Document:

Exhibit 10.81

                       PRODUCTION AND MARKETING AGREEMENT

                                     BETWEEN

                              BARON PRODUCTION LLC

                                       AND

                                 PCEC SUB 1, LLC

                                  JULY 28, 2014

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                                Table of Contents

Article I DEFINITIONS AND REFERENCES..........................................1
   Section 1.1    Defined Terms...............................................1
   Section 1.2    Rules of Construction; Monthly and Daily Equivalents;
                  Publications................................................6

Article II NO ADVERSE CHANGES TO SUBJECT INTERESTS............................7
   Section 2.1    Abandonment and Shut-In.....................................7
   Section 2.2    Non-Consent Operations......................................7
   Section 2.3    Production Imbalances.......................................7
   Section 2.4    Defense of Agreement and Production Payment.................8
   Section 2.5    Further Assurances..........................................9

Article III PRODUCTION OF SUBJECT INTERESTS...................................9
   Section 3.1    General Operating Requirements..............................9
   Section 3.2    Rates of Production........................................11
   Section 3.3    Quality and Pressure Requirements..........................11
   Section 3.4    Imbalance Charges..........................................12
   Section 3.5    Environmental Compliance...................................12
   Section 3.6    Maintaining and Restoring Productivity.....................12
   Section 3.7    Insurance; Damage or Loss..................................13
   Section 3.8    Continued Ability to Operate...............................13

Article IV [RESERVED]........................................................14

Article V OTHER AGREEMENTS...................................................14
   Section 5.1    Performance of Production Payment Documents................14
   Section 5.2    Interest on Late Payments; No Usury........................14
   Section 5.3    Indemnity..................................................14
   Section 5.4    Payment of Expenses........................................17
   Section 5.5    Information and Reporting..................................17
   Section 5.6    Marketing of Production Payment Hydrocarbons...............21
   Section 5.7    Preservation of Subject Well Drainage......................22

Article VI LIENS TO SECURE PERFORMANCE; OTHER REMEDIES.......................22
   Section 6.1    Mortgage...................................................22
   Section 6.2    Production Proceeds........................................22
   Section 6.3    Replacement of Operator....................................23

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Article VII MISCELLANEOUS....................................................23
   Section 7.1    Notices....................................................23
   Section 7.2    Successors and Assigns.....................................23
   Section 7.3    Acknowledgments and Admissions.............................24
   Section 7.4    Entire Agreement; Amendments; Waiver.......................24
   Section 7.5    Counterpart Execution......................................24
   Section 7.6    Applicable Law.............................................24
   Section 7.7    Severability...............................................24
   Section 7.8    Termination; Limited Survival..............................24
   Section 7.9    WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES..................25
   Section 7.10   CONSENT TO JURISDICTION....................................25

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                        PRODUCTION AND MARKETING AGREEMENT

     This  Production and Marketing  Agreement (this  "Agreement"),  dated as of
July 28, 2014,  is made by and between  Baron  Production  LLC, a Texas  limited
liability company ("Working Interest Owner" and a "Party"), and PCEC Sub 1, LLC,
a Texas limited liability company ("Royalty Owner" and a "Party").

     WHEREAS,  by means  of a  certain  Conveyance  of Term  Overriding  Royalty
Interest  dated as of the date hereof  from  Working  Interest  Owner to Royalty
Owner  (the  "Conveyance"),  Working  Interest  Owner has sold and  conveyed  to
Royalty  Owner  the  "Production  Payment"  (as  such  term  is  defined  in the
Conveyance) in the Subject Interests described therein; and

     WHEREAS,  the Parties are entering  into this  Agreement to set out certain
agreements with respect to the operation and production of the Subject Interests
and the marketing of the Production Payment Hydrocarbons;

     NOW, THEREFORE, as a material inducement to cause Royalty Owner to purchase
the  Production  Payment  and  in  consideration  of  the  mutual  benefits  and
obligations of the Parties  hereunder,  Royalty Owner and Working Interest Owner
have agreed, and hereby agree, as follows:

                                   ARTICLE I
                           DEFINITIONS AND REFERENCES

     Section 1.1 Defined  Terms.  Reference  is made to the  Conveyance  for the
meaning of all capitalized  terms defined  therein,  all of which will when used
herein (unless otherwise  expressly defined herein) have the meanings given them
in the Conveyance.  As used herein,  the terms "Agreement" and "Conveyance" have
the  meanings  given them  above.  For  purposes of this  Agreement,  unless the
context otherwise requires, the following terms have the following meanings:

     "Agreed  Rate"  means  the  rate of  seventeen  percent  (17%)  per  annum,
calculated on the basis of actual days elapsed and a year of 360 days.

     "Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas are authorized or required to close.

     "Company  Engineers" means Cawley,  Gillespie & Associates,  Haas Petroleum
Engineering  Services,  Inc.  and any other  nationally  recognized  independent
reserve engineering firm that Working Interest Owner and Royalty Owner from time
to time agree to designate as the Company Engineers for the purposes hereof.

     "Credit Agreement" means the Credit Agreement, dated as of the date hereof,
among,  Working Interest Owner, the Parent,  the lenders from time to time party
thereto,  and Petro Capital Energy Credit, LLC, as administrative agent for such
lenders.

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     "Downstream Contracts" means all contracts or arrangements to which Working
Interest Owner (or any Person acting on behalf of Working  Interest  Owner) is a
party that provide for or relate to the  gathering,  transportation,  treatment,
processing, marketing or sale of Subject Hydrocarbons.

     "Environmental  Laws" means all  applicable  Laws  regulating  or otherwise
pertaining to (a) the use, generation,  migration,  storage, removal, treatment,
remedy, discharge, release,  transportation,  disposal or cleanup of pollutants,
contamination,  hazardous wastes,  hazardous  substances,  hazardous  materials,
toxic substances or toxic pollutants,  (b)  environmental  matters involving the
soil, surface waters, groundwater, land, stream sediments, surface or subsurface
strata,  ambient  air and any other  environmental  medium on or off any Subject
Interest, or (c) the environment or health and safety-related matters; including
the  following  as from time to time amended and all others  whether  similar or
dissimilar and whether now existing or hereinafter  enacted:  the  Comprehensive
Environmental Response,  Compensation,  and Liability Act of 1980, as amended by
the  Superfund   Amendments  and  Reauthorization  Act  of  1986,  the  Resource
Conservation  and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980,  the Solid Waste Disposal Act amendments of 1980, and the Hazardous and
Solid Waste Amendments of 1984, the Hazardous  Materials  Transportation Act, as
amended,  the Toxic  Substance  Control  Act, as amended,  the Clean Air Act, as
amended,  the Clean  Water Act,  as  amended,  and all  regulations  promulgated
pursuant thereto.

     "Event of Force Majeure" means any of the following:

     (a)  physical   events  such  as  acts  of  God,   landslides,   lightning,
earthquakes,  fires,  hurricanes,  storms  or  storm  warnings  that  result  in
evacuation  of the affected  area,  floods,  washouts,  explosions,  breakage or
accident or necessity of repairs to wells, equipment or lines of pipe;

     (b) weather related events affecting an entire geographic  region,  such as
low temperatures which cause freezing or failure of wells, equipment or lines of
pipe;

     (c) interruption of firm  transportation  and/or storage by transporters of
Hydrocarbons; and

     (d)  orders  of any court or  governmental  authority  having  jurisdiction
(which in each case cannot be satisfied  by actions  taken with respect to wells
other than Subject Wells,  which actions do not violate other contractual duties
of Working Interest Owner), strikes,  lockouts or other industrial disturbances,
riots, sabotage, insurrections, wars and similar acts of other Persons; provided
that (i) in order to be  entitled to assert an Event of Force  Majeure,  (1) the
affected  Party must be making all  reasonable  efforts to mitigate  the adverse
impacts of any such event or occurrence, to resolve the event or occurrence once
it has occurred, and to resume performance (provided that such Party will not be
obligated to settle any strike or lockout)  and (2) the asserted  Event of Force
Majeure must not be within the control of and must not be caused by the fault or
negligence  of the affected  Party and must be the type of event  which,  by the
exercise of reasonable diligence,  the affected Party is unable to prevent; (ii)
no Party  will be  entitled  to assert an Event of Force  Majeure  on account of
economic  hardship or to the extent such Party's  performance is affected by the
curtailment of  interruptible or secondary firm  transportation  unless primary,

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in-path,  firm transportation is also curtailed;  and (iii) no Party claiming an
Event of Force  Majeure  will be excused  from any  responsibility  to make cash
payments that are due or become due during the period in which an Event of Force
Majeure persists.

     "Hazardous   Substances"   means  any   substances   regulated   under  any
Environmental  Law,  whether as pollutants,  contaminants,  or chemicals,  or as
industrial, toxic or hazardous substances or wastes, or otherwise, including any
asbestos or asbestos-containing  materials,  any naturally occurring radioactive
materials,  and any  hydrocarbons or other substances that are released into the
environment.

     "Imbalance Charges" means any fees, penalties, costs or charges (in cash or
in kind, and whether or not  denominated  as price  adjustments or as prices for
spot  sales in place of prices  for  nominated  production)  that are  incurred,
payable or  suffered  by  Royalty  Owner to any  Person in  connection  with any
imbalance between the amount of Production Payment Hydrocarbons delivered at the
Delivery  Points and the amounts of nominated  sales thereof or  transportation,
gathering or processing  capacity scheduled or available  therefor,  or that are
otherwise  assessed  against  Royalty  Owner by a  transporter  or purchaser for
failure to meet such  Person's  balance,  delivery or  nomination  requirements.
Interest  and  penalties  owing with  respect  to  Imbalance  Charges  will also
constitute Imbalance Charges.

     "Losses" has the meaning given to such term in Section 5.3(b).

     "Mortgage" means the Second Lien Deed of Trust,  Assignment of As-Extracted
Collateral  Security  Agreement,  Fixture Filing and Financing Statement of even
date herewith executed in connection  herewith by Working Interest Owner for the
benefit of Royalty  Owner with  respect to the  Retained  Interests  and certain
related assets.

     "NYMEX Strip Prices" means,  as of any Day, the  arithmetic  average of the
settlement  prices  (per  Barrel of Oil) on such Day of the  applicable  futures
contract  traded on the New York  Mercantile  Exchange for the first  thirty-six
Months after such Day. The NYMEX Strip Price for Oil will be the average of such
prices for the West Texas  Intermediate  Crude Oil Futures Contract for Cushing,
Oklahoma Delivery that is traded on such exchange.

     "Overtake" has the meaning given to such term in Section 2.3(a).

     "Parent" means Baron Energy, Inc., a Nevada corporation.

     "Parent  Guaranty"  means the  Guaranty  Agreement  of even  date  herewith
executed by Parent in favor of Royalty Owner.

     "Parties" means Working Interest Owner and Royalty Owner.

     "PDP Reserves" means proved developed  producing  reserves of Hydrocarbons,
as determined in accordance with the  definitions  and standards  promulgated by
the Society of Petroleum Engineers.

     "Performance Default" means any of the following:

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     (a) any  failure  by  Working  Interest  Owner  to pay any  money  owing or
belonging  to Royalty  Owner that  continues  unremedied  for more than five (5)
Business Days after Working Interest Owner becomes aware of such failure;

     (b) any breach by Working  Interest Owner of any covenant or agreement made
by Working  Interest Owner herein or in any other  Production  Payment  Document
(other than as described in the preceding clause (a)) that continues  unremedied
for thirty  (30) days  following  the  earlier to occur of: (i)  written  notice
thereof  being  delivered  to Working  Interest  Owner by Royalty  Owner or (ii)
Working Interest Owner first becoming aware of such breach;

     (c) any of the representations or warranties made by Working Interest Owner
herein or in any other Production  Payment Document is false or incorrect in any
material respect on any date made or as of which made;

     (d) the  commencement  of a voluntary case by Working  Interest Owner under
the United States  Bankruptcy Code, or Working Interest Owner's  application for
or  consent  to any order for relief in any  involuntary  case filed  under such
code;

     (e) the commencement of any involuntary case against Working Interest Owner
under such code that is not dismissed within thirty (30) days after filing; and

     (f)  the  appointment  or  taking  possession  of a  receiver,  liquidator,
custodian,  trustee,  keeper or similar official of any of the Subject Interests
which either (i) is not made  ineffective or discharged  within thirty (30) days
thereafter  or (ii) is  requested,  consented  to or  acquiesced  to by  Working
Interest Owner.

     "Production  Payment Documents" means this Agreement,  the Conveyance,  the
Purchase and Sale Agreement,  the Mortgage,  the Parent Guaranty Agreement,  and
each other agreement, instrument, certificate or other document at any time made
or given by Working  Interest Owner with or to Royalty Owner in connection  with
this Agreement, the Conveyance, the Purchase and Sale Agreement or the Mortgage,
including  all  supplements  and  amendments to and  restatements  of any of the
foregoing.

     "Purchase and Sale Agreement" means the Purchase and Sale Agreement of even
date herewith  between  Working  Interest Owner and Royalty  Owner,  under which
Working  Interest  Owner has  agreed  to sell and  Royalty  Owner has  agreed to
purchase the Production Payment.

     "Remaining  Reserves" means, as of the date of any  determination,  the PDP
Reserves  projected to be attributable to the Subject  Interests (i.e., both the
Production Payment  Hydrocarbons and the Retained Interest  Hydrocarbons)  after
such date for the remaining expected productive life thereof. For the purpose of
calculating Remaining Reserves,  the sales prices of the Oil to be produced from
each  Subject  Interest  will be assumed to be the NYMEX  Strip Price for Oil as
calculated on the date of determination. Calculations of Remaining Reserves will
otherwise be based on the then most recent Reserve  Report,  after  disregarding
any reserves shown in such Reserve Report that have actually been produced on or
before the date of determination of such Remaining Reserves.

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     "Repair Operations" means reworking, redrilling,  reconditioning,  fracing,
refracing,  plugging back, deepening, or other operations to repair, restore, or
enhance the  productivity  of one or more Subject  Wells or to repair,  restore,
replace or enhance  equipment and facilities  used to produce and handle Subject
Hydrocarbons.

     "Reserve Report" means any annual or semiannual reserve  engineering report
prepared by Company  Engineers  or Working  Interest  Owner's  in-house  reserve
engineers  with  respect to the  Subject  Interests  as required  under  Section
5.5(c).  Each Reserve  Report will be in form and detail  acceptable  to Royalty
Owner and will set forth the following:

     (i) an estimation of the Oil and Gas  reserves,  classified by  appropriate
categories, as of such date attributable to the various Subject Interests,

     (ii) a  projection  of the  future  production  of, and net  revenue  from,
reserves,

     (iii) a calculation of the present worth of such net revenue  discounted at
the rate of ten percent per annum, and

     (iv) a schedule or description of the principal assumptions,  estimates and
projections made or used in the preparation of such report,  including estimated
future product prices, capital expenditures, operating expenses and taxes.

     Each  such  report  will be  prepared  in  accordance  with  customary  and
generally  accepted   standards  and  practices  for  independent   professional
petroleum engineers and will be based on the NYMEX Strip Prices on the effective
date of such report.

     "Retained Interest  Hydrocarbons" means the Subject Hydrocarbons other than
the Production Payment Hydrocarbons.

     "Royalty  Owner"  refers  to PCEC Sub 1,  LLC,  a Texas  limited  liability
company, as well as to its successors and assigns hereunder.

     "Royalty Owner  Indemnitees"  has the meaning given to such term in Section
5.3(a).  "Royalty  Owner Spot Market PP  Hydrocarbons"  has the meaning given to
such term in Section 5.6(b).

     "Subject Contracts" means all Upstream Contracts and Downstream Contracts.

     "Trustee"  means the Person or Persons who from time to time serve (or have
served) as the trustee under the Mortgage.

     "Undertake" has the meaning given to such term in Section 2.3(a).

     "Upstream Contracts" means all joint operating  agreements,  unit operating
agreements,  facilities  leases or use  agreements,  water  agreements  (whether
relating to water  injection,  supply,  transportation  or  disposal),  or other
agreements or arrangements to which Working Interest Owner (or any Person acting
on behalf of Working  Interest  Owner) is a party that  provide for or relate to
the  operation  of the  Subject  Interests  or the  production  of  Hydrocarbons
therefrom.

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     "Working  Interest  Owner" refers to Baron  Production LLC, a Texas limited
liability company, as well as to its successors and assigns hereunder.

     "Working  Interest Owner Spot Market PP Hydrocarbons" has the meaning given
to such term in Section 5.6(b).

     Section  1.2  Rules  of  Construction;   Monthly  and  Daily   Equivalents;
Publications.

     (a) Construction.  All references in this Agreement to articles,  sections,
subsections and other  subdivisions refer to corresponding  articles,  sections,
subsections and other  subdivisions of this Agreement unless expressly  provided
otherwise. Titles appearing at the beginning of any of such subdivisions are for
convenience  only and will not constitute part of such  subdivisions and will be
disregarded in construing the language contained in such subdivisions. The words
"this Agreement", "this instrument",  "herein", "hereof", "hereby", "hereunder "
and words of similar  import  refer to this  Agreement as a whole and not to any
particular subdivision unless expressly so limited. Unless the context otherwise
requires:  "including" (and its grammatical variations) means "including without
limitation"; "or" is not exclusive; words in the singular form will be construed
to include  the plural and vice  versa;  words in any gender  include  all other
genders;  references herein to the Conveyance,  the Purchase and Sale Agreement,
or any other instrument or agreement refer to such instrument or agreement as it
may be from time to time  supplemented,  amended  or  restated;  and  references
herein  to  any  Person  include  such  Person's  successors  and  assigns.  All
references in this Agreement to exhibits and schedules refer to the exhibits and
schedules to this Agreement unless expressly  provided  otherwise,  and all such
exhibits and  schedules are hereby  incorporated  herein by reference and made a
part hereof for all  purposes.  This  Agreement  has been drafted with the joint
participation of Working Interest Owner and Royalty Owner and is to be construed
neither  against nor in favor of either Party but rather in accordance  with the
fair meaning hereof.

     (b)  Monthly  Equivalents.  To the  extent  that this  Agreement  refers to
information  or data  measured or based upon Daily  production  or deliveries of
Hydrocarbons  and such information or data is instead provided or available only
with respect to Monthly  production or deliveries of Hydrocarbons,  such Monthly
Hydrocarbons  will be deemed  produced or delivered in equal  quantities on each
Day during such Month.  To the extent that this Agreement  refers to Daily price
information for production or deliveries of Hydrocarbons and such information or
data is instead  provided or  available  only on a Monthly  basis,  such Monthly
price information will be deemed to apply on each Day during such Month.

     (c)  Publications.  To  the  extent  that  this  Agreement  (or  any  other
Production  Payment  Document other than the  Conveyance)  incorporates  prices,
rates,  adjustments  to prices or rates,  or other  information  from a specific
source or  publication  and that  source  or  publication  temporarily  fails or
permanently   ceases  to  publish  such  information,   or  ceases   publication
altogether,  or changes the heading or format  under which such  information  is
published,  or changes the source of information  which it publishes  under such
heading or format, and in any such case the relevant Production Payment Document
does not specify how to deal with such event,  then Royalty Owner will designate
a reasonable  alternative source for the same or equivalent  information and the
Parties will thereafter use such designated alternative source.

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                                   ARTICLE II
                     NO ADVERSE CHANGES TO SUBJECT INTERESTS

     Section 2.1 Abandonment and Shut-In.

     (a)  Abandonment.  Working Interest Owner will not, without first obtaining
the consent of Royalty Owner,  abandon (or propose or consent to the abandonment
of) any Subject Well or surrender,  abandon or release (or propose or consent to
the surrender, abandonment or release of) any Subject Interest.

     (b) Shut-in of Subject  Wells.  Working  Interest  Owner will not,  without
first obtaining the consent of Royalty Owner, voluntarily shut-in a Subject Well
(or propose or consent to such a shut-in),  provided that a shut-in of a Subject
Well  will not be deemed to be  voluntarily  made if it is caused by or  results
from an Event of Force  Majeure,  or from well  servicing or  maintenance in the
ordinary  course of  business,  or if Working  Interest  Owner is waiting  for a
pipeline  connection  or other  transportation  services for Oil produced from a
Subject Well for which  transportation or a pipeline connection is not otherwise
available.

     Section  2.2  Non-Consent  Operations.  Working  Interest  Owner  will not,
without  the prior  consent of Royalty  Owner,  elect to be a  non-participating
party with  respect to any plugging  back,  reworking,  sidetracking,  drilling,
completion  or other  operation on any Subject  Interest or Subject Lands if the
consequence  of such  election  is that any  part of  Working  Interest  Owner's
interest in such Subject Interest on Subject Lands is temporarily (e.g.,  during
a recoupment  period) or permanently  forfeited to the parties  participating in
such  operations or electing not to abandon such well. Upon any such election by
Working  Interest  Owner that is  consented  to by Royalty  Owner (or for which,
pursuant to the preceding sentence, no consent is required),  such election will
also be binding on the  Production  Payment as to the interest so temporarily or
permanently  forfeited  but will not cause  any  modification  in the  Scheduled
Quantities or in any component of the Adjustment Quantity.

