandonment of said well (nor any other well) subject to
           this Agreement.

     4.7   EPL agrees to pay all charges that are incurred by AFE Operations
           (listed on the attached Exhibit 'E') within twenty (20) days of EPL's
           receipt of a final invoice in its name.

     4.8   Chevron and Kewanee hereby waive any preferential right they may have
           as to the interest being transferred to and assigned to EPL.

5.   OPTIONAL WELLS

     5.1.  One or both of the wells identified on Exhibit 'A' as an "Optional
           Well" are wells which may be designated as "Farmout Wells" by mutual
           agreement of the parties hereto, and AFE Operations on such wells
           shall be governed by the provisions of Article 3 above.

     5.2.  All of the terms and conditions which apply to each Farmout Well
           operated by EPL hereunder shall also apply to each Optional Well.

6.   EARNING

     6.1.  As a result of the successful completion of the OCS-G 1633 #A-6 and
           OCS-G 1633 #A-10/A-10 S/T as Earning Wells and upon the successful
           completion of the other Farmout Wells or Optional Wells, EPL shall be
           assigned of 75% of Chevron's and Kewanee's operating rights and
           working interest in the 1/4 1/4 1/4 square of Farmout Lease acreage
           in each respective completion in said Earning Well is located (the
           "Earned Acreage"), together with the right to recover the Payout
           Amount from production generated by all Earning Wells. Each such
           assignment shall include rights from the surface to the base of the
           deepest producing interval, plus one hundred feet (100'), in the
           Earned Acreage for each Earning Well. Said assignment shall be
           effective, as to each Earning Well, as of the date of initial AFE
           Operations by EPL on said well, or date of initial production from
           said well, whichever occurs first. EPL shall recoup the Payout Amount
           from all Earning Wells (rather than recouping the Payout Amount on a
           well-by-well basis). As such, EPL shall receive the Net Proceeds
           Amount from its working interest share of production from all Earning
           Wells, until such time as EPL has fully recouped the Payout Amount
           associated with all AFE Operations and AFE Equipment paid for by EPL
           hereunder. During the time EPL is recouping the Payout Amount,
           Chevron and Kewanee shall retain 25% of their working interest in the
           Earning Wells and the Earned Acreage, and shall also be responsible
           for all of EPL's costs (other than Chargeable Expenses) associated
           with EPL's operating rights and working interest in the Earning
           Wells, including operating expenses.

     6.2.  In the event recoupment of the Payout Amount occurs within six months
           of the date of the completion of all operations conducted on the
           Farmout Wells pursuant to this Agreement, the one hundred twenty
           percent (120%) risk premium specified in Article 1.10. shall be
           reduced to one hundred eighteen percent (118%). If EPL has not
           recouped the Payout Amount from production resulting from the Earning
           Wells after one (1) year of the date of the completion of all EPL
           operations conducted on the Farmout Wells, the Payout Amount as of
           the conclusion of the twelfth month, and every month thereafter,
           shall be increased by one point five percent (1.5%) per month until
           payout from production from the Earning Wells is achieved (i.e. if
           the Payout

                                      -5-
<PAGE>   9

           Amount at the end of the twelfth month is $1,000,000, the payout
           amount shall be increase to $1,015,000 on the first day of thirteenth
           [13th] month).

           The approved sums expended by EPL pursuant to this Agreement shall be
           recovered solely from the Earning Wells. Recovery from Net Proceeds,
           as defined in Article 1.11, for sums expended by EPL pursuant to
           obligations under this contract IS NOT GUARANTEED. Except for all
           indemnity obligations hereunder, Chevron and Kewanee shall have no
           obligation to reimburse EPL for any portion of the Payout Amount not
           reimbursed by the Net Proceeds. Chevron and Kewanee shall bear all
           lease operating expenses attributable to the interests earned by EPL
           pursuant to this Agreement.

     6.3.  EPL's Payout Amount shall be reduced by an "E&S Penalty" upon the
           occurrence of an "E&S Event" caused by EPL'S operations conducted
           pursuant to this Agreement. An "E&S Event" is defined as any OSHA
           recordable accident, oil spill, material incident of non-compliance
           with law or regulation or any material permit non-compliance by EPL
           during its work on the Farmout Wells. The "E&S Penalty" shall be a
           One Percent (1%) reduction of the Payout Amount of the well in which
           such "E&S Event" occurs [up to a maximum of Two Percent (2%) per
           Farmout Well], for each E&S Event occurring during its conduct of AFE
           Operations. No operations conducted on the Farmout Wells by parties
           other than EPL, its agents and contractors shall be considered E&S
           Events as defined herein.

