Document:

exv10w1

 

EXHIBIT 10.1

United States Lime & Minerals, Inc.

Schedule of Non-Employee Director Compensation

Effective October 1, 2005, compensation for Company directors who are not also employees will be:

	 	 	 	 	 
	Annual Retainer
	 	$	15,000	 
	Daily Meeting Fee
	 	 	1,000	 
	Telephonic Meeting Fee
	 	 	500	 
	 
	 	 	 	 
	Additional Annual Retainers:
	 	 	 	 
	Audit Committee Chairman
	 	 	12,000	 
	Compensation Committee Chairman
	 	 	5,000	 

Non-employee directors also will continue to be granted 2,000 ten-year stock options annually, on
the date of election or reelection, under the Company’s 2001 Long-Term Incentive Plan. The stock
options will be granted with an exercise price equal to the market price of the Company’s stock on
the date of grant and will be exercisable immediately.<PAGE>
                                                                    Exhibit 10.3

                              AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP

                               FWOE PARTNERS L.P.

                          DATED AS OF AUGUST 22, 2005

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                                TABLE OF CONTENTS

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<S>                                                                         <C>
ARTICLE I FORMATION OF PARTNERSHIP.......................................     1
   Section 1.1.     Formation............................................     1
   Section 1.2.     Name.................................................     1
   Section 1.3.     Business.............................................     1
   Section 1.4.     Places of Business, Registered Agent and Addresses...     2
   Section 1.5.     Term.................................................     2
   Section 1.6.     Filings..............................................     2

ARTICLE II CERTAIN DEFINITIONS AND REFERENCES............................     3
   Section 2.1.     Certain Defined Terms................................     3
   Section 2.2.     References and Construction..........................    18

ARTICLE III CAPITALIZATION...............................................    19
   Section 3.1.     Capital Contributions of General Partner.............    19
   Section 3.2.     Capital Contributions of Limited Partner.............    20
   Section 3.3.     Optional Capital Contributions.......................    21
   Section 3.4.     Reduced Capital Contributions of a Partner...........    23
   Section 3.5.     Payments of Capital Contributions....................    24
   Section 3.6.     Non-Payment of Capital Contributions.................    25
   Section 3.7.     Interest on and Return of Capital Contributions......    26
   Section 3.8.     Payments and Advances by General Partner.............    27

ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS.................................    27
   Section 4.1.     Allocations..........................................    27
   Section 4.2.     Income Tax Allocations...............................    30
   Section 4.3.     Distributions........................................    31

ARTICLE V PARTNERSHIP PROPERTY...........................................    33
   Section 5.1.     Title to Partnership Property........................    33
   Section 5.2.     Acquisition of the Properties........................    33
   Section 5.3.     Additional Acquisitions of Leases....................    33
   Section 5.4.     Lease Sales..........................................    35
   Section 5.5.     Sales of Production..................................    35
   Section 5.6.     Operations on Partnership Leases.....................    35
   Section 5.7.     Hedge Arrangement....................................    36
   Section 5.8.     Production...........................................    37
   Section 5.9.     Environmental, Health and Safety Program.............    37
   Section 5.10.    Plugging and Abandonment Liabilities.................    37
   Section 5.11.    Agreement Regarding Distribution of the Class B
                    Assets...............................................    38

ARTICLE VI MANAGEMENT....................................................    38
   Section 6.1.     Power and Authority of General Partner...............    38
   Section 6.2.     Certain Restrictions on General Partner's Power
                    and Authority........................................    38
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<TABLE>
<S>                                                                          <C>
   Section 6.3.     Duties and Services of General Partner...............    40
   Section 6.4.     Liability of General Partner.........................    42
   Section 6.5.     Limitations on Indemnification.......................    42
   Section 6.6.     Costs, Expenses and Reimbursement....................    42
   Section 6.7.     Organization and Third Party Acquisition Costs.......    43
   Section 6.8.     Insurance............................................    44
   Section 6.9.     Tax Elections........................................    44
   Section 6.10.    Tax Returns..........................................    45
   Section 6.11.    Appointment of Trustee to Receive Payments...........    45
   Section 6.12.    Contracts with Affiliates............................    46

ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER....................    46
   Section 7.1.     Rights of Limited Partner............................    46
   Section 7.2.     Right of Limited Partner to Compel Sale..............    46
   Section 7.3.     Limitations on Limited Partner.......................    47
   Section 7.4.     Liability of Limited Partner.........................    47
   Section 7.5.     Access of Limited Partner to Data....................    47
   Section 7.6.     Withdrawal and Return of Capital Contribution........    48

ARTICLE VIII BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS...................    48
   Section 8.1.     Capital Accounts, Books and Records..................    48
   Section 8.2.     Reports..............................................    50
   Section 8.3.     Bank Accounts........................................    53
   Section 8.4.     Information Relating to the Partnership..............    53
   Section 8.5.     Certain Notices......................................    53