     Section  2.3  Production  Imbalances.  (a)  Definitions.  As  used  herein,
"Undertake" means that an owner of production from a Subject Well takes a lesser
share of  Hydrocarbons  produced  from  such  Subject  Well  than  the  share of
Hydrocarbons  which such owner is  entitled  to take by virtue of its  ownership
interest, determined without regard to any rights under any production balancing
agreement or similar  arrangement or any rights under common law with respect to
production  balancing,  and "Overtake"  means that an owner of production from a
Subject Well takes a greater  share of  Hydrocarbons  produced from such Subject
Well than the share of  Hydrocarbons  which  such owner is  entitled  to take by
virtue of its ownership interest,  again determined without regard to any rights
under any production  balancing  agreement or similar  arrangement or any rights
under  common  law with  respect to  production  balancing.  Adjustments  due to
Non-Consent Provisions, however, will not be considered Undertakes or Overtakes.

     (b) No Undertakes Without Consent.  Subject to Section 3.2, without Royalty
Owner's prior consent  Working  Interest Owner will not Undertake from a Subject
Well (either for itself or on behalf of Royalty Owner), except as a result of an
Event of Force  Majeure or a joint  interest  owner in one or more Subject Wells

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electing to Overtake in order to balance  previous  Overtakes  from such Subject
Wells by  Working  Interest  Owner or any of its  predecessors  in title to such
Subject  Wells,  but only to the  extent  that such  previous  Overtakes  either
occurred  after the Effective  Time or occurred  prior to the Effective Time and
are  disclosed  in  Schedule  1 attached  to the  Purchase  and Sale  Agreement,
provided that Working  Interest Owner may Undertake from any Subject Well on any
Day so long as Royalty  Owner's  actual share of production on such Day from all
Subject Wells is the entire Scheduled Quantity and Adjustment  Quantity for such
Day. If any  Undertake  by Working  Interest  Owner  occurs in violation of this
section,  the  Production  Payment  will be  determined  (to the maximum  extent
allowed under applicable Law and any applicable Permitted  Encumbrances) without
regard thereto.

     (c)  Limitation  on  Overtakes.  Subject to Section  3.2,  without  Royalty
Owner's prior consent  Working  Interest  Owner will not Overtake from a Subject
Well on any Day (either for itself or on behalf of Royalty Owner), except either
(i) in order to  produce  and take up to 110% of the  Scheduled  Quantities  and
Adjustment  Quantities  for such Day from the Subject  Wells,  or (ii) if one or
more other owners of production  from such Subject Well elects to Undertake,  in
order to produce and take the same amount of Hydrocarbons  that Working Interest
Owner and Royalty  Owner would have received had such joint  interest  owner not
elected to  Undertake.  If,  pursuant to applicable  contracts and Law,  Working
Interest  Owner does  Overtake,  then the  additional  Hydrocarbons  so taken by
Working Interest Owner will be included among the Subject  Hydrocarbons and will
be subject to the Production Payment.

     (d) No Balancing  From Other  Properties.  Working  Interest Owner will not
allow any Subject Interest to be subject to any production balancing arrangement
or agreement under which one or more third Persons may Overtake a portion of the
production  attributable  to such Subject  Interest as a result of Undertakes or
Overtakes (or other actions or inactions) with respect to properties  other than
such Subject  Interest.  For the purposes of this  subsection  (d), a production
unit in which all parties  have uniform  interests  will be  considered  to be a
single Subject Interest.

     Section 2.4 Defense of  Agreement  and  Production  Payment.  If any Person
(including  Working Interest Owner or its Affiliates but excluding Royalty Owner
and its  Affiliates)  ever challenges or attacks (a) the validity or priority of
the  Production  Payment  Documents  or of any rights,  titles or  interests  of
Royalty Owner that are created or evidenced  thereby or (b) the title of Working
Interest  Owner to any Subject  Interest or of Royalty  Owner to any part of the
Production Payment,  then upon learning thereof Working Interest Owner will give
prompt written notice thereof to Royalty Owner and at Working  Interest  Owner's
own cost and expense will diligently endeavor to defeat such challenge or attack
and to cure any defect that may be  developed or claimed,  and Working  Interest
Owner will take all  necessary or  advisable  steps for the defense of any legal
proceedings  with  respect  thereto,  including  the  employment  of  counsel to
represent Working Interest Owner, the prosecution or defense of litigation,  and
the  release  or  discharge  of all  adverse  claims.  Royalty  Owner is  hereby
authorized and empowered, at the expense of Working Interest Owner, to take such
additional  steps as in its judgment and  discretion  may be necessary or proper
for the defense of any such legal  proceedings or the protection of the validity
or priority of the  Production  Payment  Documents and the rights,  titles,  and
interests created or evidenced thereby,  including the employment of independent
counsel to represent  Royalty Owner,  the  prosecution or defense of litigation,

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the  compromise  or  discharge  of any adverse  claims made with  respect to the
Production Payment, the purchase of any tax title and the removal of prior liens
or security  interests,  and all reasonable and related  expenditures so made of
every kind and character will be paid to Royalty Owner by Working Interest Owner
on demand.

     Section 2.5 Further Assurances.  Working Interest Owner will, on request of
Royalty Owner, (a) promptly  correct any defect,  error or omission which may be
discovered  in the  contents,  execution  or  acknowledgment  of any  Production
Payment  Document,  (b)  execute,  acknowledge,  deliver and record or file such
further  instruments and do such further acts as may be necessary,  desirable or
proper,  in the judgment of Royalty  Owner,  to carry out more  effectively  the
purposes of the Production Payment Documents and to more fully identify and make
subject to the Production  Payment Documents any property intended to be covered
thereby,  including any renewals,  additions,  substitutions,  replacements,  or
appurtenances to the Subject Interests; and (c) execute,  acknowledge,  deliver,
and file or record any document or  instrument  reasonably  requested by Royalty
Owner to protect its rights,  title and interests  under the Production  Payment
Documents  against the rights or interests of third  Persons.  Working  Interest
Owner will  provide  to Royalty  Owner any  assurances  of title to the  Subject
Interests  which  Royalty  Owner may from time to time  request  concerning  the
Production  Payment,  including the recording and filing of the  Conveyance  (it
being understood that no title deficiencies  learned of by Royalty Owner will in
any way be deemed to qualify any of Working Interest Owner's warranties of title
or indemnities with respect to title in any Production Payment Document).

                                  ARTICLE III
                         PRODUCTION OF SUBJECT INTERESTS

     Section  3.1  General  Operating  Requirements.  At all times from the date
hereof  until the  termination  of the  Production  Payment,  and whether or not
Working  Interest  Owner is the  operator  of the  relevant  Subject  Interests,
Working Interest Owner, at Working Interest Owner's cost and expense, will:

     (a) Cause the Subject  Interests to be maintained in full force and effect,
free  of  any  right  of  cancellation,  forfeiture  or  termination,  and to be
developed,  protected  against  drainage,  and  continuously  operated  for  the
production of Hydrocarbons  in a good and workmanlike  manner as would a prudent
operator (and without  regard to the burden of the Production  Payment),  all in
accordance with generally  accepted  industry  practices,  applicable  operating
agreements,  the Leases,  and all applicable  Laws, and will otherwise comply in
all  material  respects  with all  applicable  Laws,  the Leases,  and all other
contracts or agreements forming a part of or related to the Subject Interests.

     (b) Pay, or cause to be paid,  as and when due and  payable,  all  rentals,
royalties,  Taxes and other amounts payable in respect of the Subject  Interests
or the production therefrom,  and all costs, expenses,  capital expenditures and
liabilities   incurred  in  or  arising  from  the  operation,   maintenance  or
development of the Subject  Interests,  or the producing,  treating,  gathering,
storing,  marketing or transporting of Hydrocarbons therefrom at or prior to the
Delivery Points (except,  in each case, to the extent contested in good faith by
appropriate  proceedings  that  effectively  delay any  remedy  for  non-payment
thereof).

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<PAGE>
     (c) Cause all Subject Wells, and all machinery, equipment and facilities of
any kind now or hereafter  necessary or useful in the  operation of such Subject
Wells (as well as all  separation,  metering  and  related  facilities  that are
located at or prior to each Delivery Point and all related wells for the supply,
injection  or  disposal  of water,  to the extent  owned or  operated by Working
Interest  Owner  or its  Affiliates)  to be  maintained  and  kept in  good  and
effective operating condition as would a prudent operator (and without regard to
the burden of the Production Payment), and all repairs, renewals,  replacements,
additions and improvements thereof or thereto, useful or needful to such end, to
be promptly made.

     (d) Give or cause to be given to  Royalty  Owner  written  notice  of every
adverse claim or demand made by any Person affecting the Subject Interests,  the
Hydrocarbons  produced  therefrom,  the  Production  Payment  or the  Production
Payment  Hydrocarbons in any manner  whatsoever,  and of any suit or other legal
proceeding  instituted with respect  thereto,  and at Working  Interest  Owner's
expense  cause  all  necessary  and  proper  steps to be taken  with  reasonable
diligence to protect and defend the Subject Interests,  the Subject Hydrocarbons
produced   therefrom,   the  Production   Payment  and  the  Production  Payment
Hydrocarbons against any such adverse claim or demand,  including the employment
of counsel for the prosecution or defense of litigation and the contest, release
or discharge of such adverse claim or demand.

     (e) Cause the Subject Interests to be kept free and clear of liens, charges
and encumbrances of every character, other than the Permitted Encumbrances.

     (f) Except to the extent contested in good faith by appropriate proceedings
that effectively  delay any remedy for non-payment  thereof,  pay all Taxes when
due and before they become  delinquent  (and provide Royalty Owner with proof of
such payment upon  request),  and reimburse  Royalty Owner for any Taxes paid by
Royalty  Owner  relating to the  Production  Payment or the  Production  Payment
Hydrocarbons.

     (g)  Maintain  or  cause to be  maintained  in full  force  and  effect  in
accordance with prudent operator standards,  all permits,  licenses,  easements,
servitudes,  contracts  and  other  rights  reasonably  necessary  or  useful in
connection  with  the  development,  operation  or  management  of  the  Subject
Interests  and  the  production,  treating,  gathering,  storing,  marketing  or
transportation  of the  Subject  Hydrocarbons  or of water  produced  or used in
connection therewith.

     (h) Not (i) resign as operator (or otherwise  voluntarily  relinquish  such
position) of any of the Subject  Interests that are or hereafter become operated
by Working  Interest  Owner  until and unless the  successor  operator  has been
approved  in  writing  by  Royalty  Owner,  or (ii)  permit  Parent to resign as
operator  (or  otherwise  voluntarily  relinquish  such  position) of any of the
Subject  Interests  that are or  hereafter  become  operated by Parent until and
unless the successor operator has been approved in writing by Royalty Owner .

     (i) Not conduct any work or operation  in any  wellbore of a Subject  Well,
which work or operation is related to any horizon,  zone,  formation or interval
not  included in the Subject  Interests,  without the prior  written  consent of
Royalty Owner.

                                       10
<PAGE>
     Whenever Working Interest Owner is not the operator of a Subject  Interest,
it will use its reasonable best efforts and diligently  enforce its rights under
any operating agreement for such Subject Interest in order to cause such Subject
Interest to be operated and dealt with as contemplated in this Agreement.

     Section 3.2 Rates of Production.

     (a) Rates of Production.  Working Interest Owner will prudently operate and
produce the Subject  Interests  and Subject Wells  operated by Working  Interest
Owner, and Working Interest Owner will use all commercially  reasonable  efforts
to cause the  Subject  Interests  and  Subject  Wells not  operated  by  Working
Interest Owner to be prudently operated and produced by whomever is the operator
thereof,  in each case in  accordance  with prudent  industry  practices and the
following additional requirements:

     (i) the amount of  Hydrocarbons  produced  from any Subject  Well shall not
exceed in any Month the lower of (1) the maximum amount that the Subject Well is
capable of producing at its maximum efficient rate of flow or (2) the respective
allowable rate of flow under applicable orders and Laws, if any; and

     (ii) the amount of  Hydrocarbons  produced  from the Subject Wells shall be
sufficient  to  prevent  a  material  net  migration  of  Hydrocarbons  from the
reservoirs  to which  proved  reserves  are  attributed  underlying  the Subject
Interests.

     (b) Production Goals. Subject to the provisions of the preceding subsection
(a) and Sections 2.1, 2.2, 2.3, 3.6, 3.7(b) and 3.8, Working Interest Owner will
use all  commercially  reasonable  efforts to ensure that the rate of production
from the Subject Wells, taken as a whole, is sufficient to allow the delivery to
Royalty Owner of the  Scheduled  Quantity and the  Adjustment  Quantity for such
Day.

     Section 3.3 Quality  and  Pressure  Requirements.  All  Production  Payment
Hydrocarbons  delivered to Royalty Owner,  or to Royalty  Owner's  credit,  will
satisfy the quality and pressure  requirements and  specifications  as set forth
in:

     (a) all  applicable  agreements  with or  requirements  of  Delivery  Point
Recipients (including tariffs filed with regulatory agencies) for acceptance and
transportation of such Production Payment Hydrocarbons,

     (b)  all  applicable  agreements  with  or  requirements  of  operators  of
processing  plants or treatment  facilities  for  acceptance of such  Production
Payment Hydrocarbons, and

     (c) all applicable  agreements with or requirements of first purchasers for
acceptance and purchase of such Production  Payment  Hydrocarbons,  in each case
without  penalty or  deduction  for  nonconformity.  All costs and  expenses  to
satisfy such quality and pressure requirements will be borne and paid by Working
Interest Owner.

     Section 3.4 Imbalance  Charges.  WORKING  INTEREST  OWNER WILL EXERCISE ITS
BEST EFFORTS TO PREVENT ANY IMBALANCE  CHARGES FROM BECOMING  PAYABLE BY ROYALTY

                                       11
<PAGE>
OWNER,  WILL PAY IN PLACE OF  ROYALTY  OWNER  ALL  SUCH  IMBALANCE  CHARGES  NOT
PREVENTED,  AND  WILL IN ALL  CIRCUMSTANCES  INDEMNIFY  AND HOLD  ROYALTY  OWNER
HARMLESS FROM AND AGAINST ALL IMBALANCE CHARGES.

     Section 3.5 Environmental  Compliance.  Working Interest Owner will not (a)
cause or permit the Subject Lands or the condition thereof or operations thereon
to be in violation of any  Environmental  Laws, (b) cause or permit the disposal
or other  release  of any  Hazardous  Substance  on or to the  Subject  Lands in
violation of any  Environmental  Law, (c) fail to timely remove or remediate any
Hazardous  Substance  which  has been or now or  hereafter  is  released  on the
Subject Lands in amounts which would violate any Environmental Laws, or (d) take
or omit to take any  action  that will  subject  Working  Interest  Owner or the
Subject  Lands to any  remedial  obligation  (or Royalty  Owner to any  remedial
obligation)  under any  Environmental  Laws  pertaining  to the  Subject  Lands,
assuming in each case disclosure to the applicable  governmental  authorities of
all relevant facts, conditions and circumstances, if any. Working Interest Owner
will promptly  notify  Royalty Owner in writing of any existing,  pending or, to
the best  knowledge  of Working  Interest  Owner,  threatened  investigation  or
inquiry of a affecting any Subject  Lands by any private  party or  governmental
authority in connection with any Environmental Laws. Working Interest Owner will
take all steps  reasonably  necessary to determine that no Hazardous  Substances
are  disposed of or  otherwise  released or being  released on or to the Subject
Lands in violation of any Environmental Laws.

     Section 3.6 Maintaining and Restoring Productivity. (a) If any Subject Well
at any time ceases to be a Commercial Well for any reason, then Working Interest
Owner will carry out such Repair Operations on such Subject Well to increase its
productivity as may be reasonably requested by Royalty Owner.

     (b) A well will be  deemed to be a  "Commercial  Well"  unless  and until a
condition arises such that such well is no longer capable of producing in paying
quantities (without regard to the burden of the Production Payment).

     Section 3.7 Insurance; Damage or Loss.

     (a)  Insurance.  Working  Interest  Owner  will  maintain  or  cause  to be
maintained,  at  Working  Interest  Owner's  sole  cost  and  expense  and  with
financially  sound and reputable  insurers  reasonably  satisfactory  to Royalty
Owner, insurance against such liabilities,  casualties, risks and contingencies,
and in  such  types  as is  customary  in the  case of  independent  oil and gas
companies engaged in operations of similar  properties,  including  insurance of
the types and coverages described in Schedule 3.7 and with limits of coverage no
less than those set out in Schedule 3.7. Such  insurance will name Royalty Owner
as an  additional  insured and as a loss payee as provided in Schedule  3.7, and
Working  Interest Owner will  otherwise  take all actions  described in Schedule
3.7.  Any loss  proceeds  from such  property  insurance,  whether  collected by
Working  Interest  Owner or  Royalty  Owner,  will be  applied  to the  costs of
repairing or replacing the property loss or damage  unless  otherwise  agreed by
Working  Interest Owner and Royalty Owner.  Working  Interest Owner will furnish
certificates of such insurance to Royalty Owner and will obtain  endorsements to

                                       12
<PAGE>
such policies providing that the insurer will notify Royalty Owner not less than
30 days prior to the expiration or termination of such policy of insurance.

     (b)  Repair.  In the  event  of any  damage  to or  loss  of any  platform,
pipeline, well, equipment or facility on the Subject Lands or otherwise owned by
any of Working  Interest Owner and used in connection  with the operation of any
Subject  Interest or the production of Subject  Hydrocarbons,  or the balancing,
treating,  gathering,  transporting,  tender,  processing  or other  handling of
Subject   Hydrocarbons,   or  the   marketing,   sale  or  transfer  of  Subject
Hydrocarbons,  Working  Interest  Owner  will (at no cost to  Royalty  Owner and
without regard to whether  insurance  proceeds are available to Working Interest
Owner) will promptly  carry out or cause to be carried out Repair  Operations as
necessary  or  appropriate  to repair,  restore or replace  such damaged or lost
property (or carry out other Repair  Operations  reasonably  expected to replace
the future production lost by such damage or loss).

     Section 3.8 Continued  Ability to Operate.  Working  Interest Owner will at
all times be a limited  liability  company,  corporation or limited  partnership
that is validly  existing  and in good  standing  under the Laws of its state of
formation  and  duly  qualified  to do  business  and in good  standing  in each
jurisdiction  where any Subject Lands are located.  Working  Interest Owner (and
any Person  operating  the Subject  Interest  on its  behalf)  will at all times
obtain and possess (or cause to be obtained and possessed) all consents,  bonds,
permits,  licenses,   right-of-ways,   easements,   authorizations  and  waivers
reasonably necessary under any applicable Law or any Lease or material contract,
indenture,  instrument  or agreement  binding on or affecting  Working  Interest
Owner or the Subject  Interests  in order to permit the  performance  by Working
Interest Owner of the Production Payment Documents.

                                   ARTICLE IV
                                   [RESERVED]

                                   ARTICLE V
                                OTHER AGREEMENTS

     Section 5.1 Performance of Production Payment  Documents.  Working Interest
Owner will, at its sole cost and expense, perform all of its covenants and other
obligations under this Agreement and the other Production Payment Documents,  as
and when provided therein and herein.

     Section 5.2 Interest on Late Payments;  No Usury.  Should Working  Interest
Owner fail to pay  Royalty  Owner any  amount of money due under any  Production
Payment  Document at the time when such amount is due,  Working  Interest  Owner
will also pay  interest  on such  amount at the  Agreed  Rate from the date such
amount  is due  until it is paid.  Working  Interest  Owner  and  Royalty  Owner
stipulate and agree,  however, that they intend to contract in strict compliance
with applicable  usury Law from time to time in effect.  In furtherance  thereof
they  further  stipulate  and agree that neither this Section 5.2 nor any of the
other terms and  provisions  contained in any Production  Payment  Document will
ever be  construed  to create a contract  to pay,  for the use,  forbearance  or
detention  of  money,  interest  in  excess of the  maximum  amount of  interest
permitted to be charged by applicable Law from time to time in effect.  No party
to any Production  Payment Document will ever be liable for unearned interest or

                                       13
<PAGE>
will ever be required to pay  interest in excess of the maximum  amount that may
be lawfully  charged under  applicable Law from time to time in effect,  and the
provisions  of this  section  will  control  over all  other  provisions  of the
Production  Payment  Documents  which may be in conflict  or  apparent  conflict
herewith. In determining whether or not the interest paid or payable,  under any
specific  circumstance,  exceeds the maximum amount  permitted under  applicable
Law, the parties to the Production Payment Documents will to the greatest extent
permitted under applicable Law prorate, allocate, and spread the total amount of
interest  throughout  the  entire  contemplated  term  of the  interest  bearing
obligations in accordance with the amounts thereof outstanding from time to time
and the  maximum  legal  rate of  interest  from  time to time in  effect  under
applicable  Law in order to  lawfully  charge  the  maximum  amount of  interest
permitted under applicable Law.

     Section 5.3 Indemnity.