           The Payout Amount shall also be reduced as the result of "Additional
           Mechanical Costs" incurred by EPL during the course of operations
           conducted by EPL pursuant to the Farmout Agreement. "Additional
           Mechanical Costs" are defined as that percentage of the actual costs
           incurred and/or paid by EPL for AFE Operations performed and AFE
           Equipment installed by EPL in and on a Farmout Well which are in
           excess of the amounts of the approved AFEs for said AFE Operation and
           said AFE Equipment. The reduction of the Payout Amount associated
           with Additional Mechanical Costs shall be calculated as follows:

           (a)  For Additional Mechanical Costs of Five Percent (5%) to Fourteen
                Point Nine Percent (14.9%), the Payout Amount on the particular
                Farmout Well shall be reduced by One Percent (1%);

           (b)  For Additional Mechanical Costs of Fourteen Point Nine Percent
                (14.9%) to Twenty-Four Point Nine Percent (24.9%), the Payout
                Amount on the particular Farmout Well shall be reduced by Two
                Percent (2%);

           (c)  For Additional Mechanical Costs in excess of Twenty-Five Percent
                (25%), the Payout Amount on the particular Farmout Well shall be
                reduced by Three Percent (3%);

           provided, however, that in no event shall the cumulative reduction
           per Farmout Well from the Payout Amount for Additional Mechanical
           Costs alone exceed Three Percent (3%); and further provided that in
           no event shall the cumulative reductions from the Payout Amount for
           E&S Risk plus Additional Mechanical Costs combined exceed Five
           Percent (5%) for the combination of all Farmout Wells in the program.
           Additionally, if at such time as EPL has recovered the Payout Amount,
           the cumulative actual costs for the entire program are less than the
           cumulative costs listed on the AFEs for the entire program, then any
           portion of the difference which represents a deduction from the
           Payout Amount for Additional Mechanical Costs shall be reimbursed to
           EPL.

     6.4.  Upon the full remittance of the adjusted Payout Amount to EPL, EPL's
           Net Proceeds Amount shall automatically re-invest in Chevron and
           Kewanee, and EPL agrees to execute any and all documents Chevron and
           Kewanee require to effectuate a reassignment of any interest in the
           Earning Wells and the Farmout Leases earned by EPL hereunder to
           Chevron and Kewanee.

     6.5.  At such time as EPL has recovered the Payout Amount, EPL's
           seventy-five percent (75%) working interest in the Earning Well(s)
           shall be reduced to a one percent (1%) working interest, and
           Chevron's and Kewanee's working interest in each said well shall
           automatically be converted into a ninety-nine percent (99%) working
           interest therein. In addition, Chevron and Kewanee shall own 100%
           interest in all equipment, facilities, pipelines, and other property
           paid for by EPL and reimbursed as part of the Payout Amount. EPL
           shall bear no cost or expense of any nature in regards to its working
           interest ownership in the Farmout Wells, and Chevron and Kewanee
           shall bear such costs and indemnify EPL for all such costs and
           expenses, including attorney's fees.

           EPL shall then ratify the appropriate operating agreement bearing on
           such well(s), and its one percent (1%) working interest shall be
           represented by Chevron and Kewanee as to any voting issues. However,
           EPL shall have the right to non-consent any AFE proposal made by
           Chevron and Kewanee or Mobil after recovering the Payout Amount by
           assigning all of EPL's interest in the Earning Well subject to the
           AFE to Chevron and Kewanee (subject to Chevron's and

                                      -6-
<PAGE>   10

           Kewanee's right to reject said offer). EPL shall bear no cost of
           plugging and permanent abandonment of said wells and areas.