ARTICLE IX ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS....................    54
   Section 9.1.     Assignments by Limited Partner.......................    54
   Section 9.2.     Assignment by General Partner........................    55
   Section 9.3.     Merger or Consolidation..............................    55
   Section 9.4.     Removal of General Partner...........................    55
   Section 9.5.     Right of General Partner Upon Removal................    56
   Section 9.6.     Right of First Offer.................................    57

ARTICLE X DISSOLUTION, LIQUIDATION AND TERMINATION.......................    58
   Section 10.1.    Dissolution..........................................    58
   Section 10.2.    Withdrawal by General Partner and Reconstitution.....    59
   Section 10.3.    Liquidation and Termination..........................    59
   Section 10.4.    Cancellation of Certificate..........................    61

ARTICLE XI REPRESENTATIONS AND WARRANTIES................................    61
   Section 11.1.    Representations and Warranties of General Partner....    61
   Section 11.2.    Representations and Warranties of Limited Partner....    63
   Section 11.3.    Disclaimer...........................................    65

ARTICLE XII MISCELLANEOUS................................................    65
   Section 12.1.    Notices..............................................    65
   Section 12.2.    Amendments...........................................    65
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<TABLE>
<S>                                                                          <C>
   Section 12.3.    Partition............................................    65
   Section 12.4.    Entire Agreement.....................................    66
   Section 12.5.    No Waiver............................................    66
   Section 12.6.    Applicable Law.......................................    66
   Section 12.7.    Successors and Assigns...............................    66
   Section 12.8.    Exhibits.............................................    66
   Section 12.9.    Survival of Representations and Warranties...........    66
   Section 12.10.   No Third Party Benefit...............................    66
   Section 12.11.   Public Announcements.................................    66
   Section 12.12.   Counterparts.........................................    67
</TABLE>

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<PAGE>

                              AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP

                               FWOE PARTNERS L.P.

     THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"AGREEMENT") is made and entered into this 22nd day of August, 2005, by and
between F-W Oil Exploration L.L.C., a Delaware limited liability company (herein
sometimes called the "GENERAL PARTNER"), and TIFD III-X LLC, a Delaware limited
liability company (herein sometimes called the "LIMITED PARTNER").

                                    RECITALS:

     A. The General Partner and the Limited Partner have heretofore executed and
delivered that certain Agreement of Limited Partnership dated July 26, 2005 (the
"ORIGINAL AGREEMENT"), governing FWOE Partners L.P., a Texas limited partnership
(the "PARTNERSHIP").

     B. The General Partner and the Limited Partner deem it in their mutual best
interests to amend and restate the Original Agreement in its entirety on the
terms and provisions provided herein.

                                   AGREEMENT:

     NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:

                                    ARTICLE I
                            FORMATION OF PARTNERSHIP

     SECTION 1.1. FORMATION. The parties hereto have heretofore formed the
Partnership pursuant to the provisions of the Texas Revised Limited Partnership
Act (Article 6132a-1, Vernon's Texas Civil Statutes) (such Act, as amended from
time to time, or any successor statute or statutes thereto, being called the
"ACT") and the Original Agreement, and do hereby agree to continue the
Partnership pursuant to the Act and this Agreement.

     SECTION 1.2. NAME. The name of the Partnership shall be FWOE Partners L.P.
Subject to all applicable laws, the business of the Partnership shall be
conducted in the name of the Partnership unless under the law of some
jurisdiction in which the Partnership does business such business must be
conducted under another name. In such a case, the business of the Partnership in
such jurisdiction may be conducted under such other name or names as the General
Partner shall determine to be necessary so long as it does not affect adversely
the limited liability of the Limited Partner hereunder or jeopardize in any
manner the title to or ownership of any Partnership Leases (as herein defined)
or other assets. The General Partner shall cause to be filed on behalf of the
Partnership such partnership or assumed or fictitious name certificate or
certificates or similar instruments as may from time to time be required by law.

     SECTION 1.3. BUSINESS. Subject to the other provisions of this Agreement,
the business of the Partnership shall be: (a) to acquire the Properties (as
defined herein); (b) to acquire

<PAGE>

additional Leases (as defined herein); (c) to hold, maintain, renew, explore,
drill, develop, and operate the Properties and such additional Leases; (d) to
produce, collect, store, treat, deliver, market, sell or otherwise dispose of
oil, gas and related hydrocarbons and minerals from the Properties and such
additional Leases; (e) to farm-out, sell, abandon and otherwise dispose of the
Properties, additional Leases and other Partnership assets; (f) to enter into
swaps, options, future contracts and other transactions to hedge or to otherwise
minimize the risk associated with the fluctuation of prices to be received by
the Partnership from the sale of oil, gas and related hydrocarbons and minerals
from the Properties and any additional Leases acquired pursuant to the terms
hereof; and (g) to take all such other actions incidental to any of the
foregoing as the General Partner may determine to be necessary or appropriate.
Notwithstanding the foregoing and any other provision of this Agreement, the
Partnership shall not (i) acquire (A) any additional Leases, except as expressly
provided herein, (B) any carbon-dioxide removal, sulfur removal or other
equipment for the processing or treatment of gas or other hydrocarbons, whether
on or off the Properties or additional Leases acquired pursuant to the terms
hereof (other than equipment acquired as part of and at the same time as the
acquisition of the Properties or an additional Lease or otherwise in accordance
with this Agreement), (C) any refining facilities, or (D) any transportation
facilities except pipelines and gathering systems (x) included in the
Properties, or (y) connecting the Properties or additional Leases acquired
pursuant to the terms hereof with other gathering systems or transmission
pipelines, or (ii) engage in the contract drilling business or any other
business except as expressly permitted herein.