     (a) AS USED HEREIN,  "ROYALTY OWNER  INDEMNITEES"  MEANS (I) ROYALTY OWNER,
(II) EACH OF ROYALTY  OWNER'S  SUCCESSORS AND ASSIGNS  (INCLUDING ITS MORTGAGEES
AND LENDERS),  (III) ALL OF THE AFFILIATES OF EACH PERSON  REFERRED TO IN EITHER
OF THE PRECEDING  CLAUSES (I) AND (II),  AND (IV) ALL OF THE PARTNERS,  MEMBERS,
MANAGERS,   SHAREHOLDERS,    OFFICERS,   DIRECTORS,   AGENTS,   REPRESENTATIVES,
BENEFICIARIES,  TRUSTEES  (INCLUDING  TRUSTEE),  ATTORNEYS AND EMPLOYEES OF EACH
PERSON DESCRIBED IN ANY OF THE PRECEDING CLAUSES (I), (II) AND (III).

     (b) WORKING  INTEREST OWNER AGREES TO INDEMNIFY AND HOLD EACH ROYALTY OWNER
INDEMNITEE HARMLESS FROM AND AGAINST ALL CLAIMS, DEMANDS, DAMAGES,  LIABILITIES,
LIENS,  LOSSES,   FINES,   PENALTIES,   CHARGES,   ADMINISTRATIVE  AND  JUDICIAL
PROCEEDINGS,  ORDERS, JUDGMENTS,  REMEDIAL ACTION REQUIREMENTS,  INVESTIGATIONS,
AND ENFORCEMENT  ACTIONS OF ANY KIND, TOGETHER WITH ALL INTEREST THEREON AND ALL
COSTS AND EXPENSES  RELATED  THERETO  (INCLUDING ALL FEES AND  DISBURSEMENTS  OF
COUNSEL AND OTHER ADVISORS) AND ALL OTHER OBLIGATIONS WHATSOEVER  (COLLECTIVELY,
"LOSSES")  ARISING,  IN WHOLE OR IN PART,  DIRECTLY  OR  INDIRECTLY,  FROM OR IN
CONNECTION WITH ANY OF THE FOLLOWING:

     (i) THE EXPLORING, DRILLING, DEVELOPING, OPERATING, MAINTAINING, REWORKING,
REDRILLING OR RECOMPLETING OF THE SUBJECT  INTERESTS,  SUBJECT LANDS, OR SUBJECT
WELLS, OR OTHER OPERATIONS THEREON,  OR THE PRODUCTION OF SUBJECT  HYDROCARBONS,
OR THE BALANCING, TREATING, GATHERING, TRANSPORTING, TENDER, PROCESSING OR OTHER
HANDLING OF SUBJECT HYDROCARBONS,  OR THE MARKETING, SALE OR TRANSFER OF SUBJECT
HYDROCARBONS;

     (ii) THE PRESENCE OF ANY HAZARDOUS  SUBSTANCES IN,  AROUND,  UNDER OR ABOUT
ANY OF THE SUBJECT  LANDS,  ANY OTHER  PROPERTIES OR ASSETS OF WORKING  INTEREST

                                       14
<PAGE>
OWNER, OR ANY OTHER  PROPERTIES OR NATURAL  RESOURCES IN THE VICINITY THEREOF OR
AFFECTED  THEREBY (IN THIS  SUBSECTION,  ALL OF THE FOREGOING ARE REFERRED TO AS
THE "RELEVANT PROPERTY");

     (iii) THE PRESENCE, USE, GENERATION,  TRANSPORTATION,  TREATMENT,  STORAGE,
REMEDIATION,  DISPOSAL,  RELEASE,  OR  DISCHARGE  AT ANY  TIME OF ANY  HAZARDOUS
SUBSTANCE  ON, UNDER OR FROM THE RELEVANT  PROPERTY;  ANY FAILURE AT ANY TIME BY
ANY  PERSON  (WHETHER  WORKING  INTEREST  OWNER,  ROYALTY  OWNER,  ANY OF  THEIR
AFFILIATES,  OR ANY OTHER PERSONS) TO COMPLY WITH ANY ENVIRONMENTAL LAWS OR WITH
ANY OTHER DUTIES IN RESPECT OF DAMAGE TO OR REMEDIATION OF THE ENVIRONMENT  THAT
ARE IN ANY WAY RELATED TO THE RELEVANT  PROPERTY;  OR THE EXPOSURE OF ANY PERSON
OR  PROPERTY  AT ANY  TIME TO ANY  HAZARDOUS  SUBSTANCE  ON,  UNDER  OR FROM THE
RELEVANT  PROPERTY  OR IN  CONNECTION  WITH ANY  OPERATIONS  CONDUCTED  ON OR IN
RESPECT OF THE RELEVANT PROPERTY BY ANY PERSON;

     (iv) ANY INJURY OR ALLEGED  INJURY TO PERSONS OR  PROPERTIES  OCCURRING  OR
ALLEGEDLY  OCCURRING  IN  CONNECTION  WITH ANY OF THE MATTERS  DESCRIBED  IN THE
PRECEDING SUBSECTIONS (I) OR (II);

     (v) ANY BREACH OF WORKING INTEREST OWNER'S WARRANTIES IN SECTION 1.9 OF THE
CONVEYANCE  (INCLUDING ANY LOSSES SUFFERED BY ANY ROYALTY OWNER  INDEMNITEE AS A
RESULT OF ANY CLAIM THAT SUCH ROYALTY OWNER  INDEMNITEE  LACKS GOOD TITLE TO THE
PRODUCTION  PAYMENT  HYDROCARBONS  OR OTHERWISE  MUST DELIVER OR PAY OVER TO ANY
PERSON ANY PART OF THE PRODUCTION  PAYMENT  HYDROCARBONS OR ANY PROCEEDS THEREOF
AT ANY TIME  PREVIOUSLY  RECEIVED OR  THEREAFTER  TO BE RECEIVED BY SUCH ROYALTY
OWNER INDEMNITEE);

     (vi) THE  BREACH OR  ALLEGED  BREACH OF ANY  SUBJECT  CONTRACT  BY  WORKING
INTEREST OWNER OR ANY OTHER PERSON (INCLUDING ROYALTY OWNER);

     (vii) ANY  VIOLATION OR ALLEGED  VIOLATION OF THE RIGHTS OF ANY PERSON AS A
RESULT OF WORKING  INTEREST  OWNER'S  CONVEYANCE  OF THE  PRODUCTION  PAYMENT TO
ROYALTY OWNER OR WORKING INTEREST OWNER'S EXECUTION,  DELIVERY OR PERFORMANCE OF
ANY PRODUCTION PAYMENT DOCUMENT; OR

     (viii) ANY BREACH BY WORKING INTEREST OWNER OF ANY OF ITS  REPRESENTATIONS,
WARRANTIES,  COVENANTS OR AGREEMENTS IN ANY OF THE PRODUCTION PAYMENT DOCUMENTS,

                                       15
<PAGE>
OR ANY MATTERS RELATING TO THE ENFORCEMENT OR DEFENSE OF THE PRODUCTION  PAYMENT
DOCUMENTS BY ROYALTY OWNER.

     (c) THE FOREGOING  INDEMNITY WILL APPLY WHETHER OR NOT ANY LOSSES ARISE OUT
OF THE SOLE,  JOINT OR CONCURRENT  NEGLIGENCE,  FAULT OR STRICT LIABILITY OF ANY
ROYALTY OWNER  INDEMNITEE OR IN CONNECTION  WITH ANY LIABILITY  IMPOSED UPON ANY
ROYALTY  OWNER  INDEMNITEE  AS ARESULT OF ANY THEORY OF STRICT  LIABILITY OR ANY
OTHER  DOCTRINE OF LAW (IN EACH CASE  WHETHER  ALLEGED,  ARISING OR IMPOSED IN A
LEGALPROCEEDING  BROUGHT BY OR AGAINST  WORKING  INTEREST  OWNER,  ANY AFFILIATE
OFWORKING  INTEREST OWNER, ANY ROYALTY OWNER  INDEMNITEE,  OR ANY OTHER PERSON),
PROVIDED THAT THE FOREGOING  INDEMNITY WILL NOT APPLY TO ANY LOSSES  INCURRED BY
ANY  ROYALTY  OWNER  INDEMNITEE  TO THE EXTENT  PROXIMATELY  CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL  MISCONDUCT OF SUCH ROYALTY OWNER INDEMNITEE AS DETERMINED
IN A  FINAL  JUDGMENT  BY A  COURT  OF  COMPETENT  JURISDICTION.  THE  FOREGOING
INDEMNITY  WILL NOT BE  QUALIFIED  OR  LIMITED  BY ANY OTHER  PROVISIONS  OF ANY
PRODUCTION  PAYMENT DOCUMENTS AND WILL SURVIVE THE TERMINATION OF THE PRODUCTION
PAYMENT  AND OF THIS  AGREEMENT  AND THE  OTHER  PRODUCTION  PAYMENT  DOCUMENTS.
WITHOUT  LIMITATION OF THE FOREGOING  PROVISIONS,  THE FOREGOING  INDEMNITY WILL
APPLY IN THE EVENT OF ANY DISPUTE,  ADVERSARY  PROCEEDING,  LITIGATION  OR OTHER
ACTION  AMONG OR BETWEEN  WORKING  INTEREST  OWNER AND ANY OF THE ROYALTY  OWNER
INDEMNITEES.

     Section 5.4 Payment of Expenses.  Working Interest Owner will promptly (and
in any  event,  within ten (10) days after any  invoice  or other  statement  or
notice) pay: (a) all transfer,  stamp,  mortgage,  documentary  or other similar
taxes, assessments or charges levied by any governmental or revenue authority in
respect of any of the  Production  Payment  Documents  or any other  document or
transaction  referred to herein or therein,  (b) all costs and expenses incurred
by or on behalf of Royalty Owner (including attorneys' fees,  consultants' fees,
engineering fees,  travel costs and  miscellaneous  expenses) in connection with
(i) the amendment, filing, recording, refiling or re-recording of any Production
Payment  Document (or any waiver in connection  therewith) or any other document
or instrument or further  assurances  obtained,  provided,  filed or recorded or
refiled or  re-recorded in connection  with the terms of any Production  Payment
Document,  the analysis of the Production  Payment,  the  administration  of the
Production  Payment  Documents,  or the monitoring of the Production  Payment or
Working Interest Owner's compliance with the Production  Payment Documents,  and
(c) all costs and expenses  incurred by or on behalf of Royalty Owner (including
attorneys'  fees,   consultants'  fees,   engineering  fees,  travel  costs  and
miscellaneous expenses whether or not related to disputes, adversary proceedings
or litigation  between or involving Working Interest Owner and Royalty Owner) in
connection  with the defense or  enforcement  of any of the  Production  Payment
Documents, any attempt to cure any breach thereunder,  or the defense of Royalty
Owner's exercise of its rights thereunder.

                                       16
<PAGE>
     Section 5.5 Information and Reporting.

     (a) Monthly Statements. Until the termination of the Production Payment and
the  completion of all payments for  Production  Payment  Hydrocarbons,  Working
Interest Owner, at its own expense, will furnish to Royalty Owner within 30 Days
after the end of each Month, a lease  operating  statement in form acceptable to
Royalty Owner, showing (1) gross volumes of Hydrocarbons  produced and sold from
the Subject  Lands during such Month and the portions  thereof that  constituted
Subject  Hydrocarbons,  (2) the average  sales  prices paid to Working  Interest
Owner for the Retained Interest Hydrocarbons, and (3) the severance Taxes, lease
operating expenses,  capital expenditures and any other expenses for such Month.
Each  such  lease  operating  statement  will be in a form and  level of  detail
acceptable to Royalty  Owner and  certified by an authorized  officer of Working
Interest Owner to be materially true and correct.

     (b) Quarterly Reports.  Until the termination of the Production Payment and
the  completion of all payments for  Production  Payment  Hydrocarbons,  Working
Interest Owner, at its own expense,  will furnish to Royalty Owner the following
reports  and  information  within  30 days  after the end of each  March,  June,
September, and December:

     (i) A  certificate  executed by an authorized  officer of Working  Interest
Owner   certifying   that,  to  the  best  of  his  knowledge  after  reasonable
investigation,  all Taxes, royalties,  rentals and other amounts with respect to
the Subject  Interests (other than amounts disputed in good faith by appropriate
proceedings  and  royalties  held in  suspense  due to title  disputes  or title
questions)  have  been  paid in full and in  accordance  with  the  terms of the
Leases,  any other  applicable  agreements  and all  applicable  Laws,  and that
Working  Interest  Owner is in  compliance in all respects with the terms of the
Production Payment Documents,  the Leases, and the Subject Contracts, or if not,
specifying in reasonable detail any exceptions thereto.

     (ii)  Reports  concerning  any  material  change in methods of treatment or
operation of all or any Subject Wells which are productive of Hydrocarbons,  any
new drilling or  development,  any method of  secondary or tertiary  recovery by
repressuring  or  otherwise,  or any other  action  with  respect to the Subject
Interests,  the  decision  as to which may  materially  increase  or reduce  the
quantity of Hydrocarbons  ultimately recoverable from the Subject Interests,  or
the rate of production therefrom,  or which may shorten or prolong the period of
time required for termination of the Production Payment.

     (iii) A report setting out the current status of all production  imbalances
by Subject Well or Subject Interest.

     (iv) Unaudited  consolidated financial statements of Working Interest Owner
as of the end of and for the fiscal  quarter  then  ending,  including a balance
sheet and  statements  of income and cash  flows,  prepared in  accordance  with
generally accepted accounting principles (other than the omission of footnotes),
consistently  applied,  accompanied by a certificate of Working Interest Owner's
chief financial officer stating that such financial  statements were so prepared
and fairly present the matters  addressed  therein,  subject to normal  year-end
adjustments.

                                       17
<PAGE>
     (c) Annual and Semiannual Reports.  Until the termination of the Production
Payment and the completion of all payments for Production Payment  Hydrocarbons,
Working Interest Owner, at Working Interest Owner's own expense, will furnish to
Royalty Owner the following reports and information:

     (i)  Semi-annually,  on or before  April 1 and  October 1 of each  year,  a
Reserve  Report  prepared  as  of  the  preceding   February  1  and  August  1,
respectively.  Each  report  dated as of August 1 will be prepared or audited by
the Company  Engineers,  and each report dated as of February 1 will, at Royalty
Owner's  election,  be prepared by Working  Interest  Owner's  in-house  reserve
engineers or by the Company Engineers.  Each report will incorporate all current
information  and data  available  to Working  Interest  Owner  pertinent  to the
estimation of Oil and Gas reserves attributable to the Subject Interests and the
Production  Payment.  Working  Interest Owner will also furnish to Royalty Owner
Working Interest Owner's internally prepared summary of such report, if any, and
a copy of any other  reserve  report  from  time to time  prepared  for  Working
Interest  Owner by any  independent  petroleum  engineering  firm  covering  the
Subject Interests or any part thereof.

     (ii) Annually,  within 105 days after the end of each fiscal year,  audited
financial  statements  of Working  Interest  Owner as of the end of and for such
year,  including a balance sheet and  statements of income,  owner's  equity and
cash  flows,   prepared  in  accordance  with  generally   accepted   accounting
principles,  accompanied  by a report of Working  Interest  Owner's  independent
certified  public  accountants  stating  that  their  examination  was  made  in
accordance with generally  accepted auditing standards and that in their opinion
such financial  statements  fairly present Working  Interest  Owner's  financial
position,  results of  operations,  owner's  equity and cash flows in accordance
with   generally   accepted   accounting   principles    consistently   applied.
Notwithstanding  the  preceding   sentence,   the  foregoing  audited  financial
statements  of Working  Interest  Owner for the first fiscal year  following the
execution of this Agreement  shall be delivered to Royalty Owner within 150 days
of such fiscal year end.

     (iii) At least 10 days prior to the expiration date of any policy, evidence
satisfactory  to  Royalty  Owner  confirming  timely  renewal  of the  insurance
policies required hereunder.

     (d)  Notices.  Until the  termination  of the  Production  Payment  and the
completion of all payments for Production Payment Hydrocarbons, Working Interest
Owner, at Working  Interest  Owner's own expense,  will furnish to Royalty Owner
the following as and when indicated below:

     (i) As soon as  possible  and in any  event  within  5 days  after  Working
Interest  Owner becomes aware  thereof,  written notice of (A) any breach of any
Production  Payment Document or any breach (by any party thereto) of any Subject
Contract,  (B) any action, event or occurrence that could reasonably be expected
to have a material adverse effect on the Production Payment, or (C) any material
change in the rate of production of Subject Hydrocarbons from the Subject Wells.

     (ii) Promptly after obtaining actual knowledge  thereof,  written notice of
any adverse claim or demand made by any Person  affecting the Subject  Interests

                                       18
<PAGE>
or the  Hydrocarbons  produced  therefrom  in any manner  whatsoever,  or of any
proceedings  instituted  or  threatened  with respect  thereto,  or of any other
matter required to be reported under Section 3.1(d) or Section 3.5.

     (iii) Promptly after the filing thereof,  copies of any notices and filings
made by Working  Interest  Owner or the Parent with the  Securities and Exchange
Commission.

(iv) At least 30 days prior to the occurrence  thereof,  notice of any change in
Working  Interest Owner's name,  identity or  organizational  structure,  or any
     change to its jurisdiction of organization, including in such notice a
ratification  of  Royalty  Owner's  authority  to  file  any  related  financing
statement amendments  contemplated in the Uniform Commercial Code. In connection
with any change in Working  Interest  Owner's name,  identity or  organizational
structure,  or any change to its jurisdiction of organization,  Royalty Owner is
hereby   authorized   (whether  or  not  Working   Interest  Owner's  gives  the
ratification  described in the  preceding  subsection  (iv)) to file any related
financing statement amendments contemplated in the Uniform Commercial Code.

     (e) Other Information Upon Request. Until the termination of the Production
Payment and the completion of all payments for Production Payment  Hydrocarbons,
Working  Interest Owner,  at Working  Interest  Owner's own expense,  will, upon
request,  furnish to Royalty Owner and its consultants and  representatives  the
following information and access as and when requested from time to time:

     (i) Access to the Company  Engineers  or other  engineers  who prepared the
most recent annual and semiannual  Reserve Reports delivered  hereunder,  and to
their  engineering  databases  and  other  relevant  data,  for the  purpose  of
discussing and reviewing their data, analysis, and conclusions.

     (ii) copies of surface maps showing property lines and well locations, well
logs, core analysis data, flow and pressure tests,  production analysis,  casing
programs and other similar  information  related to the Subject  Interests,  the
Subject Wells or the production therefrom.

     (iii) A schedule of the  Upstream  Contracts  pursuant to which  operations
relating to the Subject  Interests  are carried  out, all  reasonably  requested
information  pertaining  thereto,  and copies of each such Upstream Contract (or
amendment thereto).

     (iv) A  schedule  of the  Downstream  Contracts  under  which  the  Subject
Hydrocarbons were  transported,  treated,  processed,  resold or otherwise dealt
with  during  the most  recent  Month(s),  setting  out the  amount  of  Subject
Hydrocarbons dealt with under each such Downstream  Contract and the prices paid
or received  thereunder by Working  Interest Owner,  the Leases covered thereby,
and the remaining term thereof,  and a copy of each such Downstream Contract (or
amendment thereto).

     (v) Access to remote  field  monitoring  data  specifically  related to the
wells subject to the  Production  Payment,  such as SCADA data that is available
electronically.

                                       19
<PAGE>
     (vi) Such  other  information  relating  to the  Subject  Interests  or the
matters addressed in the Production  Payment Documents as Royalty Owner may from
time to time request.

     (f) Audit and  Inspection  Rights.  Royalty  Owner will,  at the expense of
Working Interest Owner,  have the right from time to time to audit the books and
records of Working Interest Owner with respect to the Subject  Interests and the
Subject  Hydrocarbons,  including all information with respect to the matters to
be reported on by Working Interest Owner as provided herein. Such audits will be
conducted during normal business hours at Working Interest Owner's offices or at
the offices where Working  Interest Owner maintains the records  relating to the
items set forth above.  This right to audit will survive the  termination of the
Production  Payment  for two  years.  If, as a result of any such  audit,  it is
determined  that any amount is due Royalty  Owner under the  Production  Payment
Documents,  whether  as a result of the  failure of  Working  Interest  Owner to
properly deliver all Production Payment  Hydrocarbons,  or the proceeds thereof,
to  Royalty  Owner in  accordance  with  the  terms  of the  Production  Payment
Documents, or otherwise,  Working Interest Owner will pay such amount to Royalty
Owner  together  with interest at the Agreed Rate from the date that such amount
should  have  been  delivered  or paid  in  accordance  with  the  terms  of the
Production Payment Documents to the date of payment. Working Interest Owner will
also  permit  the duly  authorized  representatives  of  Royalty  Owner,  at any
reasonable  time,  to make such  inspections  of the Subject  Interests  and the
property, equipment and facilities used in the operation thereof (or any records
of Working  Interest  Owner related  thereto) as such  representatives  may deem
proper.