     6.6.  Upon receipt of a written request by EPL, Chevron and Kewanee shall
           execute and record an assignment of the rights and interests earned
           by EPL, subject to the right of re-assignment to Chevron and Kewanee
           as described herein. Prior to EPL's recovery of the Payout Amount,
           any assignment earned under this Agreement shall contain a provision
           that the interest vested in EPL as to each Earning Well individually
           thereby shall automatically terminate and re-vest in Chevron and
           Kewanee or their successors or assigns when EPL abandons production
           from or AFE Operations on the applicable well. Such assignment
           provision shall provide such automatic termination upon cessation of
           production in Paying Quantities from the applicable well for a period
           of ninety (90) consecutive days after receipt of notice from Chevron
           that the well is no longer producing in Paying Quantities, and EPL
           does not propose a new workover program acceptable to Chevron and
           Kewanee within ninety (90) days (or shorter, if necessary to maintain
           a Farmout Lease by its lease obligations) after notice is received by
           EPL from Chevron that the well is no longer producing in Paying
           Quantities. If and when necessary and upon receipt of a written
           request, EPL agrees to execute an appropriate assignment to evidence
           such revestiture. Said reassignment shall be made without cost or
           expense to Chevron and Kewanee or their successors or assigns, and
           shall be free and clear of any liens, encumbrances or carved-out
           interests whatsoever (including, but not limited to, any overriding
           royalty or production payment) created by EPL.

           In addition, at the end of the life of production pursuant to this
           Agreement, if the Payout Amount has not yet been recovered by EPL,
           Chevron and Kewanee or their successors or assigns shall have the
           option to receive an assignment of all leasehold equipment on the
           reassigned premises added pursuant to this Agreement, and Chevron and
           Kewanee shall pay EPL the net salvage value thereof, not to exceed
           the remaining balance of the Payout Amount as of that date.

     6.7.  Chevron and Kewanee shall hold the continuing right and option, at
           their sole election, to purchase at any time after EPL's conversion
           to a 1% working interest, all of EPL's right, title and interest
           earned hereunder, including but not limited to working interest in
           the Farmout Leases and production from any and all Earning Wells,
           for a total of $1.00.

     6.8.  Chevron and Kewanee represent that their working interests and net
           revenue interests in the Farmout Leases are as set forth in Exhibit
           'A', and that their are no liens or encumbrances affecting said
           interests.

7.   OPERATIONS AFTER EARNING WELL COMPLETION

     7.1.  It is understood that upon completion of any Earning Well and the
           hooking up of such well for production as delineated in its AFE for
           the well, EPL shall turn over the well operations to Chevron. Chevron
           shall thereafter operate the well and take such immediate actions as
           are necessary to insure that the said well is placed on production
           within a reasonable period of time after the well is so turned over
           to Chevron by EPL.

     7.2.  Upon assuming operational control of any Earning Well, Chevron shall
           be designated operator of the well. Chevron shall conduct all
           operations and produce the well in a good and workmanlike manner as a
           prudent operator, and shall comply with all applicable federal, state
           and local laws, rules and regulations. However, notwithstanding
           Chevron's designation as operator of an Earning Well, it is
           understood and agreed that prior to EPL's recovery of the Payout
           Amount, Chevron shall obtain EPL's consent before conducting any
           downhole work other than routine paraffin cutting and Chevron shall
           also, prior to EPL's recovery of the Payout Amount, consult with EPL
           concerning flow rates, choke sizes, gas lift design and other
           production practices on and for each Earning Well. Notwithstanding
           anything to the contrary herein, Chevron shall not be required to
           conduct any operation or continue operations under conditions it
           determines, as a reasonably prudent operator, would create a risk to
           human safety or the environment, nor shall EPL be released from any
           obligation for operations conducted by Chevron in an emergency
           situation.

     7.3.  Prior to EPL's recovery of the Payout Amount, if EPL wishes to
           perform any Operation in a Farmout Well, EPL may give the other party
           written notice of the proposed Operation. The aforesaid written
           notice shall specify the work to be performed, the location, the
           depth within the Farmout Well, objective formation and the estimated
           cost of the Operation. Chevron and Kewanee shall have thirty (30)
           days after receipt of such notice within which to respond. If a rig
           is on location, notice of such a proposal may be given by telephone
           and the response period shall

                                      -7-

<PAGE>   11

          be limited to twenty-four (24) hours. This limited notice shall not
          apply to a well whose rig is not being moved immediately from an
          Operation in another Farmout Well. No proposed operation shall be
          conducted without Chevron's, Kewanee's and EPL's express consent;
          however, consent shall not be unreasonably withheld to rework a
          Farmout Well. The expenditure for such rework which has been approved
          by Chevron and Kewanee through an AFE shall be added to the Payout
          Amount to be recouped by EPL as provided in Article 6 above.