     Section 5.6 Marketing of Production Payment Hydrocarbons.

     (a)  General  Provision.  As  provided in the  Conveyance,  the  Production
Payment Hydrocarbons will be delivered to Royalty Owner in kind or to the credit
of Royalty  Owner,  free of Delivery Point Charges and other costs and expenses,
at the  applicable  Delivery  Points.  Royalty  Owner  will take and  market the
Production  Payment  Hydrocarbons upon delivery by Working Interest Owner at the
applicable Delivery Points.

     (b) Spot Market PP Hydrocarbons.  Royalty Owner will have the right to take
and market all or any portion of the Production  Payment  Hydrocarbons  and also
the right to require Working Interest Owner to process and/or market, as Royalty
Owner's agent, all or any portion of the Production Payment  Hydrocarbons on the
same  terms  and  conditions  as  Working  Interest  Owner's  Retained  Interest
Hydrocarbons  are  processed  and/or  marketed.   Any  such  Production  Payment
Hydrocarbons  so marketed by Royalty Owner are called "Royalty Owner Spot Market
PP Hydrocarbons" and any such Production Payment Hydrocarbons that Royalty Owner
so requires Working Interest Owner to process or market as Royalty Owner's agent
are herein called "Working Interest Owner Spot Market PP Hydrocarbons".

     (c) Assistance with Marketing. Working Interest Owner will, without charge,
render  all  assistance  that may be useful or  necessary  to  Royalty  Owner in
marketing  the  Royalty  Owner Spot  Market PP  Hydrocarbons,  including  giving
Royalty  Owner  access to and the use of all  treating,  gathering,  processing,
storage, transportation and other facilities available to Working Interest Owner
or Working  Interest  Owner's  Affiliates,  whether by  ownership,  contract  or
otherwise,  which access and use will, to the maximum  extent  allowed by Law or

                                       20
<PAGE>
other  agreements  existing on the date  hereof,  (i) be made  available  to the
Subject  Hydrocarbons  prior to any other  Hydrocarbons  owned or  controlled by
Working  Interest  Owner,  (ii) be  allocated  between  the  Production  Payment
Hydrocarbons  and  the  Retained  Interest  Hydrocarbons  in  proportion  to the
relative amounts thereof,  and (iii) be without charge by Working Interest Owner
or its Affiliates for any such  treating,  gathering or other  facilities in the
area of  production  and with the  same  charges  per unit of Oil as are paid by
Working  Interest  Owner to third  parties  for any  other  facilities.  Working
Interest Owner will process and market all Working Interest Owner Spot Market PP
Hydrocarbons  on the  same  terms  as its own  Retained  Interest  Hydrocarbons.
Working  Interest  Owner  will use its best  efforts  to cause all  proceeds  of
Working  Interest  Owner  Spot  Market PP  Hydrocarbons  and  Retained  Interest
Hydrocarbons to be paid directly to Royalty Owner by the purchasers thereof, and
upon receipt thereof, Royalty Owner will retain the proceeds from the Production
Payment Hydrocarbons and promptly remit the remainder to Working Interest Owner.
Until such  designation  is effective (and if Working  Interest Owner  otherwise
receives any such proceeds),  Working  Interest Owner will receive such proceeds
in trust on behalf of Royalty  Owner and pay such  proceeds to Royalty  Owner by
wire transfer on or before the third Business Day after receipt thereof, without
any setoff,  defense or counterclaim,  all of which are hereby waived by Working
Interest Owner.

     (d) Nominations. Whenever any Royalty Owner Spot Market PP Hydrocarbons are
being sold,  Working Interest Owner will, not less than five Business Days prior
to the first day of each Month in which such sales will  occur,  notify  Royalty
Owner of the daily  quantities  of such  Production  Payment  Hydrocarbons  that
Working  Interest Owner expects to be produced and delivered for Royalty Owner's
account at each Delivery Point during such Month.

     Section 5.7 Preservation of Subject Well Drainage.  From the Effective Date
of this Agreement  through the  termination  of the  Production  Payment and the
completion of all payments to Royalty  Owner that are required  under any of the
Production Payment Documents, Working Interest Owner will not take any action in
drilling or completing any well that is not a Subject Well (or other  operations
in connection  therewith)  that has, or would  reasonably be expected to have, a
negative impact on the performance characteristics of any Subject Well.

                                   ARTICLE VI
                   LIENS TO SECURE PERFORMANCE; OTHER REMEDIES

     Section 6.1 Mortgage. The Conveyance is the grant of a property interest in
the Subject  Interests and the Subject  Hydrocarbons,  pursuant to which Royalty
Owner will own and possess the Production  Payment  Hydrocarbons if, as and when
produced.  Royalty Owner will look solely to the Production Payment Hydrocarbons
for satisfaction and discharge of the Production  Payment,  and Working Interest
Owner will not be personally liable for such satisfaction and discharge (and the
indemnity provided in Section 5.3 will not be construed to make Working Interest
Owner personally liable for such  satisfaction and discharge).  Working Interest
Owner  has,  however,  made  various  covenants,  agreements,   representations,
warranties and indemnities in the various Production Payment Documents for which
it is personally  liable. In order to secure the performance by Working Interest
Owner of all of Working Interest Owner's  obligations and liabilities under this

                                       21
<PAGE>
Agreement or any other Production  Payment  Document,  Working Interest Owner is
concurrently herewith executing and delivering the Mortgage.

     Section 6.2 Production Proceeds.  Notwithstanding that, by the terms of the
Mortgage,  Working  Interest  Owner is  granting  to Royalty  Owner the right to
collect directly all of the "As-Extracted  Collateral" (as defined therein),  so
long as no Performance  Default has occurred Working Interest Owner may continue
to receive from the  purchasers  of  production  all such  Production  Proceeds,
subject,  however,  to the liens  created  under the  Mortgage,  which liens are
hereby affirmed and ratified, and Royalty Owner will not exercise its rights and
powers under  Section 4.03 of the Credit  Agreement.  Upon the  occurrence  of a
Performance Default,  Royalty Owner may exercise all rights and remedies granted
under the Mortgage,  including the right to obtain  possession of all Production
Proceeds then held by Working  Interest Owner and the right to receive  directly
from the  purchasers of production  all other  Production  Proceeds.  In no case
shall any failure,  whether  intentioned  or  inadvertent,  by Royalty  Owner to
collect  directly  any  Production  Proceeds  constitute  in any  way a  waiver,
remission  or  release  of  any of  its  rights  under  the  Production  Payment
Documents,  nor shall any release of any Production Proceeds by Royalty Owner to
Working Interest Owner constitute a waiver,  remission,  or release of any other
Production  Proceeds  or of the  rights of Royalty  Owner to  collect  all other
Production Proceeds thereafter.

     Section 6.3  Replacement  of  Operator.  In addition to its other  remedies
under the Production  Payment  Documents,  upon the continuance of a Performance
Default for thirty  consecutive  days  without  being cured,  Royalty  Owner may
require Working Interest Owner to do (or require Working Interest Owner to cause
Parent to do) either or both of the  following:  (i) employ a contract  operator
designated  by Royalty  Owner for any or all of the Subject  Interests,  or (ii)
resign as  operator of any or all of the Subject  Interests,  whereupon  Working
Interest Owner will so resign and will appoint,  vote for, and otherwise support
a substitute operator acceptable to Royalty Owner.

                                  ARTICLE VII
                                 MISCELLANEOUS

     Section 7.1 Notices. All notices, requests, demands, instructions and other
communications  required  or  permitted  to be  given  hereunder  or  under  the
Conveyance  will be in writing and will be given as provided in the Purchase and
Sale Agreement.

     Section  7.2  Successors  and  Assigns.   The  covenants,   provisions  and
conditions  contained in this Agreement will be binding upon and (subject to the
restrictions  concerning the Subject Interests that are contained in Section 1.8
of the  Conveyance)  inure to the benefit of Working  Interest Owner and Royalty
Owner and their respective  successors and permitted  assigns.  Working Interest
Owner will not transfer, assign or pledge its rights or obligations hereunder or
under the other Production Payment Documents except as allowed under Section 1.8
of the Conveyance. Royalty Owner and its successors and assigns may, and nothing
contained in the Production  Payment Documents will in any way limit or restrict
the right of Royalty Owner, or Royalty Owner's successors and assigns, to, sell,
convey, assign, transfer,  pledge, mortgage or otherwise transfer the Production
Payment or its rights and obligations under the Production  Payment Documents in
whole or in part. If Royalty  Owner,  or any of Royalty  Owner's  successors and
assigns,  at any time executes a mortgage,  pledge or deed of trust covering all
or any part of the Production  Payment as security for any obligation,  then the
mortgagee,  the  pledgee  or the  trustee  therein  named or the  holder  of the

                                       22
<PAGE>
obligation  secured  thereby  will be  entitled,  when  and to the  extent  such
mortgage, pledge or deed of trust so provides or Royalty Owner otherwise agrees,
to exercise all of the rights,  remedies,  powers and privileges  conferred upon
Royalty Owner under the Production Payment Documents and to give or withhold all
consents required or permitted to be obtained from Royalty Owner pursuant to the
Production Payment  Documents.  All references herein to either Working Interest
Owner or Royalty Owner will include their  respective  successors  and permitted
assigns.

     Section 7.3 Acknowledgments  and Admissions.  Working Interest Owner hereby
represents,  warrants, agrees, acknowledges and admits that Royalty Owner is not
a  fiduciary  or an advisor  for  Working  Interest  Owner  with  respect to any
Production Payment Document or the transactions contemplated thereby and that no
partnership  or joint  venture  exists with  respect to the  Production  Payment
Documents between Working Interest Owner and Royalty Owner.

     Section 7.4 Entire Agreement;  Amendments;  Waiver.  This Agreement and the
other Production  Payment Documents  constitute the entire agreement between the
Parties. This Agreement may not be amended or modified,  and no rights hereunder
may be waived,  except by a written  document  signed by the Party to be charged
with such amendment,  modification or waiver.  Provisions of this Agreement that
refer to any consent, approval, amendment or waiver by either Party require such
consent, approval, amendment or waiver to be in writing. No waiver of any of the
provisions of this Agreement will be deemed to be or will constitute a waiver of
any other  provisions  hereof  (whether  or not  similar),  nor will such waiver
constitute a continuing waiver unless otherwise expressly provided.

     THIS WRITTEN AGREEMENT AND THE OTHER PRODUCTION PAYMENT DOCUMENTS REPRESENT
THE FINAL AGREEMENT  BETWEEN  THEPARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR,  CONTEMPORANEOUS,  OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     Section  7.5  Counterpart  Execution.  This  Agreement  may be  executed by
Working Interest Owner and Royalty Owner in any number of counterparts,  each of
which will be deemed an original instrument and all of which will constitute but
one and the same Agreement.

     Section  7.6  Applicable  Law.  This  Agreement  will  be  governed  by and
construed in accordance with the Laws of the State of Texas.

     Section 7.7 Severability. If any term or provision of this Agreement or any
other  Production   Payment  Document  is  ever  determined  to  be  illegal  or
unenforceable  to any  extent,  such term or  provision  will  otherwise  remain
effective and be enforced,  and all other terms and  provisions of the hereof or
thereof will nevertheless remain effective and will be enforced,  to the fullest
extent permitted by applicable Law.

     Section 7.8 Termination; Limited Survival. Upon both (i) the termination of
the  Production  Payment as  provided  in the  Conveyance  and (ii) the full and
complete  payment  and  performance  of all  obligations  and  duties of Working

                                       23
<PAGE>
Interest Owner under this Agreement and the other Production  Payment Documents,
Working  Interest  Owner will be  entitled to request and receive the release by
Royalty Owner of the liens and security  interests  under the  Mortgage,  and at
such time  Royalty  Owner will,  at the request and expense of Working  Interest
Owner,  execute and deliver an appropriate  release to Working  Interest  Owner.
Notwithstanding the foregoing or anything to the contrary herein or in any other
Production  Payment Document,  the following will survive any termination of the
Production  Payment,  this Agreement,  or any other Production Payment Document:
(a) all waivers or admissions made by Working  Interest Owner herein or therein,
(b) all obligations that any Person may have to indemnify or compensate  Royalty
Owner or any Royalty Owner Indemnitee hereunder or thereunder, and (c) all other
provisions   hereof  or  thereof  that  are  expressly  stated  to  survive  the
termination of the Production Payment or of this Agreement,  the Conveyance,  or
any other Production Payment Document.

     Section 7.9 WAIVER OF JURY TRIAL AND  PUNITIVE  DAMAGES.  WORKING  INTEREST
OWNER AND ROYALTY OWNER HEREBY RATIFY AND REMAKE THEIR WAIVERS OF AND AGREEMENTS
CONCERNING  JURY TRIAL AND PUNITIVE AND OTHER DAMAGES MADE IN SECTION 7.9 OF THE
PURCHASE AND SALE AGREEMENT.

     Section 7.10 CONSENT TO  JURISDICTION.  WORKING  INTEREST OWNER AND ROYALTY
OWNER  HEREBY  RATIFY AND REMAKE  THEIR  CONSENTS TO AND  AGREEMENTS  CONCERNING
JURISDICTION,  FORUM AND VENUE MADE IN  SECTION  7.10 OF THE  PURCHASE  AND SALE
AGREEMENT.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       24
<PAGE>
     IN WITNESS  WHEREOF,  Working  Interest  Owner and Royalty  Owner have duly
executed and delivered this Agreement as of the date set forth above.

BARON PRODUCTION LLC

By:
   -----------------------------------------

Name:
     ---------------------------------------

Title:
      --------------------------------------

                                       25
<PAGE>
PCEC SUB 1, LLC

By:
   -----------------------------------------
   Rosser C. Newton
   Vice President

                                       26
<PAGE>
                                  SCHEDULE 3.7
                      TO PRODUCTION AND MARKETING AGREEMENT
                                    INSURANCE

     Required Coverage

     Working  Interest Owner will at all times while operations are conducted on
the Subject Interests procure and maintain with responsible  insurance companies
for the benefit and  protection of the Parties the following  insurance and such
other insurance as Working Interest Owner deems appropriate:

     (a) Worker's  Compensation  Insurance and Employer's Liability Insurance in
compliance with all applicable Laws.

     (b) Comprehensive  General Liability Insurance (including pollution) with a
combined  single limit of not less than $1,000,000 per occurrence and $2,000,000
in the  aggregate.  This  policy  will  be  endorsed  to  provide  coverage  for
explosion,  collapse  and  underground  damage  hazards to  property  of others;
contractual liability; and products and completed operations;

     (c)  Comprehensive   Liability  Insurance  covering  all  owned,  hired  or
non-owned  vehicles with a combined single limit of not less than $1,000,000 per
occurrence;

     (d) Excess Umbrella Liability Insurance with a combined single limit of not
less than  $5,000,000 per  occurrence,  provided that after August 15, 2014, the
Working Interest Owner shall maintain Excess Umbrella Liability Insurance with a
Combined single limit of not less than $10,000,000;

     (e) Well Control Operator's Excess Expense Liability  Insurance  (including
cost of well  control,  relief  wells,  redrilling)  in an amount  not less than
$15,000,000 per occurrence; and

     (f) Property  Insurance  (subject to deductibles  that are customary in the
case of  independent  oil and gas  companies  engaged in  operations  of similar
properties) fully covering the property subject to this Production and Marketing
Agreement including the value of all facilities and well surface equipment.

     Additional Requirements

     1.  All   insurance   policies   will  be   endorsed   to  be  primary  and
noncontributory with any other valid and collectible insurance.

     2. Working  Interest  Owner will provide to Royalty Owner from time to time
as requested a Certificate of Insurance,  in form satisfactory to Royalty Owner,
as  evidencing  that  satisfactory  coverages  of the type and  limits set forth
hereinabove  are in effect.  Policies  providing  such  coverages  will  contain
provisions that no cancellation or material  changes in the policies will become
effective  except on 30 days' advance  written  notice thereof to Royalty Owner.
Irrespective  of the  requirements as to insurance to be carried as provided for
herein, the insolvency,  bankruptcy or failure of any insurance company carrying
insurance of Working Interest Owner, the failure of any insurance company to pay

                                       27
<PAGE>
claims  accruing,  or the  inadequacy of the limits of the  insurance,  will not
affect, negate or waive any of the provisions of any Production Payment Document
applicable  to  the  property,   including,  without  exception,  the  indemnity
obligations of Working  Interest Owner.  Working  Interest Owner will furnish to
Royalty Owner copies of all renewal applications or applications for replacement
insurance promptly following submission of the same.

     3. Working  Interest Owner will promptly notify Royalty Owner of any one or
more claims made under any insurance  policy where Working  Interest  Owner is a
named or  additional  insured  (whether  such claim is made by Working  Interest
Owner or any other person  insured  thereunder)  where such  claim(s) are for an
aggregate amount in excess of 50% of any aggregate policy limit.

     4. Working Interest Owner will require any policies of liability insurance,
except workers compensation coverage, that are in any way related to the Subject
Interests,  and that are obtained or maintained by Working  Interest  Owner,  to
include Royalty Owner, its parent and affiliated  companies and mortgagees,  and
their directors, officers, employees and agents, as Additional Insureds, without
any limitations  based on the fault or negligence,  in whole or in part, of such
Additional  Insureds.  Working  Interest  Owner will  require any  property  and
casualty policies that are in any way related to the Subject Interests, and that
are obtained or maintained by Working  Interest  Owner, to name Royalty Owner as
the loss  payee to the extent of Royalty  Owner's  or Working  Interest  Owner's
interests.  If any insurance policy is issued with the name of the insured being
other than the name of Working Interest Owner,  then Working Interest Owner will
be added as a named  insured  and  Royalty  Owner and its parent and  affiliated
companies and mortgagees,  and their directors,  officers,  employees and agents
will be named as Additional Insureds and loss payee as required in the preceding
sentences of this paragraph.

     5. Working  Interest  Owner will require all policies of insurance that are
in any way  related to this  Production  and  Marketing  Agreement  and that are
obtained or maintained by Working  Interest Owner to include  clauses  providing
that each  underwriter will waive its rights of recovery,  under  subrogation or
otherwise,  against  Royalty  Owner,  its parent and  affiliated  companies  and
mortgagees, and their directors, officers, employees and agents.

                                       28Exhibit 10.82

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING  INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC  RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S
LICENSE NUMBER.

                               CONVEYANCE OF TERM

                           OVERRIDING ROYALTY INTEREST

                                      FROM

                              BARON PRODUCTION LLC

                                   AS GRANTOR

                                       TO

                                 PCEC SUB 1, LLC

                                   AS GRANTEE

                                  JULY 28 2014

<PAGE>
                                TABLE OF CONTENTS

Article I CONVEYANCE..........................................................2

   Section 1.1    Conveyance..................................................2
   Section 1.2    Non-Operating, Non-Expense-Bearing Interest.................2
   Section 1.3    Royalties; Taxes............................................3
   Section 1.4    Termination.................................................3
   Section 1.5    Delivery to Royalty Owner...................................4
   Section 1.6    Certain Limitations.........................................4
   Section 1.7    Measurement.................................................5
   Section 1.8    No Mortgage, Assignment or Pooling by Working Interest
                  Owner.......................................................5
   Section 1.9    Title.......................................................5
   Section 1.10   No Proportionate Reduction..................................7
   Section 1.11   Government Regulation.......................................7
   Section 1.12   Partial Release and Replacement.............................7

Article II DEFINITIONS........................................................8

   Section 2.1    Definitions.................................................8
   Section 2.2    Rules of Construction; Monthly and Daily Equivalents;
                  Publications...............................................15

Article III MISCELLANEOUS....................................................16

   Section 3.1    Nature of Production Payment; Intentions of the Parties....16
   Section 3.2    Governing Law..............................................17
   Section 3.3    Successors and Assigns.....................................17
   Section 3.4    Counterpart Execution......................................17
   Section 3.5    Further Assurances.........................................17
   Section 3.6    No Subordination to Permitted Encumbrance..................17
   Section 3.7    Partial Invalidity.........................................18
   Section 3.8    Waiver of Jury Trial and Special Damages...................18
   Section 3.9    Consent to Jurisdiction....................................18
   Section 3.10   Partition..................................................18
   Section 3.11   Addresses..................................................18
   Section 3.12   Amendments and Waivers.....................................19

                                       i
<PAGE>
                 CONVEYANCE OF TERM OVERRIDING ROYALTY INTEREST

     This Conveyance of Term Overriding  Royalty  Interest (this  "Conveyance"),
dated for reference  purposes as of July 28, 2014,  is made by Baron  Production
LLC, a Texas limited liability company ("Working Interest Owner" and a "Party"),
to PCEC Sub 1, LLC, a Texas limited  liability  company  ("Royalty  Owner" and a
"Party").

     Working  Interest  Owner is the  owner of the  Subject  Interests  (defined
below),  and Working  Interest  Owner has agreed to convey to Royalty  Owner the
following described term overriding royalty interest in such Subject Interests.

     Capitalized terms used herein have the meanings given to them in Article II
hereof unless otherwise defined herein.