     7.4. It is understood and agreed that, prior to EPL's recovery of the
          Payout Amount, no well in which EPL has earned an interest hereunder
          may have any non-emergency work performed upon it that could adversely
          affect production from the then producing sand, unless EPL consents to
          same in writing.

8.   PURCHASE AND SALE OF OIL AND GAS

     8.1. Chevron, Kewanee and EPL shall each have the right to take in kind and
          control the transportation, processing, and sale of its working
          interest share of all oil, gas and associated liquid hydrocarbons
          produced from the Earning Well(s) pursuant to this Agreement. When EPL
          sells a product for its own account (including Mobil's non-consent
          share of production, if any), EPL shall be responsible for providing
          Chevron with the Gross Proceeds and Chargeable Expenses information
          described in Article 9 below in order for Chevron to calculate the
          Payout Amount on a monthly basis. EPL shall also be responsible for
          paying any royalties and severance, production excise and other
          non-income taxes attributable to its working interest share of
          production to the appropriate governmental agency or party.

     8.2. If EPL elects not to market its share of production (including Mobil's
          non-consent share of production, if any) during any period that this
          Agreement is in effect, Chevron shall market EPL's production on a
          monthly basis under the terms received by Chevron for its share of
          production from the Earning Wells, less any reasonable and mutually
          agreed upon costs incurred by Chevron to market such production. In no
          case will EPL's oil production receive less than Chevron's posting for
          crude oil of like grade and gravity for production from the Main Pass
          133 'A' Platform (before the mutually agreed upon deduction for
          Chevron's marketing costs). Additionally, EPL's gas production will be
          pegged to a mutually agreed upon index price (before the mutually
          agreed upon deduction for Chevron's marketing costs).

          Chevron shall not have the obligation to market EPL's production if
          such marketing would cause material detriment to Chevron. In no case
          will Chevron commit EPL's production to sales for a period greater
          than thirty-one (31) days without the prior written consent of EPL.

          When Chevron markets EPL's production (and Mobil's non-consent share
          of production, if any) and receives the proceeds thereof, Chevron
          shall pay the Net Profit Interest payments, less royalties to EPL
          within fifteen (15) days after payment of MMS royalties on such
          monthly production is due. Chevron shall pay the lease royalties
          associated with said production. Additionally, if production is
          associated with a Mobil non-consent share, lease operating expenses
          attributed to that production will be deducted.

          Chevron and Kewanee agree that should any of EPL's portion of the gas
          stream from the Farmout Wells be captured by Mobil due to an imbalance
          situation between Mobil, Chevron and Kewanee, Chevron will reimburse
          EPL the equivalent value of the gas not available for sale to EPL's
          account. Additionally, should there be a difference between EPL's
          deliveries and entitlements, Chevron and EPL will cash out the
          difference every month.

9.   PAYOUT ACCOUNT

     9.1. For purposes of this Agreement, there is to be created an account to
          be called the "Chevron/Kewanee/EPL Payout Account", pursuant to which
          Gross Proceeds and Chargeable Expenditures are to be credited and
          debited on a monthly basis and applied toward the Payout Amount to be
          recouped by EPL, to determine the status of said account. Chevron
          shall maintain the aforesaid account and shall provide monthly
          statements as further provided for herein.

          9.1.1.    Information used to calculate the Net Proceeds Amount on
                    production obtained from or allocated to Earning Wells shall
                    be provided by EPL to Chevron (at the address shown in
                    Article 9.1.3 below) within 30 days of EPL's receipt of such
                    information, and credited by Chevron to the
                    Chevron/Kewanee/EPL Payout Account not later than thirty
                    (30) days following EPL's receipt of the Net Proceeds Amount
                    information by Chevron from EPL. The Net Proceeds
                    information provided by EPL shall include a monthly
                    statement by well which itemizes EPL's share of production
                    by product (such as oil, gas and products) and shows the EPL
                    volumes and Gross Proceeds Amounts and Chargeable
                    Expenditures (as defined herein) used to calculate the Net
                    Proceeds Amount.

                                      -8-
<PAGE>   12

          9.1.2.    If Chargeable Expenditures in any one month exceed the Gross
                    Proceeds in the same month, resulting in a net loss, such
                    net loss shall be applied against the Payout Amount.

          9.1.3.    EPL shall provide itemized statements of actual drilling,
                    sidetracking, reworking or recompleting costs within ninety
                    (90) days following the completion of any such operation to
                    Chevron U.S.A. Inc. at P. O. Box J, Concord, CA 94524,
                    Attention: Joint Interest Accounting -- Net Profits and
                    Payouts. In the event this information is not provided
                    within the above time frame, Chevron shall be authorized to
                    withhold payment of any Net Profit Payments to EPL until
                    such information is provided. Such costs shall be in
                    accordance with the provisions of the 1986 Offshore COPAS as
                    recommended by the Council of Petroleum Accountants
                    Societies.

     9.2. Monthly, after the establishment of the Payout Account referenced in
          Article 8.1 above, Chevron shall provide EPL a report setting forth
          the full details and status of the Chevron/Kewanee/EPL Payout
          Account. The report shall include all information necessary for EPL to
          properly monitor the account, including, but not limited to, the
          following:

          (a)       A monthly statement itemizing the Gross Proceed volumes and
                    dollars, less itemized Chargeable Expenditures used to
                    arrive at the Net Proceeds Amount received by EPL for the
                    month.

          (b)       A summary statement reflecting the beginning balance in the
                    Payout Account, Net Proceeds for the month, and the ending
                    Payout Account balance for the said month.

     9.3. EPL acknowledges and agrees that production from individual wells in
          the Main Pass 133 Field is not continuously measured and, as a result,
          agrees that the percentage of total production allocated to an Earning
          Well shall be determined based upon metering or well tests pursuant to
          approved commingling authorizations from the MMS and other applicable
          rules and regulations of the Federal Government.

     9.4. If EPL earns a Net Proceeds Amount in more than one well, the
          calculations of Gross Proceeds and Chargeable Expenditures shall be
          combined so that the Net Proceeds Amount is calculated on an aggregate
          basis as to all wells in which EPL has earned. In addition, it is
          understood and agreed that all actual costs for Earning Wells, plus
          the actual costs for the unsuccessful Farmout Wells, shall be
          aggregated for the purposes of calculating the Payout Amount to be
          paid to EPL out of Net Proceeds Amount from the Earning Wells. (For
          example, should EPL drill or rework two wells in attempting to earn a
          Net Proceeds Amount in an Earning Well and should one be temporarily
          plugged and abandoned while the other is completed as a well capable
          of producing in Paying Quantities as defined herein, then the Payout
          Amount for the successful Earning Well and the actual costs for the
          unsuccessful Farmout Well shall be used to calculate the Payout Amount
          to be recovered under Article 5 by EPL out of the Net Proceeds Amount
          from the Earning Well or Wells.)

10.  DRILLING AND GEOLOGICAL REQUIREMENTS

     EPL shall comply with the requirements of Exhibit "C", attached hereto and
     made a part hereof for all purposes, and at EPL's sole cost and expense,
     shall furnish Chevron and Kewanee (via one set of information to Chevron)
     the material therein specified for all AFE Operations on the Farmout
     Leases. Chevron and Kewanee shall be entitled to receive all such materials
     pertaining to any well(s) reworked or recompleted on the Farmout Leases
     while this Agreement and any lease rights earned hereunder continue in
     force and effect. Failure to materially comply with Exhibit "C"
     requirements shall suspend EPL's earning rights hereunder until satisfied.

11.  REPORTS AND STATEMENTS

     11.1. NOTICE OF COMMENCEMENT

           Prior to moving any drilling equipment onto a farmout lease, EPL
           shall give a 36-hour notice to:

                          Chevron U.S.A. Production Company
                          935 Gravier Street
                          New Orleans, LA 70112
                          Attention:  MP 133 Field Geologist
                          Phone: (504) 592-6037
                          Fax: (504) 592-6525

     11.2. INVENTORY OF MATERIAL AND EQUIPMENT

           Upon receipt of each transfer of interest in an Earning Well pursuant
           to this Agreement, EPL shall furnish Chevron an inventory of the AFE
           Equipment in and on the well which EPL has

                                      -9-
<PAGE>   13

           installed and an itemized statement of the costs of sidetracking,
           reworking, recompleting, drilling, testing, completing and equipping
           such well for production.