     Accordingly,  Working Interest Owner hereby makes the following  conveyance
and  assignment  to, and the following  agreements  for the benefit of,  Royalty
Owner:

                                   ARTICLE I
                                  CONVEYANCE

     Section 1.1 Conveyance.  For and in  consideration  of One Thousand Dollars
($1,000.00) and other good and valuable  consideration  paid by Royalty Owner to
Working  Interest  Owner,  the  receipt  and  sufficiency  of which  are  hereby
acknowledged,  Working Interest Owner hereby GRANTS,  BARGAINS,  SELLS, CONVEYS,
ASSIGNS,  TRANSFERS, SETS OVER AND DELIVERS unto Royalty Owner a term overriding
royalty  interest  in and to the  Subject  Interests  and in and to the  Subject
Hydrocarbons  attributable  thereto  that is  equal  to the  Production  Payment
Percentage  with respect to each Subject  Interest and the Subject  Hydrocarbons
attributable  thereto  (but  not  to  exceed  during  any  Month  the  Scheduled
Quantities plus any Adjustment Quantity of the Subject Hydrocarbons produced and
saved that Month),  together with all and singular the rights and  appurtenances
thereto in anywise belonging  thereto (the "Production  Payment") insofar as and
limited to the Subject Wells described in the Property Exhibit.

     TO HAVE  AND TO  HOLD  the  Production  Payment  unto  Royalty  Owner,  its
successors and assigns until the Termination Time.

     Section 1.2  Non-Operating,  Non-Expense-Bearing  Interest.  The Production
Payment  conveyed hereby is a  non-operating,  non-expense-bearing  limited term
overriding  royalty  interest,  free of all  cost  and  expense  of  production,
operations  and  delivery to the  applicable  Delivery  Points.  The  Production
Payment and the Production  Payment  Hydrocarbons will be free and clear of, and
in no event  will  Royalty  Owner ever be liable or  responsible  in any way for
payment of, any and all (a) costs,  expenses  and  liabilities  associated  with
acquiring, exploring, developing, drilling, redrilling,  maintaining, producing,
operating,  reworking,  repairing,  recompleting,  and  remediating  the Subject
Interests,  or (b) cash balancing  obligations  or Delivery  Point Charges.  All
costs and expenses associated with acquiring, exploring,  developing,  drilling,
redrilling,    maintaining,    producing,   operating,   reworking,   repairing,
recompleting,  and  remediating  the Subject  Interests  and all cash  balancing

                                       2
<PAGE>
obligations  and Delivery Point Charges will be borne by the Retained  Interests
and paid by Working  Interest  Owner  promptly,  on or before the dates the same
become delinquent.

     Section 1.3 Royalties; Taxes. The Production Payment will be free and clear
of (and without deduction of) any and all royalties, overriding royalties, other
production  payments,  and other burdens on production  and will bear no part of
the same; the Retained  Interests  will be burdened  with, and Working  Interest
Owner  will  timely  pay,  all  such  royalties,   overriding  royalties,  other
production  payments,  and other burdens on production.  WORKING  INTEREST OWNER
WILL DEFEND, INDEMNIFY AND HOLD ROYALTY OWNER HARMLESS FROM AND AGAINST ANY LOSS
OR CLAIM WITH RESPECT TO ANY SUCH  ROYALTIES  AND OTHER BURDENS ON PRODUCTION OR
ANY CLAIM BY THE  OWNERS OR  HOLDERS  OF SUCH  ROYALTIES  AND OTHER  BURDENS  ON
PRODUCTION.  WORKING  INTEREST OWNER WILL BEAR AND PAY ALL TAXES WITH RESPECT TO
THE  PRODUCTION  PAYMENT  AND  THE  PRODUCTION  PAYMENT  HYDROCARBONS,  AND  THE
PRODUCTION  PAYMENT  HYDROCARBONS  WILL BE FREE OF TAXES AND  DELIVERED  WITHOUT
DEDUCTION FOR TAXES.

     Section 1.4 Termination.

     (a) The  Production  Payment will remain in full force and effect until the
Termination  Time. At the  Termination  Time,  all rights,  titles and interests
hereby  conveyed to Royalty Owner in the Subject  Interests  will  automatically
terminate  and vest in  Working  Interest  Owner  and,  upon  request by Working
Interest Owner, Royalty Owner (at Working Interest Owner's expense) will execute
and deliver such instruments (in recordable form) as may be reasonably necessary
to  evidence  the  termination  of  the  Production   Payment,   provided  that,
notwithstanding   the  foregoing  or  anything  herein  to  the  contrary,   any
obligations  which any Person may have to  indemnify,  reimburse,  or compensate
Royalty  Owner,  or to make  payments to Royalty  Owner on account of Production
Payment Hydrocarbons produced before the Termination Time, or to give reports or
take other actions with respect to such Production Payment  Hydrocarbons or such
payments, will survive any termination of the Production Payment.

     (b) No pipeline  company or other Person  purchasing,  taking or processing
Production  Payment  Hydrocarbons  will be required to take notice of or to keep
informed  concerning  termination of the Production Payment until actual receipt
of a  termination  instrument  signed by Royalty  Owner as  contemplated  in the
preceding subsection.

     (c) If any individual Subject Interest (or portion thereof,  as applicable)
should by its terms terminate  before the Termination  Time and not be extended,
renewed or replaced,  then the  Production  Payment will no longer apply to that
particular  Subject Interest (or such portion thereof,  as applicable),  but the
Production  Payment will remain in full force and effect and  undiminished as to
all remaining  Subject  Interests  (and all  remaining  portions of such Subject
Interest,  as  applicable),  as well as to any new lease referred to in the last
sentence of the  definition  of "Lease" in Section 2.1. No  Scheduled  Quantity,
Adjustment  Quantity  or  Monthly  Adjustment  Amount  will ever be  reduced  or
diminished  by  reason of the  termination  of all or any  portion  of a Subject
Interest.

                                       3
<PAGE>
     Section 1.5 Delivery to Royalty  Owner.  Working  Interest Owner will cause
the Production  Payment  Hydrocarbons to be delivered each Day to Royalty Owner,
or to the credit of Royalty  Owner,  into the  facilities of the Delivery  Point
Recipient at the applicable Delivery Point, in a condition  satisfactory to meet
or exceed all  specifications  and requirements of such Delivery Point Recipient
and free of all Delivery  Point  Charges.  Such delivery will be made on a first
priority  basis  (along  with the other  Subject  Hydrocarbons),  to the  extent
permitted by applicable  Law and by any  contracts  existing on the date hereof,
and Working  Interest  Owner hereby  dedicates to the Subject  Hydrocarbons  all
gathering,  transportation,  processing,  treating  and  compression  plants and
equipment (whether owned or possessed by contract right) and all contract rights
and other rights useful in making such delivery and agrees that the same will be
used to deliver the Subject  Hydrocarbons  in such condition prior to being used
for other  Hydrocarbons  belonging to Working  Interest Owner or its Affiliates.
Although the Production Payment Hydrocarbons are owned by Royalty Owner when and
as produced at the wellhead,  Working Interest Owner will be solely  responsible
for  causing  delivery  thereof  to occur  at the  Delivery  Points  and for the
handling,  management and care of the Production Payment Hydrocarbons until such
delivery has been  completed and solely  responsible  for any damage,  injury or
loss that may occur in connection  therewith.  To the extent it has the right to
do so, Working  Interest Owner hereby grants to Royalty Owner and its purchasers
and agents easements and rights-of-way  over and across the Leases and all lands
subject thereto or pooled, communitized and/or unitized therewith, together with
rights of  ingress  and  egress  to go on or about  such  lands and all  related
production,  processing,  handling  and other  facilities,  for the  purposes of
receiving,   accepting  and  taking  Production  Payment   Hydrocarbons  at  the
applicable Delivery Points and for the further transportation thereof.

     Section 1.6 Certain Limitations.  The Production Payment will be subject to
the following provisions:

     (a) Royalty Owner will look solely to the Production  Payment  Hydrocarbons
for satisfaction and discharge of the Production  Payment,  and Working Interest
Owner will not be personally  liable under this  Conveyance  for the payment and
discharge thereof (although Working Interest Owner will be personally liable for
the performance of its representations,  warranties,  agreements and indemnities
in the  Production  Payment  Documents  (as  defined  in the  Purchase  and Sale
Agreement)).

     (b) The Oil produced from the Subject  Interests will be allocated first to
the Production Payment.

     (c) Neither the occurrence of an event of force majeure nor any other event
or  condition  reducing  or  eliminating   production  or  delivery  of  Subject
Hydrocarbons will suspend the calculation and increase of any Monthly Deficiency
or other component of the Monthly Adjustment Amount.

     Section  1.7  Measurement.  Measurement  of  Subject  Hydrocarbons  will be
determined under the applicable  agreement with the Delivery Point Recipient (or
under the applicable  marketing agreement with any Person purchasing such Oil at
the  Delivery  Point)  and,  if such  agreement  does  not  specify  measurement
procedures,  in accordance with generally  accepted industry practices in effect
at the time and place of  delivery  using then  current  testing  methods of the

                                       4
<PAGE>
American Society for Testing Materials or the American Petroleum Institute.  All
measurements of Oil will be subject to the rights of Working  Interest Owner and
Royalty Owner to audit and confirm such  measurements.  Working  Interest  Owner
hereby represents, warrants and covenants to Royalty Owner that, with respect to
the Subject  Hydrocarbons,  production of Oil from each Subject Well is and will
continue  to be  measured  at a point  prior to any  point  where  Oil from such
Subject  Well is  commingled  with Oil from any other well or wells that are not
Subject Wells.

     Section 1.8 No Mortgage,  Assignment or Pooling by Working  Interest Owner.
During the term of the Production  Payment,  (a) Working Interest Owner will not
mortgage,  pledge or  hypothecate  the Subject  Interests  or create or allow to
remain any lien or security  interest  thereon or on any  Hydrocarbons  produced
therefrom,  other than Permitted  Encumbrances,  and (b) Working  Interest Owner
will not assign, sell, convey or otherwise transfer the Subject Interests or any
part thereof,  unless in each case Royalty Owner expressly  consents  thereto in
writing,  the transferee  expressly  agrees to assume and perform all of Working
Interest  Owner's  obligations  under this  Conveyance  and the other  documents
executed in connection herewith  (contingent,  in the case of a mortgagee,  upon
taking  possession),  and, except for the Security  Documents (as defined in the
Credit  Agreement),  such  mortgage,  pledge,   hypothecation,   lien,  security
interest,  assignment,  sale,  conveyance or other transfer is made and accepted
expressly  subject and subordinate to this Conveyance.  Any purported  mortgage,
pledge, hypothecation, lien, security interest, assignment, sale, conveyance, or
other transfer in violation hereof will be null and void. During the term of the
Production  Payment,  Working Interest Owner will not (except as may be required
by the  terms of any  existing  or new  Lease or by the  terms of any Law or any
order of a court or regulatory authority having jurisdiction,  or unless Working
Interest Owner and Royalty Owner have the same or larger Net Revenue Interest in
each affected  Subject  Interest  both before and after pooling or  unitization)
pool, communitize or unitize the Production Payment or the Subject Interests (or
amend any presently existing pooling,  communitization or unitization  agreement
with respect  thereto) without the express written consent of Royalty Owner, and
any   purported   pooling,   communitization,   unitization   or   amendment  in
contravention  of the preceding clause will be null and void as to Royalty Owner
and will not have the effect of pooling or otherwise  affecting  the  Production
Payment.

     Section 1.9 Title.  Working  Interest  Owner  hereby  binds  itself and its
successors  and assigns to WARRANT and forever  DEFEND all and singular title to
the Production  Payment and the  Production  Payment  Hydrocarbons  unto Royalty
Owner, its successors and assigns, against every Person lawfully claiming or who
may claim the same or any part thereof,  including any Person  claiming  under a
Permitted  Encumbrance.  In addition,  and without  limitation of the foregoing,
Working Interest Owner warrants and represents to Royalty Owner that:

     (a) each Lease is a valid and  subsisting  oil, gas and/or  mineral  lease,
deed or other  instrument  covering the lands and depths described in such Lease
(subject  to any  limitations  as to  depth  or areal  extent  set  forth in the
Property Exhibit with respect to such Lease).

     (b) the ownership of Working  Interest Owner of the Subject  Interests does
and will, with respect to each Lease, unit, formation, or well identified in the
Property  Exhibit,   (i)  entitle  Working  Interest  Owner  and  Royalty  Owner
collectively  to receive and retain a percentage  Net Revenue  Interest share of

                                       5
<PAGE>
the Hydrocarbons produced from (or, to the extent pooled or unitized,  allocated
to) such Lease,  unit,  formation or well equal to (or  exceeding) the Warranted
Net Revenue Interest  Percentage set forth in the Property  Exhibit,  determined
after taking all Non-Consent  Provisions,  if any, into account,  and (ii) cause
Working  Interest Owner to be obligated to bear a percentage  share of the costs
associated with operations on such Lease,  unit,  formation,  or well that is no
more than the Warranted  Working  Interest  Percentage set forth in the Property
Exhibit, which share of costs is not subject to increase (except as specifically
described in such Exhibit) without either a corresponding  proportional increase
in the  associated  Net  Revenue  Interest  or the  right to  receive  immediate
reimbursement  for such increased  costs from another owner of interests in such
Lease, unit, formation or well.

     (c) such shares of production,  as reflected on the Property Exhibit, which
Working Interest Owner and Royalty Owner are entitled to receive and retain, and
such shares of expenses,  as reflected on the Property  Exhibit,  which  Working
Interest  Owner is  obligated  to bear,  are not subject to change upon  Working
Interest  Owner's  or any other  Person's  achievement  of payout or some  other
measure  of  recovery  of costs  incurred  with  respect  to any of the  Subject
Interests  prior to the  Effective  Time,  except as expressly  described in the
Property Exhibit.

     (d) Working  Interest Owner's title to the Subject  Interests,  the Subject
Hydrocarbons and the facilities,  equipment,  and all related contractual rights
needed for the  operation of the Subject  Interests  and the  production  of the
Subject Hydrocarbons is free and clear of (i) any encumbrances, liens, mortgages
or  pledges,  other  than  Permitted  Encumbrances  and any liens  and  security
interests being released  concurrently with the grant of the Production Payment,
(ii) any preferential purchase rights (other than those that have been waived or
the time  period  for  exercise  of  which  has  expired  without  exercise)  or
requirements  for  consents  to  assignment  (other  than  those  that have been
obtained or waived) that would be  applicable to or  exercisable  as a result of
this Conveyance, and (iii) any other defects that would materially and adversely
affect or interfere  with the  operation,  use,  possession,  ownership or value
thereof as currently  owned,  operated,  conducted and used by Working  Interest
Owner or, if not Working  Interest Owner, the current operator of the applicable
Lease.

     This Conveyance is made with full  substitution  and subrogation of Royalty
Owner  in  and  to all  covenants,  representations  and  warranties  by  others
heretofore given or made with respect to the Subject Interests.

     Section 1.10 No Proportionate  Reduction.  It is understood and agreed that
the Production Payment  Hydrocarbons and the Production Payment Percentages will
be  determined  based  on  100%  of the  full  Warranted  Net  Revenue  Interest
Percentages  of the  Hydrocarbons  produced  from (or,  to the extent  pooled or
unitized, allocated to) the Subject Lands and will not be reduced for any reason
except to the extent expressly provided in Section 1.11. Among other things, the
Production Payment  Hydrocarbons and the Production Payment Percentages will not
be reduced due to (a) the undivided  interest owned by Working Interest Owner in
a Lease being less than the entire  interest in such Lease,  or (b) the interest
in  Hydrocarbons  or other minerals  underlying any portion of the Subject Lands
which is covered by a particular  Lease (or group of Leases) being less than the
entire interest in the Hydrocarbons  and other minerals  underlying such portion
of the Subject Lands.

                                       6
<PAGE>
     Section 1.11 Government  Regulation.  The  obligations of Working  Interest
Owner hereunder will be subject to all applicable  Laws.  Working Interest Owner
will timely make all filings with all applicable agencies, boards, officials and
commissions  having  jurisdiction  with  respect to the Subject  Interests,  the
operation  thereof or the  Production  Payment  prior to or at the time any such
filing  becomes  due.  Should  any Laws,  any Leases or any  presently  existing
provisions in presently existing private contracts (including those limiting the
size of overriding  royalties and similar  interests but excluding any contracts
directly  entered into by Royalty Owner) be applicable to the Subject  Interests
so as to limit  the  portion  of the  Hydrocarbons  produced  from a  particular
Subject  Interest  which may be  attributable  to the  Production  Payment,  the
Production  Payment will, as to such Subject Interest and for the period of time
during which such Law, Lease or contractual provision is applicable,  be limited
to the maximum  amount of  production  from such Subject  Interest  which can be
attributed  to the  Production  Payment  under  such Law,  Lease or  contractual
provision;  provided, however, should such limitation be in effect as to any one
or more Subject Interests, then (without prejudice to other rights Royalty Owner
may have) the portion of production  from (or, to the extent pooled or unitized,
allocated to) the other Subject  Interests  which would be  attributable  to the
Production  Payment in the absence of the provisions of this  subsection will be
increased to the maximum extent  permitted (up to 90%) to cause Royalty Owner to
receive,  by virtue of ownership of the Production  Payment,  the same aggregate
amount of Oil that  Royalty  Owner would have  received  had such Law,  Lease or
contractual  provision  not reduced the share of  production  from such  Subject
Interest with respect to which the Production Payment could be paid.

     Section 1.12 Partial Release and  Replacement.  Working  Interest Owner and
Royalty  Owner  agree that in the event that the  Subject  Interests  located in
Taylor County,  Texas, are to be sold by Working  Interest Owner,  Royalty Owner
will agree to reconvey to Working  Interest Owner its remaining term  overriding
royalty  interest  in such  Subject  Interests  in  exchange  for either (at the
election  of Royalty  Owner)  (a) the  conveyance  to  Royalty  Owner by Working
Interest Owner, upon substantially the same terms as this Conveyance,  of a term
overriding  royalty interest in additional Leases that will serve to replace the
Production  Payment  Hydrocarbons  attributable  to the Subject  Interests being
sold, such additional  Leases,  term overriding royalty interest and all related
documents to be  satisfactory in form and substance to Royalty Owner in its sole
discretion or (b) a reconveyance  payment to Royalty  Owner,  in an amount to be
determined  by Royalty  Owner,  and  corresponding  reductions  in the Aggregate
Quantity and Scheduled  Quantities as evidenced by a duly executed  amendment to
this Conveyance,  such reconveyance  payment, such reductions and such amendment
to be satisfactory in form and substance to Royalty Owner.

                                   ARTICLE II
                                  DEFINITIONS

     Section 2.1  Definitions.  As used herein and in the exhibits  hereto,  the
following terms have the respective meanings ascribed to them below:

     "Adjustment  Quantity"  means,  during  each  Month,  the  quantity  of Oil
determined by dividing the Monthly  Adjustment  Amount as of the commencement of
such Month by the Field Price of Oil for such Month.

                                       7
<PAGE>
     "Affiliate" means, with respect to any Person, any other Person that either
directly or  indirectly  controls or manages,  is controlled or managed by or is
under common  control or  management  with such first  Person.  For the purposes
hereof,  "control"  means the right or power to direct the  policies  of another
through management  authority,  equity ownership,  delegated  authority,  voting
rights or otherwise.

     "Aggregate Quantity" means 90,000 Barrels of Oil.

     "Bankruptcy Code" means Title 11 of the United States Code,ss.101, ET SEQ.,
as amended.

     "Barrel" means 42 United States standard gallons at 60 degrees Fahrenheit.

     "Business  Day" means any day other than a Saturday,  a Sunday or a holiday
on which national banking associations in the State of Texas are closed.

     "Calculation  Date" has the meaning specified in the definition of "Monthly
Adjustment Amount".

     "Central Time" means Central Standard Time or Central Daylight Savings Time
in effect in Dallas, Texas on the date in question.

     "Credit Agreement" means the Credit Agreement, dated as of the date hereof,
among Working  Interest Owner,  the Parent,  the lenders from time to time party
thereto,  and Petro Capital Energy Credit, LLC, as administrative agent for such
lenders,  as amended restated,  supplemented or otherwise  modified from time to
time.

     "Day" means a period of 24 consecutive hours beginning at 9:00 a.m. Central
Time, on each calendar day, and "Daily" has the correlative meaning.

     "Delivery  Point"  means the meter at each  point of  delivery  of  Subject
Hydrocarbons  into a  pipeline  or  gathering  system  or  other  transportation
facilities  (including  vehicles) of a Delivery  Point  Recipient,  or any other
point or points  mutually  agreed to in writing by  Working  Interest  Owner and
Royalty Owner.

     "Delivery  Point Charges" means all costs and charges  associated  with the
delivery  of the  Production  Payment  Hydrocarbons  into  the  facilities  of a
Delivery Point  Recipient in a condition and at pressures  sufficient to satisfy
all requirements in the applicable  contract with such Delivery Point Recipient,
including  all  gathering,  transportation,  marketing,  treating,  compression,
dehydration, fuel and handling costs and charges.