           One (1) copy of the said EPL inventory shall be forwarded to the
           following address:

                          Chevron U.S.A. Production Company
                          935 Gravier Street
                          New Orleans, LA 70112
                          Attention: MP 133 Field Geologist
                          Phone:  (504) 592-6037
                          Fax: (504) 592-6525

12.  TAX MATTERS

     As to all operations hereunder, the parties hereto shall be subject to and
     shall comply and abide with the tax election provisions set out in Exhibit
     "B" attached hereto and made a part hereof for all purposes.

13.  COMPLIANCE

     All AFE Operations by EPL pursuant to this Agreement shall be conducted in
     accordance with all the terms, provisions and conditions of the farmout
     lease and in compliance with all applicable laws, rules and regulations of
     State and Federal governments, or any agency thereof. Without limiting the
     generality of the foregoing, EPL shall comply with all provisions of the
     Immigration Reform and Control Act of 1986 and EPL hereby certifies (to the
     best of its knowledge) that none of its employees or employees of its
     contractors who provide services pursuant to this Agreement are
     unauthorized aliens as defined in said Act.

14.  INSURANCE

     14.1. PROVISION OF CERTIFICATE

           EPL shall commence no AFE Operations hereunder before Chevron and
           Kewanee receive from EPL's insurer and approves a "Certificate of
           Insurance", the requirements of which are more fully described on the
           attached Exhibit 'D', and which shall describe the type, policy,
           limits, deductibles, and period of coverage of and state the party
           insured by EPL's insurance. Such policies shall name Chevron and
           Kewanee as additional assureds and waive subrogation against Chevron
           and Kewanee.

     14.2. SPECIFIC INSURANCE OF FARMOUT RISKS

           EPL agrees to require its insurer to insert a provision in any policy
           included in the Certificate of Insurance specified in Article 14.1 to
           cover all of the obligations as set forth as Exhibit 'D'.

15.  INDEMNITY

     15.1. Except as set forth elsewhere in this Agreement, EPL agrees to
           defend, protect, indemnify, and hold Chevron and Kewanee harmless
           from all obligations, debts, charges, claims, damages, expenses,
           fines and causes of action (collectively, "Claims") arising directly
           or indirectly from EPL's or EPL's subcontractors' AFE Operations
           under this Agreement, whether or not such Claims are caused wholly or
           partly by negligence attributed to Chevron and Kewanee, their
           employees, or agents, except to the extent such Claims arise or are
           caused by Chevron's and Kewanee's gross negligence or willful
           misconduct. Chevron shall have the right, as operator of the lease,
           to recover any such Claims on behalf of the interests of Mobil and
           Kewanee, being non-operators of the lease. In no event shall EPL be
           liable or obligated to nor shall EPL indemnify any party for
           consequential, punitive, loss of profit or production, loss of
           reservoir or any other such indirect damages.

     15.2. Chevron and Kewanee agree to defend, protect, indemnify, and hold EPL
           harmless from all Claims to the extent that they arise directly or
           indirectly from Chevron or Kewanee's gross negligence or willful
           misconduct during EPL's operations under this Agreement, whether or
           not such Claims are caused partly by negligence or strict liability
           attributed to EPL, its subcontractors, their employees, or agents.

     15.3. Chevron and Kewanee agree to defend, protect, indemnify, and hold EPL
           harmless from all Claims to the extent that they are caused by
           pre-existing defective conditions at the Farmout Wells or their
           pertinent platforms or facilities whether or not such Claims are
           caused partly by negligence or strict liability attributed to EPL,
           its subcontractors, their employees, or agents.

     15.4. Chevron and Kewanee agree to defend, protect, indemnify, and hold EPL
           harmless from all Claims to the extent that they are caused by tax
           liability of Chevron or Kewanee, and all Claims in connection with
           any liens, encumbrances, rights, levies or any defects in title
           whatsoever regarding the Farmout Wells (other than those arising from
           EPL's operations hereunder),

                                      -10-
<PAGE>   14
           whether or not such Claims are caused partly by negligence or strict
           liability attributed to EPL, its subcontractors, their employees, or
           agents.

     15.5. Chevron and Kewanee agree to defend protect, indemnify, and hold EPL
           harmless from all Claims to the extent that they are caused by
           actions or omissions of Chevron, its contractors, agents or its
           invitees which arise or occur prior to or after EPL's operations at
           the Farmout Wells, whether or not such Claims are caused partly by
           negligence or strict liability attributed to EPL, its subcontractors,
           their employees, or agents.

     15.6. Chevron and Kewanee agree to defend protect, indemnify, and hold EPL
           harmless from all Claims to the extent that they pertain to the
           assignment of leasehold interests to EPL pursuant to this Agreement,
           including but not limited to plugging and abandonment obligations,
           lease operating expenses (other than those attributable to Mobil's
           share as set forth in section 4.4 hereof), tax liabilities, third
           party liabilities, MMS liabilities, or Claims brought by any other
           governmental entity or regulatory agency or department, whether or
           not such Claims are caused partly by negligence or strict liability
           attributed to EPL, its subcontractors, their employees, or agents.

16.  PRIOR OBLIGATIONS MAINTAINED

     The termination of this Agreement, or the retransfer of interests to
     Chevron and Kewanee, in whole or in part, for any reason whatsoever, shall
     not relieve Chevron, Kewanee or EPL of any obligation to each other
     theretofore incurred or which may subsequently occur as a result of its
     acceptance of this Agreement, any AFE Operations hereunder, or the
     noncompliance with any of the provisions of this Agreement.

17.  NO LIENS OR ENCUMBRANCES

     EPL agrees to use its best efforts to maintain the Farmout Leases, the
     lease premises, the Farmout Wells, and all equipment used in connection
     with its APE Operations hereunder free of debts, charges, liens, or other
     encumbrances, except as to any interest committed to Energy Income Fund,
     L.P. ("EIF") pursuant to Article 25 below. EPL agrees to bond out any third
     party lien arising from operations it conducts or causes to be conducted
     pursuant hereto.

18.  NO PLEDGES

     This Agreement nor any interest earned hereunder shall not be subject to
     mortgage, pledge, or hypothecation by EPL in any manner whatsoever, except
     as to any interest committed to EIF pursuant to Article 25 below.

19.  PAYMENT OF DEBTS, CHARGES

     EPL agrees to pay or satisfy all accounts payable and charges incurred in
     its APE Operations hereunder within an industry standard number of days
     after such become due and payable, or EPL shall make known to Chevron and
     Kewanee why such debt or charge is in dispute. The provisions of this
     Article 19 shall not apply to any amounts cash called against Mobil that
     are not remitted to EPL or Chevron in a timely manner.

20.  BREACH

     Anything to the contrary notwithstanding, in the event that EPL should, in
     the reasonable opinion of Chevron and Kewanee, be considered to be in
     breach or default of any of the express, material provisions of this
     Agreement, other than EPL's obligation to timely commence AFE Operations on
     any well or wells provided for under this Agreement, then Chevron shall
     notify EPL of such breach or default in writing, setting out specifically
     in what respects EPL has not complied with the terms of the Agreement. EPL
     shall then have thirty (30) days after receipt of such notice within which
     time to meet or comply with the terms of the Agreement. Failure by EPL to
     remedy or correct such breach or to fulfill such obligation within the time
     period prescribed hereinabove will constitute default under this Agreement
     and Chevron and Kewanee, at their election, may terminate this Agreement in
     whole or in part, except as to those portions of the Farmout Area
     previously assigned or earned by EPL; provided, however, that the failure
     by Chevron and Kewanee to exercise at any time or from time to time, such
     right of termination shall not effect a waiver of any breach of Chevron's
     and Kewanee's right to subsequently terminate this Agreement in the manner
     described hereinabove.

21.  OTHER RIGHTS, REMEDIES RESERVED

     No provision contained herein providing for the termination of this
     Agreement or termination of any transfer of interest executed pursuant
     hereto shall be construed as precluding, nor shall it preclude, Chevron,
     Kewanee and EPL from asserting their respective rights to specific
     performance, damages, or any other rights or remedies to which they may be
     entitled.

22.  NO WAIVER

     Chevron's, Kewanee's or EPL's failure to enforce any of the provisions of
     this Agreement shall not effect a waiver of any violation thereof nor
     preclude enforcement of that or any other provisions hereof at that or any
     other time.