     "Delivery Point  Recipient"  means, at any time with respect to any Subject
Interest, the owner of the gathering system or transporting vehicles immediately
downstream of each applicable Delivery Point.

     "Effective Time" means 9:00 a.m., Central Time, on August 1, 2014.

     "Field  Price"  means  with  respect to Oil the price per Barrel of Oil for
each Month that is determined in accordance with Schedule 2.

                                       8
<PAGE>
     "Gas"  means  natural  gas  and  other  gaseous   hydrocarbons,   including
casinghead  gas  and  the  liquid  products  of gas  processing,  but  excluding
condensate  and other liquid  hydrocarbons  removed by  conventional  mechanical
field separation at or near the wellhead.

     "Hydrocarbons" means Oil and Gas.

     "Index  Rate"  means  the rate of  seventeen  percent  (17.0%)  per  annum,
calculated on the basis of actual days elapsed and a year of 360 days.

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

     "Law"  means  any  statute,  law,  regulation,   ordinance,  rule,  treaty,
judgment, order, decree, permit,  concession,  franchise,  license, agreement or
other  governmental  restriction  of the United States or any state or political
subdivision thereof, of any Indian nation or tribal authority, or of any foreign
country or any department,  province or other political subdivision thereof. Any
reference to a Law includes any amendment or  modification  to such Law, and all
regulations, rulings, and other Laws promulgated under such Law.

     "Lease" means (subject to the depth limitations described in Exhibit A) any
oil,  gas and/or  mineral  lease  described,  referred to or  identified  in the
Property Exhibit and any other deed,  assignment,  order, contract or instrument
creating or evidencing  ownership of a Subject Interest,  in each case as to all
lands and depths described in such lease, deed,  assignment,  order, contract or
instrument  (or the  applicable  part or  portion  of such  lands and  depths if
specifically limited in depth or areal extent in the Property Exhibit), together
with any renewal,  amendment,  ratification  or  extension of such lease,  deed,
assignment,  order, contract or instrument.  This Conveyance will also apply to,
and the term  "Lease"  will  include,  any new lease to the extent that such new
lease  covers  any  interest  covered  by any  oil,  gas  and/or  mineral  lease
described,  referred to or identified in the Property  Exhibit if such new lease
is acquired by Working  Interest Owner or its  Affiliates  during the term of or
within one (1) year after expiration of the predecessor  lease (provided that no
such new lease will be subject to this  Conveyance if such new lease is executed
and delivered after the Termination Time).

     "Lease Use  Hydrocarbons"  means any Hydrocarbons that are unavoidably lost
in the  production  thereof  or that are used by Working  Interest  Owner or the
operator of the Subject Interests or any unit in which the Subject Interests are
pooled or unitized in compliance herewith for drilling and production operations
conducted prudently and in good faith for the purpose of producing  Hydrocarbons
from the Subject Interests or from such unit, but only for so long as and to the
extent such Hydrocarbons are so used.

     "Month" means the time period beginning at 9:00 a.m.,  Central Time, on the
first day of each calendar  month and ending at 9:00 a.m.,  Central Time, on the
first  day  of the  next  succeeding  calendar  month,  and  "Monthly"  has  the
correlative meaning.

     "Monthly Adjustment Amount" means zero dollars as of the Effective Time. As
of the  commencement  of each  succeeding  Month  after  the  Effective  Time (a
"Calculation  Date"),  such term means an amount of dollars  equal to the sum of
the following:

                                       9
<PAGE>
     (a) the Monthly Adjustment Amount as of the commencement of the immediately
preceding Month, plus

     (b) any Monthly Deficiency for the immediately preceding Month, minus

     (c) any Monthly Credit for the immediately preceding Month, plus

     (d) an amount equal to the notional interest that would accrue at the Index
Rate on a principal  amount equal to the Monthly  Adjustment  Amount (if any) as
determined as of the end of the immediately  preceding Month for the period from
and including the first  Calculation Date to but not including the first Monthly
Settlement Date following such Calculation  Date. For a Calculation Date that is
the first Day in September,  2014, for example,  such notional  principal amount
would be the Monthly  Adjustment  Amount as of the end of the preceding Month of
August 2014  (i.e.,  as of 9:00 a.m.  on  September  1, 2014) and the period for
which such notional  interest  would be calculated  would be the period from and
including the first Business Day of September 2014 to but not including the last
Business Day of September 2014.

     "Monthly  Credit" means for each Month the product  obtained by multiplying
(a) the aggregate  amount,  if any, by which the quantity of Production  Payment
Hydrocarbons  actually  received by, or sold on behalf of,  Royalty Owner during
such Month  exceeds the Scheduled  Quantity for such Month,  times (b) the Field
Price of Oil for such Month.

     "Monthly   Deficiency"  means  for  each  Month  the  product  obtained  by
multiplying  (a) the  aggregate  amount,  if  any,  by  which  the  quantity  of
Production  Payment  Hydrocarbons  actually  received  by, or sold on behalf of,
Royalty  Owner  during such Month is less than the  Scheduled  Quantity for such
Month times (b) the Field Price of Oil for such Month.

     "Monthly  Settlement  Date" means, for each Month, the last Business Day of
the following  Month. The Monthly  Settlement Date for production  during August
2014 will be the last Business Day of September 2014, and so forth.

     "Mortgage" means the Second Lien Deed of Trust,  Assignment of As-Extracted
Collateral,  Security  Agreement,  Fixture  Filing and Financing  Statement from
Working Interest Owner for the benefit of Royalty Owner, dated as of the Closing
Date.

     "Net Revenue  Interest" means a percentage share of the  Hydrocarbons  (and
the proceeds  thereof)  produced and saved from or  attributable to a particular
Lease,  Subject  Interest  or  Subject  Well,  after  deducting  all  royalties,
overriding  royalties,   non-participating  royalties,  net  profits  interests,
production payments,  and other burdens on or payments out of production,  other
than the Production Payment itself.

     "Non-Affiliate"  means any Person other than Working Interest Owner and its
Affiliates.

     "Non-Consent Hydrocarbons" means those Hydrocarbons produced from a Subject
Interest during the applicable period of recoupment or reimbursement pursuant to
a Non-Consent Provision covering that Subject Interest,  which Hydrocarbons have
been relinquished to the consenting party or participating party under the terms
of such  Non-Consent  Provision as the result of an election by Working Interest
Owner  not to  participate  in the  particular  operation,  provided  that  such

                                       10
<PAGE>
election by Working  Interest Owner has been made in good faith and as a prudent
operator  and in  compliance  with the  terms of this  Conveyance  and any other
agreements  made in connection  herewith by Working  Interest  Owner and Royalty
Owner.

     "Non-Consent  Provision"  means a  contractual  provision  contained  in an
applicable  Non-Affiliate   third-party  operating  agreement,  unit  agreement,
contract  for  development  or  other  similar  instrument  that is a  Permitted
Encumbrance,  which provision  covers so-called  non-consent  operations or sole
benefit   operations   and  provides  for   relinquishment   of   production  by
non-consenting  or  non-participating  parties  during a period of recoupment or
reimbursement of costs and expenses of the consenting or participating parties.

     "Oil" means crude oil, condensate and other liquid hydrocarbons,  including
liquid hydrocarbons  removed by conventional  mechanical field separation at the
wellhead but excluding casinghead gas and the products of gas processing.

     "Parent" means Baron Energy, Inc., a Nevada corporation.

     "Parties" means Working Interest Owner and Royalty Owner.

     "Permitted  Encumbrance"  means the  following  with respect to any Subject
Interest:

     (a) lessors' royalties,  overriding royalties,  reversionary  interests and
similar  burdens that (i) are of record on the date  hereof,  (ii) do not at any
time reduce the share of production  from (or, if pooled or unitized,  allocated
to) any Lease,  unit,  formation,  or well set forth on the Property  Exhibit to
which  Working  Interest  Owner is  entitled by virtue of its  ownership  of the
Subject  Interests (as calculated before giving effect to this Conveyance) below
the Warranted Net Revenue Interest  Percentage for such Lease, unit,  formation,
or well, and (iii) do not at any time increase  Working Interest Owner's Working
Interest in any Lease, unit, formation or well set forth on the Property Exhibit
without a  corresponding  increase  in  Working  Interest  Owner's  Net  Revenue
Interest for such Lease, unit, formation or well;

     (b)  operating  agreements  and  unitization,  pooling and  communitization
agreements  described  in  Section  3.1(m)  of the  Disclosure  Schedule  to the
Purchase and Sale Agreement  that (i) are in existence on the date hereof,  (ii)
do not at any time  reduce  the  share of  production  from  (or,  if  pooled or
unitized,  allocated to) any Lease,  unit,  formation,  or well set forth on the
Property  Exhibit to which Working  Interest  Owner is entitled by virtue of its
ownership of the Subject  Interests (as calculated  before giving effect to this
Conveyance) below the Warranted Net Revenue Interest  Percentage for such Lease,
unit, formation, or well, and (iii) do not at any time increase Working Interest
Owner's Working Interest in any Lease, unit, formation, or well set forth on the
Property  Exhibit without a corresponding  increase in Working  Interest Owner's
Net Revenue Interest for such Lease, unit, formation, or well;

     (c) contracts and other matters that (i)  specifically  affect such Subject
Interest,  (ii) do not at any time reduce the share of  production  from (or, if
pooled or unitized,  allocated to) any Lease, unit, formation, or well set forth
on the Property Exhibit to which Working Interest Owner is entitled by virtue of
its ownership of the Subject  Interests (as  calculated  before giving effect to
this Conveyance)  below the Warranted Net Revenue  Interest  Percentage for such
Lease, unit,  formation,  or well, and (iii) do not at any time increase Working

                                       11
<PAGE>
Interest Owner's Working  Interest in any Lease,  unit,  formation,  or well set
forth on the  Property  Exhibit  without a  corresponding  increase  in  Working
Interest Owner's Net Revenue Interest for such Lease, unit, formation, or well;

     (d) Oil sales  contracts on normal market terms that provide for an initial
term of one year or less or are  terminable  without  penalty  upon no more than
thirty (30) days' notice to the  purchaser or are not binding on the  Production
Payment;

     (e) liens for Taxes or governmental assessments that are not yet delinquent
or  are  being  contested  in  good  faith  by  appropriate   proceedings  which
effectively delay any enforcement thereof;

     (f)  materialman's,   mechanic's,  repairman's,  employee's,  contractor's,
operator's and other similar liens or charges  arising by Law or contract in the
ordinary  course of business to the extent  securing  current  accounts  payable
(owing with  respect to goods or services  provided  with respect to the Subject
Interests)  that  are not  more  than 30 days  past  the  invoice  or due  date,
whichever  is  earlier,  unless  being  contested  in good faith by  appropriate
proceedings which effectively delay any enforcement thereof;

     (g) easements,  rights-of-way,  restrictions,  servitudes, permits, surface
leases and other rights in respect of surface  operations  that do not interfere
materially  with  the  operation,  value  or use of  such  Subject  Interest  or
adversely affect the value of the Production Payment;

     (h) liens and security interests in favor of Royalty Owner;

     (i) liens and security  interests  created  pursuant to the requirements of
the Credit Agreement;

     (j) liens under any  mortgage,  pledge or security  agreement  entered into
pursuant  to the  requirements  of any  indenture,  loan  agreement  or  similar
document for borrowed money, provided that liens under any such mortgage, pledge
or security agreement are made and accepted expressly subject and subordinate to
this Conveyance and the Mortgage; and

     (k) All other  charges,  encumbrances,  title  defects  and  irregularities
(other than liens and security interests)  affecting the Subject Interests which
taken  individually  or together:  (i) do not reduce the value of the Production
Payment or  interfere  with the  operation,  value or use of any of the  Subject
Interests;  (ii) do not  prevent  Working  Interest  Owner  from  receiving  the
unencumbered proceeds of production from any of the Subject Interests or Royalty
Interest Owner from receiving Production Payment  Hydrocarbons,  or the proceeds
thereof;  (iii) do not reduce  the share of  production  from (or,  if pooled or
unitized, allocated to) any Lease, unit, formation, or well set forth on Exhibit
A to which Working  Interest Owner is entitled by virtue of its ownership of the
Subject Interest (as calculated  before giving effect to this Conveyance)  below
the Warranted Net Revenue Interest  Percentage for such Lease, unit,  formation,
or well and (iv) do not increase  Working  Interest  Owner's Working Interest in
any Lease or unit set forth on  Exhibit A without a  corresponding  increase  in
Working Interest Owner's Net Revenue Interest for such Lease,  unit,  formation,
or well.

                                       12
<PAGE>
     "Person" means an individual,  corporation,  partnership, limited liability
company,  association,  joint  stock  company,  pension  fund,  trust or trustee
thereof,  estate  or  executor  thereof,  unincorporated  organization  or joint
venture, court or governmental unit or any agency or subdivision thereof, or any
other legally recognizable entity.

     "Production Payment" has the meaning given such term in Section 1.1.

     "Production Payment  Hydrocarbons" means the Subject Hydrocarbons  conveyed
and assigned to Royalty Owner pursuant to Section 1.1.

     "Production  Payment  Percentage"  means,  with  respect  to  each  Subject
Interest  and the Subject  Hydrocarbons  produced  therefrom  (or, to the extent
pooled or unitized,  allocated  thereto),  ninety percent (90%) of the Warranted
Net Revenue  Interest  Percentage  specified  in the  Property  Exhibit for such
Subject Interest.

     "Property Exhibit" means Exhibit A attached hereto.

     "Purchase and Sale  Agreement"  means the Purchase and Sale Agreement dated
as of the Closing Date between Working Interest Owner and Royalty Owner.

     "Retained  Interests"  means the rights and  interests  retained by Working
Interest  Owner in the Subject  Interests  after  conveyance  of the  Production
Payment  hereunder,  including  both the rights  and  interests  in the  Subject
Interests  that are  retained by Working  Interest  Owner during the term of the
Production  Payment  and the  entire  Subject  Interests  at any  time  when the
Production Payment has terminated or is otherwise not in effect.

     "Royalty Owner" refers to Baron  Production LLC, a Texas limited  liability
company, as well as to its successors and assigns hereunder.

     "Scheduled  Quantity"  means  with  respect  to each  Month  the  aggregate
quantity of Hydrocarbons that is set forth for such Month on Schedule 1.

     "Subject  Hydrocarbons" means the Oil in and under and that may be produced
after the Effective  Time from (or, to the extent pooled or unitized,  allocated
to) the Subject Lands that are attributable to the Subject Interests (determined
after deducting all royalties,  overriding  royalties,  production  payments and
similar burdens,  excluding only the Production  Payment,  which both burden the
Subject  Interests  on the date hereof and are  reflected in the  Warranted  Net
Revenue  Interest  Percentages  set out on the  Property  Exhibit).  The Subject
Hydrocarbons  will not be  deemed to  include  any  Lease  Use  Hydrocarbons  or
Non-Consent Hydrocarbons attributable to the Subject Interests, and no Lease Use
Hydrocarbons or Non-Consent  Hydrocarbons  will be included in the determination
of Production Payment Hydrocarbons.

     "Subject Interests" means:

     (a) all of the  interests  set forth in the Property  Exhibit in and to the
Leases,  units and wells described therein and the other property  interests (if
any) described in the Property Exhibit, limited in each instance to each subject
Well described on the Property Exhibit.

                                       13
<PAGE>
     (b) all other right, title, interest or claim (of every kind and character,
whether legal or equitable and whether vested or contingent) of Working Interest
Owner in and to (i) any Lease or any such unit or other property interest,  (ii)
the lands and estates  covered by the Leases or by such units and other property
interests,  and (iii)  all other  lands and  estates  now or  hereafter  pooled,
communitized or unitized therewith, or in and to the oil, gas and other minerals
that may be  produced  therefrom  or  allocated  thereto,  even  though  Working
Interest  Owner's  interest be  incorrectly  or  incompletely  described  in, or
omitted from, the Property Exhibit, and

     (c) all rights,  titles and interests of Working  Interest Owner in and to,
or otherwise derived from, all presently  existing or hereafter created oil, gas
or mineral unitization, pooling, or communitization agreements,  declarations or
orders  and in and to the  properties  covered  and the  units  created  thereby
(including all units formed under orders, rules, regulations,  or other official
acts of any federal,  state, or other authority having  jurisdiction,  voluntary
unitization  agreements,  designations or declarations,  and so-called  "working
interest units" created under operating agreements or otherwise) relating to the
properties  described in paragraphs (a) or (b) above in this definition,  all as
the same may be enlarged from time to time by the discharge of any burdens or by
the  removal  of any  charges  or  encumbrances  to which any of the same may be
subject on the date hereof,  and any and all renewals and  extensions  of any of
the same,  but limited in each  instance to each  Subject  Well on the  Property
Exhibit.

     "Subject Lands" means all lands described, referred to or identified in the
Property Exhibit and all lands subject to each Lease or other property  interest
that is described in the Property Exhibit,  but limited in each instance to each
Subject Well on the Property Exhibit.

     "Subject Wells" means all wells identified in the Property Exhibit.

     "Taxes" means all ad valorem, property, gathering, transportation, pipeline
regulating,  gross receipts,  severance,  production,  excise,  heating content,
carbon, environmental, occupation, sales, use, value added, fuel, franchise, and
other taxes and governmental  charges and assessments  imposed on or as a result
of all or any part of the Subject  Interests,  the  Hydrocarbons  produced  from
Subject  Interests  or  the  proceeds  thereof,   the  Production  Payment,  the
Production Payment Hydrocarbons or the proceeds thereof, regardless of the point
at which or the manner in which or the Person  against whom such taxes,  charges
or assessments are charged,  collected,  levied or otherwise imposed.  Interest,
penalties and withholding  obligations  owing to governmental  authorities  with
respect to any Taxes also constitute  Taxes.  The only taxes which are not Taxes
are federal and state  income and  franchise  taxes  imposed on Royalty  Owner's
income or business  generally  (provided that "windfall profits" taxes and other
taxes  imposed  on Oil  production  or  the  revenues  or  income  therefrom  do
constitute "Taxes").

     "Termination  Time"  means  9:00  a.m.,  Central  Time,  on July 31,  2017,
provided  that if at such time the Royalty  Owner has not received the Aggregate
Quantity,  the Termination  Time will not occur until the time and date that the
Royalty Owner shall have received and realized,  out of the  Production  Payment
Hydrocarbons, the Aggregate Quantity.

     "Warranted Net Revenue Interest  Percentage" means the percentage set forth
on the Property Exhibit  indicating Working Interest Owner's claimed Net Revenue

                                       14
<PAGE>
Interest in a particular Lease, unit, formation, or well, generally by reference
to "Net Revenue Interest," "NRI," "NRI Percentage" or words of similar import.

     "Warranted  Working Interest  Percentage" means the percentage set forth on
the  Property  Exhibit  indicating  Working  Interest  Owner's  claimed  Working
Interest in a particular Lease, unit, formation, or well, generally by reference
to "Working Interest," "WI," "WI Percentage" or words of similar import.

     "Working  Interest"  means  the  interest  owned  in oil  and  gas  leases,
leaseholds,  contracts  or  other  oil and gas  interests  (including  leasehold
interests,  operating  rights  interests or other  cost-bearing  interests,  and
mineral fee or ownership  interests)  that  determines the  percentage  share of
costs borne by the owner of such interest.

     "Working  Interest  Owner" refers to Baron  Production LLC, a Texas limited
liability company, as well as to its successors and assigns hereunder.

     Section  2.2  Rules  of  Construction;   Monthly  and  Daily   Equivalents;
Publications.

     (a) All references in this  Conveyance to articles,  sections,  subsections
and other subdivisions refer to corresponding  articles,  sections,  subsections
and other subdivisions of this Conveyance unless expressly  provided  otherwise.
Titles  appearing  at  the  beginning  of  any  of  such  subdivisions  are  for
convenience  only, do not constitute  part of such  subdivisions,  and are to be
disregarded in construing the language contained in such subdivisions. The words
"this Conveyance", this instrument",  "herein", "hereof",  "hereunder" and words
of similar import refer to this  Conveyance as a whole and not to any particular
subdivision unless expressly so limited.  Unless the context otherwise requires,
"including" and its grammatical  variations mean "including without limitation";
"or" is not  exclusive;  words in the singular  form include the plural and vice
versa;  words in any gender include all other genders;  references herein to any
instrument or agreement  refer to such instrument or agreement as it may be from
time to time amended,  restated,  or supplemented;  and references herein to any
Person  include such Person's  successors  and assigns.  All  references in this
Conveyance  to exhibits and  schedules  refer to exhibits and  schedules to this
Conveyance unless expressly provided otherwise, and the Property Exhibit and all
other exhibits and schedules to this Conveyance are hereby  incorporated  herein
by reference and made a part hereof for all purposes.  This  Conveyance has been
drafted with the joint participation of Working Interest Owner and Royalty Owner
and is to be construed  neither  against nor in favor of either Party but rather
in accordance with the fair meaning hereof.

     (b) To the  extent  that  this  Conveyance  refers to  information  or data
measured or based upon Daily  production or deliveries of Hydrocarbons  and such
information  or data is  instead  provided  or  available  only with  respect to
Monthly production or deliveries of Hydrocarbons, such Monthly Hydrocarbons will
be deemed  produced or  delivered  in equal  quantities  on each Day during such
Month. To the extent that this Conveyance  refers to Daily price information for
production or deliveries of Hydrocarbons and such information or data is instead
provided  or  available  only  on a  Monthly  basis,  then  such  Monthly  price
information will be deemed to apply on each Day during such Month.

                                       15
<PAGE>
     (c)  To  the  extent  that  this  Conveyance  incorporates  prices,  rates,
adjustments to prices or rates or other  information  from a specific  source or
publication and that source or publication for any reason  temporarily  fails or
permanently   ceases  to  publish  such  information,   or  ceases   publication
altogether,  or changes the heading or format  under which such  information  is
published,  or changes the source of information  which it publishes  under such
heading  or  format,  and in any such case this  Conveyance  does not  otherwise
specify  how to deal  with  such  event,  then  for so  long  as such  situation
continues Royalty Owner will designate,  in good faith, a reasonable alternative
source for the same or equivalent  information  and the Parties will  thereafter
use such designated alternative source.

                                  ARTICLE III
                                 MISCELLANEOUS

     Section 3.1 Nature of Production Payment;  Intentions of the Parties.  This
Conveyance  is an  absolute  conveyance  of an interest  in real  property.  The
Production  Payment  constitutes  a  "production  payment" as defined in Section
101(42A) of the Bankruptcy  Code and referred to in Section  541(b)(4)(B)(i)  of
the Bankruptcy  Code.  The Parties  intend for the Production  Payment to at all
times be treated for  federal  income tax  purposes  (and for the purpose of any
similarly calculated state income or franchise taxes, but for no other purposes)
as a  mortgage  loan  (and not a  "royalty"  or  other  "economic  interest"  in
Hydrocarbons)   within  the  meaning  of  the  Internal  Revenue  Code  and  the
regulations and judicial  authority  relating thereto,  and the Parties agree to
report the Production Payment accordingly on all applicable tax returns. Nothing
in this Conveyance may be construed to constitute  either Party (under state Law
or for tax  purposes) in  partnership  with the other Party or to  constitute an
assignment by Working  Interest Owner to Royalty Owner of an interest in any tax
partnership  burdening the Subject  Interests.  The Production  Payment does not
include  any  ownership  interest  in and to  any of the  fixtures,  structures,
equipment or other  tangible  personal  property now or hereafter  placed on, or
used  in  connection  with,  the  Subject  Interests  or any  right  to  conduct
operations with any of the foregoing.

     Section  3.2  Governing  Law.  THIS  CONVEYANCE  SHALL BE  GOVERNED  BY AND
CONSTRUED IN ACCORDANCEWITH THE LAWS OF THE STATE OF TEXAS.

     Section  3.3  Successors  and  Assigns.   The  covenants,   provisions  and
conditions  contained  in this  Conveyance  are  agreed and  acknowledged  to be
covenants running with the land and the respective interests of Working Interest
Owner  and  Royalty  Owner  and  will  be  binding  upon  and  (subject  to  the
restrictions in Section 1.8) inure to the benefit of Working  Interest Owner and
Royalty Owner and their  respective  successors and permitted  assigns.  Royalty
Owner  and its  successors  and  assigns  may,  and  nothing  contained  in this
instrument  will in any way limit or  restrict  the right of Royalty  Owner,  or
Royalty Owner's  successors and assigns to, sell,  convey,  assign,  mortgage or
otherwise  transfer the Production  Payment or its rights and obligations  under
this  Conveyance in whole or in part. If at any time Royalty  Owner,  or Royalty
Owner's  successors  and  assigns,  execute a mortgage,  pledge or deed of trust
covering  all  or any  part  of the  Production  Payment  as  security  for  any
obligation,  the  mortgagee,  the  pledgee or the trustee  therein  named or the
holder of the obligation  secured  thereby will be entitled,  to the extent such
mortgage,  pledge or deed of trust so  provides,  to exercise all of the rights,
remedies,  powers and privileges herein conferred upon Royalty Owner and to give

                                       16
<PAGE>
or withhold  all  consents  herein  required or  permitted  to be obtained  from
Royalty Owner. All references herein to either Working Interest Owner or Royalty
Owner include their respective successors and permitted assigns.

     Section 3.4 Counterpart Execution.  This Conveyance is executed in multiple
originals  all of  which  constitute  one and  the  same  Conveyance;  provided,
however,  in order to  facilitate  recording  of this  Conveyance  in the public
records of each of the  jurisdictions in which the Subject Interests are located
(or in each of the  jurisdictions  adjacent to any offshore Subject  Interests),
the exhibits  attached to a counterpart  recorded in a single  jurisdiction  may
contain only those pages (or portions  thereof) which apply to Subject Interests
that  are  located  in  (or  are  adjacent  to)  such   jurisdiction.   Complete
counterparts of this Conveyance have been retained by each of the Parties, and a
complete counterpart of this Conveyance is recorded in Harrison County, Texas.

     Section 3.5 Further  Assurances.  Working Interest Owner will take all such
further  actions and will  execute,  acknowledge  and  deliver all such  further
documents that may  reasonably be requested by Royalty Owner to effectuate  this
Conveyance or to carry out the purposes of this Conveyance.

     Section 3.6 No Subordination to Permitted Encumbrance.  Certain agreements,
contracts and other documents are listed in the Property Exhibit and included in
the definition of Permitted  Encumbrances.  References herein or in the Property
Exhibit to Permitted  Encumbrances  are made solely for the purpose of modifying
Working  Interest  Owner's  warranties  and  representations  as to the  Subject
Interests,  and without  regard to whether or not any Permitted  Encumbrance  is
valid,  subsisting,  legal  or  enforceable  or  affects  or is  senior  to  the
Production  Payment.  Such  references are not intended to constitute and do not
constitute any express or implied  recognition or acknowledgment by any Party as
to the  validity,  legality,  enforceability  or  priority of the same or of any
term,  provision or condition  thereof or the applicability or seniority thereof
to the  Production  Payment  and do not  revive or ratify the same or create any
rights in any third Person.  No provision in this Conveyance may be construed as
an agreement or expression of intent by Royalty Owner to acquire the  Production
Payment subject to any unrecorded Permitted Encumbrance.

     Section  3.7  Partial  Invalidity.  Except as  otherwise  expressly  stated
herein,  in the event any term or provision  contained in this Conveyance is for
any reason held invalid,  illegal or  unenforceable  to any extent by a court or
regulatory  agency  of  competent  jurisdiction,  such  term or  provision  will
otherwise remain  effective and be enforced,  and all other terms and provisions
hereof will nevertheless  remain effective and will be enforced,  to the fullest
extent permitted by applicable Law.

     Section 3.8 Waiver of Jury Trial and  Special  Damages.  EACH PARTY  HEREBY
RATIFIES  AND  CONFIRMS  ITS WAIVERS OF JURY TRIAL AND SPECIAL  DAMAGES  MADE IN
SECTION 7.9 OF THE PURCHASE AND SALE AGREEMENT.

     Section 3.9 Consent to Jurisdiction. EACH PARTY HEREBYRATIFIES AND CONFIRMS
ITS CONSENT TO AND AGREEMENTS CONCERNING  JURISDICTION,  FORUM AND VENUE MADE IN
SECTION 7.10 OF THE PURCHASE AND SALE AGREEMENT.

                                       17
<PAGE>
     Section 3.10  Partition.  Each Party  acknowledges  and agrees that neither
Party has any right or interest that would permit it to partition any portion of
the Subject  Interests as against the other Party and each Party  hereby  waives
any such right.

     Section 3.11 Addresses. The addresses of Royalty Owner and Working Interest
Owner are as follows:

PCEC Sub 1, LLC
3710 Rawlins Street, Suite 1000
Dallas, TX 75219
Attention: Rosser C. Newton
Fax No.: 214-661-7760
Phone No.: (214) 661-7761

Baron Production LLC
300 S. CM Allen Pkwy, Suite 400
San Marcos, Texas 78666
Attention: Lisa P. Hamilton
Fax No.: (512) 392-7238
Phone No.: (512) 392-5775

     All  notices,  requests,  demands,  instructions  and other  communications
required or permitted to be given hereunder must be in writing and must be given
as provided in the Purchase and Sale Agreement.

     Section 3.12 Amendments and Waivers.  This Conveyance may not be amended or
modified,  and no rights  hereunder may be waived,  except by a written document
signed by the Party to be charged with such  amendment,  modification or waiver.
Provisions of this Conveyance that refer to any consent, approval,  amendment or
waiver by either Party require such consent, approval, amendment or waiver to be
in writing.

     IN WITNESS  WHEREOF,  Working  Interest  Owner and Royalty  Owner have each
executed  this   Conveyance   on  the  dates  set  forth  in  their   respective
acknowledgments  below and Working  Interest Owner has delivered this Conveyance
to Royalty Owner as the transfer and  conveyance to Royalty Owner of a presently
vested property interest,  to be effective with respect to production of Subject
Hydrocarbons as of the Effective Time.

                         [SIGNATURES ON NEXT PAGE]

                                       18
<PAGE>
     EXECUTED this 28th day of July, 2014, to be effective as of the 28th day of
July, 2014.

BARON PRODUCTION LLC

By:
     --------------------------------------------
Name:
     --------------------------------------------
Title:
     --------------------------------------------

STATE OF TEXAS            ss.
                          ss.
COUNTY OF _______         ss.

     This  instrument  was   acknowledged   before  me  on  July  ___,  2014  by
__________________________, the _______________________ of Baron Production LLC,
a Texas limited liability company, on behalf of said company.

                            -----------------------------------
                            Notary Public
                            Printed Name:
                                         ----------------------

Seal:

                                       19
<PAGE>
PCEC SUB 1, LLC

By:
     --------------------------------------------
     Rosser C. Newton
     Vice President

STATE OF TEXAS            ss.
                          ss.
COUNTY OF DALLAS          ss.

     This instrument was acknowledged  before me on July ____, 2014 by Rosser C.
Newton, the Vice President of PCEC Sub 1 LLC, a Texas limited liability company,
on behalf of said company.

                            -----------------------------------
                            Notary Public
                            Printed Name:
                                         ----------------------

Seal:

                                       20
<PAGE>
                                    EXHIBIT A

                                PROPERTY EXHIBIT

EAST PEARSALL (STEWART) PROSPECT

TRACT 1 - 1985 ACRES

Lease 1: Oil and Gas Lease dated August 13, 2009,  from Federal  Royalty LLC, as
General Partner for Federal Royalty  Partners,  Ltd., as Lessor,  to Sien Energy
Company,  as Lessee,  recorded by  Memorandum of Oil and Gas Lease in Volume 66,
page 502,  Official Public  Records,  Frio County,  Texas, as amended,  covering
1,985  acres of land,  more or less,  out of the  A.B.&M.  Survey 5,  A-29,  the
A.B.&M.  Survey 7, A-30, the A.B.&M.  Survey 9, A-31, the R.H. Adcock Survey 10,
A-1341 and the B.S.&F. Survey 1, A-111, Frio County, Texas.

Lease 2: Oil and Gas Lease dated March 26, 2009,  from Cimarron Texas  Minerals,
Ltd., as Lessor,  to Sien Energy Company,  as Lessee,  recorded by Memorandum of
Oil and Gas Lease dated March 31, 2009 in Volume 67, page 831,  Official  Public
Records, Frio County,  Texas, as amended,  covering 1,985 acres of land, more or
less, being the same land described above in Lease 1.

Lease 3: Paid Up Oil and Gas Lease dated March 6, 2009,  from Joseph M.  Dawson,
Jr., as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page
504,  Official Public Records,  Frio County,  Texas, as amended,  covering 1,985
acres of land, more or less, being the same land described in Lease 1.

Lease 4: Paid Up Oil and Gas Lease dated March 6, 2009, from Dorothy D. Burlage,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page 508,
Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

Lease 5: Paid Up Oil and Gas Lease dated January 16, 2009, from Hager Oil & Gas,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page 512,
Official Public Records,  Frio County, Texas, covering 1,985 acres of land, more
or less, being the same land described in Lease 1.

Lease 6: Paid Up Oil and Gas Lease dated  September 28, 2009,  from Bill Bishop,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page 528,
Official Public Records,  Frio County, Texas, covering 1,985 acres of land, more
or less, being the same land described in Lease 1.

Lease 7: Paid Up Oil and Gas Lease dated September 28, 2009, from Robert L. Dow,
Jr., as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page
524, Official Public Records,  Frio County, Texas, covering 1,985 acres of land,
more or less, being the same land described in Lease 1.

                                       21
<PAGE>
Lease 8: Paid Up Oil and Gas Lease  dated  September  28,  2009,  from Wesley K.
Winn, as Lessor, to Sien Energy Company, as Lessee,  recorded in Volume 66, page
517, Official Public Records,  Frio County, Texas, covering 1,985 acres of land,
more or less, being the same land described in Lease 1.

Lease 9: Paid Up Oil and Gas Lease  dated  September  28,  2009,  from  Tolar N.
Hamblen,  III, as Lessor, to Sien Energy Company, as Lessee,  recorded in Volume
67, page 828, Official Public Records,  Frio County, Texas, covering 1,985 acres
of land, more or less, being the same land described in Lease 1.

Lease 10:  Paid Up Oil and Gas Lease  dated  September  28,  2009,  from  Ginger
Busboom,  as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66,
page 521, Official Public Records,  Frio County,  Texas, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

Lease 11: Paid Up Oil and Gas Lease dated August 24, 2009,  from Mark E. McCourt
and wife, Susan McCourt, as Lessor, to Sien Energy Company, as Lessee,  recorded
in Volume 66, page 536, Official Public Records,  Frio County,  Texas,  covering
1,985 acres of land, more or less, being the same land described in Lease 1.

Lease 12: Paid Up Oil and Gas Lease dated August 24, 2009, from A.L. Furnace and
wife, Pauline Furnace, as Lessor, to Sien Energy Company, as Lessee, recorded in
Volume 66, page 532, Official Public Records, Frio County, Texas, covering 1,985
acres of land, more or less, being the same land described in Lease 1.

Lease 13:  Paid Up Oil and Gas Lease  dated  August  10,  2009,  from  Dickerson
Resources,  Arthur J. Milbarger and Joseph E. Stewart, as Lessor, to Sien Energy
Company,  as Lessee,  recorded in Volume 66, page 540,  Official Public Records,
Frio County,  Texas,  covering 1,985 acres of land, more or less, being the same
land described in Lease 1.

Lease 14: Paid Up Oil and Gas Lease dated March 20, 2009,  from Douglas C. Koch,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page 544,
Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

Lease 15: Paid Up Oil and Gas Lease dated March 20, 2009, from Wayne A. Bissett,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page 550,
Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

Lease 16: Paid Up Oil and Gas Lease dated  December  3, 2007,  from  Clarence J.
Fraser,  as Lessor,  to Sien Energy Company,  as Lessee,  recorded in Volume 66,
page 556, Official Public Records,  Frio County,  Texas, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

Lease 17:  Paid Up Oil and Gas Lease  dated  August 12,  2009,  from  Dorothy L.
Hardin,  as Lessor,  to Sien Energy Company,  as Lessee,  recorded in Volume 66,
page 559, Official Public Records,  Frio County,  Texas, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

                                       22
<PAGE>
Lease 18: Paid Up Oil and Gas Lease dated August 12, 2009, from Anne L. Madigan,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 66, page 563,
Official Public Records,  Frio County, Texas, covering 1,985 acres of land, more
or less, being the same land described in Lease 1.

Lease 19:  Paid Up Oil and Gas Lease  dated  September  2,  2009,  from  Jessica
Stansell,  as Lessor, to Sien Energy Company, as Lessee,  recorded in Volume 66,
page 567, Official Public Records,  Frio County,  Texas, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

Lease 20: Paid Up Oil and Gas Lease dated March 24, 2009,  from  Thornton  Davis
Minerals, L.P., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume
66, page 570, Official Public Records,  Frio County, Texas, covering 1,985 acres
of land, more or less, being the same land described in Lease 1.

Lease 21:  Paid-Up  Oil and Gas Lease  dated  September  1, 2009,  from  Stewart
Information Services Corporation,  as Lessor, to Sien Energy Company, as Lessee,
recorded by  Memorandum  of Oil and Gas Lease in Volume 66,  page 574,  Official
Public Records,  Frio County,  Texas, as amended,  covering 1,985 acres of land,
more or less, being the same land described in Lease 1.

Lease 22: Paid-Up Oil and Gas Lease dated September 2, 2009, from Nathan Weaver,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 70, page 249,
Official Public Records,  Frio County, Texas, covering 1,985 acres of land, more
or less, being the same land described in Lease 1.

Lease 23: Paid-Up Oil and Gas Lease dated  September 2, 2009, from Jesse Walker,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 73, page 621,
Official Public Records,  Frio County, Texas, covering 1,985 acres of land, more
or less, being the same land described in Lease 1.

Lease 24: Paid-Up Oil and Gas Lease dated March 23, 2011, from Wanda Weaver,  as
Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 91, page 773,
Official Public Records,  Frio County, Texas, covering 1,985 acres of land, more
or less, being the same land described in Lease 1.

Lease 25: Paid Up Oil and Gas Lease dated June 23, 2011,  from Charles  McClain,
as Receiver for Mineral Interests in Cause No.  11-03-00095CVF,  for Nancy Brown
et al., as Lessor, to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 92,
page 996, Official Public Records,  Frio County,  Texas, covering 1,985 acres of
land, more or less, being the same land described in Lease 1.

                                       23
<PAGE>
TRACT 2 - 640 ACRES

Lease 1: Paid Up Oil and Gas Lease dated  November 6, 2009,  from Roxana Kelfer,
Individually  and as Trustee of the Louis A. Michael Trust,  as Lessor,  to Sien
Energy  Company,  as Lessee,  recorded in Volume 68, page 237,  Official  Public
Records,  Frio County,  Texas,  covering 640 acres of land, more or less, out of
the E.A. Mudd Survey 8, A-1333, Frio County, Texas.

Lease 2: Paid Up Oil and Gas Lease dated  November 6, 2009,  from Lynn Kendrick,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 68, page 242,
Official Public Records, Frio County, Texas, covering 640 acres of land, more or
less, out of the E.A. Mudd Survey 8, A-1333, Frio County,  Texas, being the same
land described in Lease 1.

Lease 3: Paid Up Oil and Gas Lease  dated  November  6, 2009,  from  Caroline J.
Wanke, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page
247, Official Public Records,  Frio County,  Texas,  covering 640 acres of land,
more or less, out of the E.A. Mudd Survey 8, A-1333,  Frio County,  Texas, being
the same land described in Lease 1.

Lease 4: Paid Up Oil and Gas Lease dated November 6, 2009,  from Diana Morawski,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 68, page 251,
Official Public Records, Frio County, Texas, covering 640 acres of land, more or
less, out of the E.A. Mudd Survey 8, A-1333, Frio County,  Texas, being the same
land described in Lease 1.

Lease 5: Paid Up Oil and Gas Lease dated  November 6, 2009,  from Claudia Davis,
as Lessor, to Sien Energy Company,  as Lessee,  recorded in Volume 68, page 255,
Official Public Records, Frio County, Texas, covering 640 acres of land, more or
less, out of the E.A. Mudd Survey 8, A-1333, Frio County,  Texas, being the same
land described in Lease 1.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES  DESCRIBED ABOVE COVER THE FOLLOWING
WELLS:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Ricochet - Stewart No. 1 Well                   89.100000%            66.825000%
(API #42-163-33411 / RRC ID #15635)
Ricochet - Stewart No. 2 Well                   89.100000%            66.825000%
(API #42-163-33455 / RRC ID #15635)
Ricochet - Stewart-Michael Unit No. 1 Well      89.100000%            66.907685%
(API #42-163-33535 / RRC ID #16563)
Ricochet - Stewart-Michael No. 2H Unit Well     89.100000%            66.825000%
(API #42-163-33550 / RRC ID #16379)
Ricochet - Stewart No. 4RE Well                 95.466809%            71.600107%
(API #42-163-33585 / RRC ID #17349)

                                       24
<PAGE>
BREAZEALE PROSPECT (NEAL TRUST UNIT)

Lease 1: Paid Up Oil and Gas Lease  dated July 25,  2011,  from Iven A. Neal and
Ruby  Neal,  as  Trustees  of the Iven A. Neal and Ruby Neal  Living  Trust,  as
Lessor, to Ricochet Energy,  Inc., as Lessee,  recorded by Memorandum of Paid Up
Oil and Gas Lease in Volume 95, page 113, Official Public Records,  Frio County,
Texas,  insofar as and only insofar as said lease  covers  148.37 acres of land,
more or less, out of the B.S.&F.  Survey No. 3, A-112, Frio County, Texas, being
the lands  pooled  in the  Ricochet  Energy,  Inc.  - Neal  Trust No. 1H Unit as
described in a Declaration  of Unit dated  October 10, 2012,  recorded in Volume
122, page 855, Official Records, Frio County, Texas.