                                      -11-
<PAGE>   15

23.  AUDIT RIGHTS

     Upon written notice to another party, each party may audit the accounts and
     records of another party related to operations conducted under the terms of
     this Agreement for any calendar year, within the twenty-four month (24)
     period following the end of such calendar year. Where there are two or more
     parties, the non-operating parties shall make every reasonable effort to
     conduct a joint audit in a manner which will result in a minimum of
     inconvenience to the party being audited. The party being audited shall not
     bear a portion of the non-operating parties' audit costs incurred. The
     audit of a party's accounts and records shall not be conducted more than
     once each year without the prior approval of the party being audited and
     shall be made at the expense of the party conducting such audit. The lead
     audit company's audit report shall be issued within one hundred eighty
     (180) days after completion of the audit field work; provided, however, the
     one hundred eighty (180) day time period shall not extend the twenty-four
     (24) month requirement for taking specific detailed exception. All
     exceptions shall be supported with sufficient documentation Failure to
     issue the report within the prescribed time or to take specific written
     exception within the twenty-four (24) month period will preclude the
     parties from taking written exception to any accounting transaction within
     the time frame audited.

24.  ASSIGNMENTS

     It is agreed that EPL shall not transfer, assign or sublease, either in
     whole or in part, its interest in this Agreement or the Farmout Area
     without the written consent of Chevron and Kewanee; notwithstanding this
     provision, Chevron and Kewanee hereby agree to any assignment of rights
     earned by EPL hereunder EIF or EIF's successor financial institution or
     entity. Any further assignment by EIR shall require Chevron's and Kewanee's
     consent, which consent shall not be unreasonably withheld.

25.  FORCE MAJEURE

     In the event that EPL is rendered unable, wholly or in part, by a force
     majeure (as hereinafter defined) to carry out its obligations under this
     Agreement, other than the obligations to make money payments, EPL shall
     give Chevron and Kewanee prompt written notice of the force majeure with
     reasonably full particulars concerning the situation; thereupon the
     obligations of EPL, insofar as they are affected by the force majeure shall
     be suspended during the continuance of all of the force majeure, but not
     thereafter. EPL shall use all possible diligence to remove the force
     majeure as quickly as possible. For the purposes of this Agreement, the
     term force majeure shall mean lightening, fire, storm, flood, or explosion,
     the inability or unavoidable delay in obtaining governmental permits or
     authorizations for the drilling or other operations to be conducted
     hereunder, and any other governmental action, governmental delay, restraint
     or inaction, or the unavailability of equipment.

26.  NOTICES

     Except as otherwise herein provided, any notice required hereunder shall be
     addressed to the parties hereto as follows:

                 Chevron U.S.A. Inc.
                 935 Gravier Street
                 New Orleans, LA 70112
                 Attention: Harvest Asset Team Landman
                 Telephone:  504-592-7570
                 Telecopy:    504-592-6750

                 Kewanee Industries, Inc.
                 935 Gravier Street
                 New Orleans, LA 70112
                 Attention: Land Manager
                 Telephone:   504-592-7570
                 Telecopy:   504-592-6750

                 Energy Partners, Ltd.
                 1100 Poydras Street, Suite 1850
                 New Orleans, LA 70112
                 Attention:  Mr. James E. Orth
                 Telephone:  504-569-1877
                 Telecopy:    504-569-1874

27.  AMENDMENTS

     This Agreement shall not be modified or amended except by mutual agreement
     of the parties in writing, and no action or failure to act on the part of
     any party hereto shall be construed as a modification or amendment to, or a
     waiver of, any of the provisions of this Agreement.

28.  TOPICAL HEADINGS

     The topical headings used herein are for convenience only and shall not be
     construed as having any substantive significance or as indicating that all
     of the provisions of this Agreement relating to any topic are to be found
     in any particular section.

                                      -12-
<PAGE>   16

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

                                   FARMOUTOR:

                                   CHEVRON U.S.A. INC.

                                   By
-------------------------            ----------------------------------
                                   Title
-------------------------               -------------------------------

                                   FARMOUTOR:

                                   KEWANEE INDUSTRIES, INC.

                                   By
-------------------------            ----------------------------------
                                   Title
-------------------------               -------------------------------

                                   FARMOUTEE:

                                   ENERGY PARTNERS, LTD.

                                   By
-------------------------            ----------------------------------
                                   Title
-------------------------               -------------------------------

                                      -13-

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