Lease 2: Paid Up Oil and Gas Lease dated July 25,  2011,  from James P. Neal and
Coleen F.  Neal,  as  Trustees  of the James P. Neal and  Coleen F. Neal  Living
Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of
Paid Up Oil and Gas Lease in Volume 95, page 110, Official Public Records,  Frio
County,  Texas, insofar as and only insofar as said lease covers 148.37 acres of
land, more or less, out of the B.S.&F.  Survey No. 3, A-112, Frio County, Texas,
being the lands pooled in the Ricochet Energy,  Inc. - Neal Trust No. 1H Unit as
described in a Declaration  of Unit dated  October 10, 2012,  recorded in Volume
122, page 855,  Official  Records,  Frio County,  Texas, and being the same land
described in Lease 1.

Lease 3: Oil and Gas Lease dated July 18, 2011, from Providence  Minerals,  LLC,
as Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded by Memorandum of Oil
and Gas Lease in Volume 95, page 116,  Official  Public  Records,  Frio  County,
Texas,  insofar as and only  insofar as said lease  covers  127.9 acres of land,
more or less, out of the B.S.&F.  Survey No. 3, A-112, Frio County, Texas, being
the lands  pooled  in the  Ricochet  Energy,  Inc.  - Neal  Trust No. 1H Unit as
described in a Declaration  of Unit dated  October 10, 2012,  recorded in Volume
122, page 855, Official Records,  Frio County, Texas, and being part of the same
land described in Lease 1.

Lease 4: Oil and Gas Lease dated August 16, 2011, from Texas Osage Royalty Pool,
Inc., as Lessor, to Ricochet Energy, Inc., as Lessee,  recorded by Memorandum of
Oil and Gas Lease in Volume 95, page 819, Official Public Records,  Frio County,
Texas,  insofar as and only  insofar as said lease  covers  127.9 acres of land,
more or less, out of the B.S.&F.  Survey No. 3, A-112, Frio County, Texas, being
the lands  pooled  in the  Ricochet  Energy,  Inc.  - Neal  Trust No. 1H Unit as
described in a Declaration  of Unit dated  October 10, 2012,  recorded in Volume
122, page 855, Official Records,  Frio County, Texas, and being part of the same
land described in Lease 1.

Lease 5: Paid Up Oil and Gas Lease  dated  September  30,  2011,  from Vicki Lee
Gates and Sherri Lynn Tope,  as Lessor,  to Ricochet  Energy,  Inc.,  as Lessee,
recorded  by  Memorandum  of Paid Up Oil and Gas  Lease in Volume  99,  page 37,
Official Public Records, Frio County, Texas, insofar as and only insofar as said
lease covers 65.59 acres of land, more or less, out of the B.S.&F. Survey No. 3,
A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. -
Neal Trust No. 1H Unit as described in a  Declaration  of Unit dated October 10,
2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas.

Lease 6: Paid Up Oil and Gas Lease dated  October 14, 2011,  from The Collis and
Lucille  Woodward  Family Trust dated August 29,  1990,  as Lessor,  to Ricochet
Energy, Inc., as Lessee,  recorded by Memorandum of Paid Up Oil and Gas Lease in

                                       25
<PAGE>
Volume 100, page 20, Official Public Records, Frio County, Texas, insofar as and
only insofar as said lease covers 88.02 acres of land,  more or less, out of the
Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands
pooled in the Ricochet  Energy,  Inc. - Neal Trust No. 1H Unit as described in a
Declaration  of Unit dated  October 10, 2012,  recorded in Volume 122, page 855,
Official Records, Frio County, Texas.

Lease 7: Paid Up Oil and Gas Lease dated October 14, 2011, from The Clyde E. and
Valerie V. Woodward Family Trust dated November 12, 1996, as Lessor, to Ricochet
Energy, Inc., as Lessee,  recorded by Memorandum of Paid Up Oil and Gas Lease in
Volume 100, page 18, Official Public Records, Frio County, Texas, insofar as and
only insofar as said lease covers 88.02 acres of land,  more or less, out of the
Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands
pooled in the Ricochet  Energy,  Inc. - Neal Trust No. 1H Unit as described in a
Declaration  of Unit dated  October 10, 2012,  recorded in Volume 122, page 855,
Official Records, Frio County, Texas, and being the same land described in Lease
6.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES  DESCRIBED ABOVE COVER THE FOLLOWING
WELL:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Ricochet - Neal Trust No. 1H Unit Well            100.000%             75.000%
(API #42-163-33643 / RRC ID #17593)

FRIO AUSTIN CHALK PROSPECT

(CULPEPPER AREA)

JANE T. CULPEPPER ET AL., LEASES

Lease 1: Oil and Gas Lease  dated  January 18,  2010,  from Jane  Culpepper,  as
Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 70, page 672,
Official Public Records,  Frio County, Texas, as amended by Amendment of Oil and
Gas Lease recorded in Volume 73, page 441, Official Public Records, Frio County,
Texas, covering 718 acres of land, more or less, out of the J. E. Roberts Survey
No. 4, A-903,  the L.I.M. & C. Co. Survey No. 112, A-754 and the B.S. & F Survey
No. 3, A-109, Frio County, Texas.

Lease 2: Oil and Gas Lease  dated  January 18,  2010,  from John  Culpepper,  as
Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 70, page 675,
Official Public Records,  Frio County, Texas, as amended by Amendment of Oil and
Gas Lease recorded in Volume 73, page 444, Official Public Records, Frio County,
Texas,  covering  593 acres of land,  more or less,  being a portion of the same
land described above in Lease 1.

Lease 3: Oil and Gas Lease  dated  January  18,  2010,  from Jim  Culpepper,  as
Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 70, page 678,
Official Public Records,  Frio County, Texas, as amended by Amendment of Oil and
Gas Lease recorded in Volume 73, page 446, Official Public Records, Frio County,
Texas,  covering  593 acres of land,  more or less,  being a portion of the same
land described above in Lease 1.

                                       26
<PAGE>
Lease 4: Oil and Gas Lease  dated  January 18,  2010,  from Bill  Culpepper,  as
Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 70, page 681,
Official Public Records,  Frio County, Texas, as amended by Amendment of Oil and
Gas Lease recorded in Volume 73, page 448, Official Public Records, Frio County,
Texas,  covering  593 acres of land,  more or less,  being a portion of the same
land described above in Lease 1.

Lease 5: Oil and Gas Lease dated  January 18,  2010,  from Nancy C.  Flores,  as
Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 70, page 684,
Official Public Records,  Frio County, Texas, as amended by Amendment of Oil and
Gas Lease recorded in Volume 73, page 450, Official Public Records, Frio County,
Texas,  covering  593 acres of land,  more or less,  being a portion of the same
land described above in Lease 1.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES  DESCRIBED ABOVE COVER THE FOLLOWING
WELLS:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Ricochet - Culpepper No. 1H Unit Well             100.000%             80.000%
(API #42-163-33480 / RRC ID #16214)
Ricochet - Culpepper No. 2H Unit Well             100.000%             80.000%
(API #42-163-33494 / RRC ID #16115)

JAMES W. CULPEPPER ET AL., LEASES - (3C LEASES)

Lease 1: Oil and Gas Lease dated  February  3, 2010,  from James  Culpepper  and
wife, Kat Saunders, as Lessor, to Ricochet Energy, Inc., as Lessee,  recorded in
Volume 70, page 765,  Official  Public  Records,  Frio County,  Texas,  covering
657.28 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904
and the James Cummings Survey No. 105, A-269, Frio County, Texas.

Lease 2: Oil and Gas Lease dated February 3, 2010, from John Culpepper and wife,
Andrea M. Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in
Volume 70, page 770,  Official  Public  Records,  Frio County,  Texas,  covering
657.28 acres of land, more or less, being the same land described above in Lease
1.

Lease 3: Oil and Gas Lease  dated  February  3,  2010,  from Joe  Culpepper,  as
Lessor,  to Ricochet Energy,  Inc., as Lessee,  recorded in Volume 75, page 590,
Official Public Records, Frio County, Texas, covering 104.14 acres of land, more
or less,  out of the J. E.  Roberts  Survey No. 2, A-904 and the James  Cummings

                                       27
<PAGE>
Survey No. 105,  A-269,  Frio  County,  Texas,  being a portion of the same land
described above in Lease 1.

Lease 4: Oil and Gas Lease  dated  October  31,  2010,  from Tommy J. Muston and
wife,  Deborah A.  Muston,  as Lessor,  to  Ricochet  Energy,  Inc.,  as Lessee,
recorded by  Memorandum  of Oil and Gas Lease in Volume 83,  page 692,  Official
Public Records, Frio County, Texas, covering 224.14 acres of land, more or less,
out of the J. E. Roberts Survey No. 2, A-904 and the J. E. Roberts Survey No. 6,
A-905, Frio County,  Texas,  being a portion of the same land described above in
Lease 1.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES  DESCRIBED ABOVE COVER THE FOLLOWING
WELLS:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Ricochet - 3C No. 1H Unit Well                   100.000%             79.715823%
(API #42-163-33508 / RRC ID #16225)
Ricochet - 3C No. 2H Unit Well                   100.000%             79.715823%
(API #42-163-33563 / RRC ID #16225)

KOTZEBUE LEASE

Oil and Gas Lease  dated  August  26,  2010,  from David W.  Kotzebue  and wife,
Deborah R. Kotzebue, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by
Memorandum of Oil and Gas Lease in Volume 79, page 752, Official Public Records,
Frio County, Texas,  originally covering 527.33 acres of land, more or less, out
of the J. E. Roberts  Survey No. 4, A-903,  Frio County,  Texas,  insofar as and
only  insofar as said lease  covers 400 acres of land,  more or less,  being the
retained  acreage  allocated to the  Kotzebue  No. 1 Well,  as described in that
certain Partial Release of Oil and Gas Lease and Designation of Well Tract dated
effective January 1, 2014, executed by Ricochet Energy, Inc. et al., recorded in
Volume 150, page 793, Official Public Records, Frio County, Texas.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASE  DESCRIBED ABOVE COVERS THE FOLLOWING
WELL:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Ricochet - Kotzebue No. 1 Well                    100.000%             75.000%
(API #42-163-33589 / RRC ID #17063)

EXPRESS RE-ENTRY PROSPECTS

CANTU-HENDERSON UNIT

Ricochet Energy,  Inc. -  Cantu-Henderson  No. 1H Unit, being the pooled unit of
495.17 acres out of the J. Poitevent  Survey No. 5, A-559 and the R.M.  Harkness
Survey No. 6, A-890, Frio County, Texas, as more particularly  described in that
certain  Declaration  of Unit dated  September  24,  2010,  executed by Ricochet
Energy,  Inc.,  recorded in Volume 81, page 174,  Official Public Records,  Frio
County, Texas, pooling the acreage covered by the following described leases.

Lease 1: Oil, Gas and Mineral Lease dated  September 17, 2008,  from Herlinda G.
Cantu, as Lessor,  to Express Oil & Gas, as Lessee,  recorded in Volume 57, page
798,  Official  Public  Records,  Frio  County,  Texas,  (and also  recorded  by
Memorandum of Oil and Gas Lease in Volume 57, page 796, Official Public Records,

                                       28
<PAGE>
Frio County, Texas), as amended, covering 177.45 acres, more or less, out of the
J. Poitevent  Survey No. 5, A-559,  Frio County,  Texas, all of the 177.45 acres
covered by said lease, as more particularly described therein, being included in
this unit.

Lease 2: Oil,  Gas and  Mineral  Lease  dated  October 28,  2008,  from  Winfred
Henderson and wife, Alice A. Henderson, as Lessor, to Express Oil & Gas, Co., as
Lessee,  recorded in Volume 60, page 193, Official Public Records,  Frio County,
Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No.
6, A-890 in Frio County,  Texas and A-1014 in LaSalle County,  Texas, all of the
317.72 acres  covered by said lease,  as more  particularly  described  therein,
being included in this unit.

Lease 3:  Oil,  Gas and  Mineral  Lease  dated  October  28,  2008,  from  Jimmy
Henderson,  as Lessor, to Express Oil & Gas, Co., as Lessee,  recorded in Volume
60, page 200,  Official  Public  Records,  Frio County,  Texas,  covering 317.72
acres,  more or less,  out of the R. M.  Harkness  Survey  No. 6,  A-890 in Frio
County,  Texas and  A-1014 in LaSalle  County,  Texas,  all of the 317.72  acres
covered by said lease,  comprising  the same lands  described  above in Lease 2,
being included in this unit.

Lease 4: Oil, Gas and Mineral Lease dated October 28, 2008, from Selfa A. Garza,
joined pro forma by her husband,  Tino Garza,  as Lessor,  to Express Oil & Gas,
Co., as Lessee,  recorded in Volume 60, page 180, Official Public Records,  Frio
County, Texas, as ratified and amended, covering 317.72 acres, more or less, out
of the R. M.  Harkness  Survey No. 6, A-890 in Frio County,  Texas and A-1014 in
LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising
the same lands described above in Lease 2, being included in this unit.

Lease 5: Oil, Gas and Mineral Lease dated  November 17, 2008,  from Linda Green,
joined pro forma by her  husband,  Ken Green,  as Lessor,  to Express Oil & Gas,
Co., as Lessee,  recorded in Volume 60, page 173, Official Public Records,  Frio
County,  Texas,  covering 317.72 acres,  more or less, out of the R. M. Harkness
Survey No. 6, A-890 in Frio County,  Texas and A-1014 in LaSalle County,  Texas,
all of the  317.72  acres  covered  by said  lease,  comprising  the same  lands
described above in Lease 2, being included in this unit.

Lease 6: Oil, Gas and Mineral Lease dated November 17, 2008,  from Larry Myrick,
as Lessor,  to Express Oil & Gas,  Co.,  as Lessee,  recorded in Volume 60, page
187, Official Public Records, Frio County, Texas, covering 317.72 acres, more or
less,  out of the R. M. Harkness  Survey No. 6, A-890 in Frio County,  Texas and
A-1014 in LaSalle County,  Texas, all of the 317.72 acres covered by said lease,
comprising  the same lands  described  above in Lease 2, being  included in this
unit.

Lease 7: Oil, Gas and Mineral Lease dated July 10, 2009,  from Donna Myrick,  as
Lessor, to Express Oil & Gas, as Lessee,  recorded by Memorandum of Oil, Gas and
Mineral  Lease in Volume 63, page 76,  Official  Public  Records,  Frio  County,
Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No.
6, A-890 in Frio County,  Texas and A-1014 in LaSalle County,  Texas, all of the
317.72 acres covered by said lease, comprising the same lands described above in
Lease 2, being included in this unit.

                                       29
<PAGE>
Lease 8: Oil,  Gas and  Mineral  Lease  dated  November  17,  2008,  from Janice
Hemphill,  as Lessor,  to Express Oil & Gas, Co., as Lessee,  recorded in Volume
63, page 70, Official Public Records, Frio County, Texas, covering 317.72 acres,
more or less,  out of the R. M.  Harkness  Survey No. 6,  A-890 in Frio  County,
Texas and A-1014 in LaSalle  County,  Texas,  all of the 317.72 acres covered by
said lease, comprising the same lands described above in Lease 2, being included
in this unit.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES  DESCRIBED ABOVE COVER THE FOLLOWING
WELL:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Ricochet - Cantu-Henderson No. 1H Unit Well      100.000%             77.042448%
(API #42-163-33426 / RRC ID #12392)

HARRIS LEASE

Oil, Gas and Mineral  Lease dated January 13, 1976,  from William  Donald Harris
and wife, Mary Ann Harris,  as Lessor,  to Charles R.  Stubblefield,  as Lessee,
recorded in Volume 342,  page 485, Deed Records,  Frio County,  Texas,  covering
735.00 acres, more or less, out of the William Webber Survey, A-668 and the G.B.
Pilant Survey,  A-540, Frio County,  Texas,  insofar as and only insofar as said
lease covers 281.4 acres of land, more or less, around the Ricochet Energy, Inc.
- Harris  No. 2 and Harris No. 3 Wells  (but  expressly  excluding  the well and
wellbore  for the  Express Oil & Gas - Harris #4 Well [API #  42-163-32691])  in
Frio County, Texas.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASE  DESCRIBED ABOVE COVERS THE FOLLOWING
WELLS:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Ricochet - Harris No. 2 Well                       90.000%             67.500%
(API #42-163-32604 / RRC ID #15063)
Ricochet - Harris No. 3 Well                       90.000%             67.500%
(API #42-163-32647 / RRC ID #15063)

W.S. SHAFFER AND W.S. SHAFFER -B- LEASES

Oil, Gas and Mineral Lease dated September 9, 1958, from W.S.  Shaffer and wife,
E.S. Shaffer, as Lessors to J.R. McLean, as Lessee, recorded in Volume 574, page
186, Deed Records, Taylor County, Texas, covering the following tracts:

Tract 1

Being 314.80 acres of land situated in Taylor County, Texas, and being the North
Half of Survey No. 12,  Certificate  No.  17/368,  Block No. 3, S. P. RR Company
Lands,  and being the same land  described  by metes and bounds in a Patent from

                                       30
<PAGE>
the State of Texas to J. L.  Pierce,  dated April 12,  1951,  recorded in Volume
G-2, Page 143, of the Patent Records of Taylor County, Texas.

Tract 2

Being 167.5 acres,  more or less, out of Survey No. 6,  Certificate No. 4508, G.
C. & S. RR Company  Lands in Taylor  County,  Texas being  described as follows,
to-wit:

BEGINNING at the Northwest corner S. F. 15185, W. S. Shaffer Survey No. 1;
THENCE South  15(degree)East  with the West line S.F.  15185,  2,293  varas,  to
fence;
THENCE in a westerly  direction with said fence to an inner corner of said G. C.
& S. RR Company Survey No. 6;
THENCE  North  15(degree)West  with a west  line of  said G. C. & S. RR  Company
Survey No. 6, 2,152.2 varas to the South line of a tract owned by Sayles;
THENCE North 75o 25' East 425.6 varas with a fence to the place of beginning.

INSOFAR AS, AND ONLY INSOFAR AS, THE LEASE  DESCRIBED ABOVE COVERS THE FOLLOWING
WELLS:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Baron - W.S. Shaffer -B- #3                        75.000%             56.250%
(API #42-441-81191 / RRC ID #11127)
Baron - W.S. Shaffer -B- #4                        75.000%             56.250%
(API #42-441-81192 / RRC ID #11127)

W.S. SHAFFER -C- LEASE

Oil, Gas and Mineral Lease dated April 30, 1970,  from M.C.  Shaffer,  et al, as
Lessors to J.D.  Tompkins,  as Lessee,  recorded in Volume 880,  page 501,  Deed
Records,  Taylor County,  Texas,  covering all of the W.S. Shaffer Survey No. 1,
S.F. 15185,  Patented to W.S. Shaffer by the State of Texas on June 11, 1951, by
Patent No. 475, Volume 17-B, and containing 136.55 acres, more or less.

INSOFAR AS, AND ONLY INSOFAR,  AS THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING
WELL:

          Wells                                      WI                  NRI
          -----                                      --                  ---
Baron - W.S. Shaffer -C- #1                        75.000%             56.250%
(API #42-441-30235 / RRC ID #11495)

                                       31
<PAGE>
                                   SCHEDULE 1

                        SCHEDULED QUANTITIES (IN BARRELS)

      VPP Delivery Period          VPP Scheduled Quantities, in Barrels
      -------------------          ------------------------------------

      August 2014                                 2,500

      September 2014                              2,500

      October 2014                                2,500

      November 2014                               2,500

      December 2014                               2,500

      January 2015                                2,500

      February 2015                               2,500

      March 2015                                  2,500

      April 2015                                  2,500

      May 2015                                    2,500

      June 2015                                   2,500

      July 2015                                   2,500

      August 2015                                 2,500

      September 2015                              2,500

      October 2015                                2,500

      November 2015                               2,500

      December 2015                               2,500

      January 2016                                2,500

      February 2016                               2,500

      March 2016                                  2,500

      April 2016                                  2,500

      May 2016                                    2,500

      June 2016                                   2,500

      July 2016                                   2,500

                                       32
<PAGE>
      VPP Delivery Period          VPP Scheduled Quantities, in Barrels
      -------------------          ------------------------------------

      August 2016                                 2,500

      September 2016                              2,500

      October 2016                                2,500

      November 2016                               2,500

      December 2016                               2,500

      January 2017                                2,500

      February 2017                               2,500

      March 2017                                  2,500

      April 2017                                  2,500

      May 2017                                    2,500

      June 2017                                   2,500

      July 2017                                   2,500

                                       33
<PAGE>
                                   SCHEDULE 2

                               FIELD PRICE FOR OIL

The "Field  Price" of Oil for each Month  means the final  settlement  price per
Barrel on the date of expiry of the applicable West Texas Intermediate Crude Oil
Futures  Contract  for  Cushing,  Oklahoma  Delivery  traded  on  the  New  York
Mercantile  Exchange for such Month. For example,  the Field Price for the Month
of September 2014 will be the final  settlement  price on August 21, 2014 of the
contract that expires on August 30, 2014

                                       34

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