     SECTION 1.4. PLACES OF BUSINESS, REGISTERED AGENT AND ADDRESSES.

     (a) The principal United States office and place of business of the
Partnership and its street address shall be 9821 Katy Freeway, Suite 1050,
Houston, Texas 77024. The General Partner, at any time and from time to time,
may change the location of the Partnership's principal United States office and
place of business as the General Partner shall determine to be necessary or
appropriate, provided notice thereof is concurrently given to the Limited
Partner.

     (b) The registered office of the Partnership in Texas shall be 9821 Katy
Freeway, Suite 1050, Houston, Texas 77024, and the registered agent for service
of process on the Partnership shall be Jim Brock, an individual whose business
address is the same as the Partnership's registered office. The General Partner,
at any time and from time to time, may change the Partnership's registered
office or registered agent or both by complying with the applicable provisions
of the Act and giving concurrent notice thereof to the Limited Partner and may
establish, appoint and change additional registered offices and registered
agents of the Partnership in such other states as the General Partner shall
determine to be necessary or advisable.

     SECTION 1.5. TERM. The Partnership commenced upon the completion of filing
for record of an initial certificate of limited partnership of the Partnership
with the Secretary of State of the State of Texas on July 26, 2005.

     SECTION 1.6. FILINGS. Upon the request of the General Partner, the Limited
Partner shall promptly execute, acknowledge, swear to, and deliver all such
certificates and other instruments conforming hereto as shall be necessary or
appropriate to form, qualify, continue or terminate the Partnership, as
appropriate, as a limited partnership under the laws of the State of Texas and
to qualify, continue, and terminate the Partnership, as appropriate, as a
foreign limited partnership

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(or a partnership in which the Limited Partner has limited liability) in all
other states in which the Partnership may conduct business. The General Partner
shall execute and cause to be filed with the Secretary of State of Texas a
certificate containing the information required by the Act and such other
information as the General Partner deems appropriate. Prior to the Partnership's
conducting business in any state other than Texas, the General Partner shall
cause the Partnership to comply, to the extent those matters are reasonably
within the control of the General Partner, with all requirements necessary to
qualify the Partnership as a foreign limited partnership (or a partnership in
which the Limited Partner has limited liability) in such state. Thereafter, the
General Partner shall cause the Partnership to continue to comply with all such
requirements and all other requirements necessary to maintain the limited
liability of the Limited Partner in each state where the Partnership does
business.

                                   ARTICLE II
                       CERTAIN DEFINITIONS AND REFERENCES

     SECTION 2.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 2.1 or in the sections, subsections or other subdivisions referred to
below:

     "ABANDONMENT RESERVES" means the reserves for plugging and abandonment
maintained pursuant to Section 5.10.

     "ACQUISITION" means an acquisition of any Lease by the Partnership pursuant
to Section 5.3.

     "ACQUISITION CLOSING DATE" means the "Closing Date," as such term is
defined in the Purchase and Sale Agreement and the Contribution Agreement,
respectively.

     "ACQUISITION COST" means, (a) with respect to the purchase by the
Partnership from the General Partner or its Affiliates of any Lease other than
the Properties, the costs as described in clause (b) immediately below incurred
by the General Partner and/or its Affiliates in acquiring such Lease and (b)
with respect to the acquisition by the Partnership of any Lease other than the
Properties and other than those purchased pursuant to clause (a) immediately
above, the sum of (i) the price paid or contractually agreed to be paid for such
Lease to the lessor, assignor or grantor of such Lease, including lease bonuses,
advance rentals and other acquisition costs and (ii) title examination costs,
broker's commissions, attorneys' fees, due diligence fees, filing fees,
recording costs, and transfer and sales taxes, if any, and other similar costs
incurred with respect to such Lease in connection with its acquisition, but
excluding any actual, allocated or imputed interest expense.

     "ACT" has the meaning assigned to such term in Section 1.1.

     "ADJUSTED AGREED VALUE" has the meaning assigned to such term in the
Contribution Agreement.

     "ADJUSTED CAPITAL ACCOUNT" means the capital account maintained for each
Partner as of the end of each fiscal year (a) increased by (i) the amount of any
unpaid Capital Contributions unconditionally agreed to be contributed by such
Partner under Article III, if any, and (ii) an amount equal to such Partner's
allocable share of the Partnership's Minimum Gain, as computed

                                      -3-

<PAGE>

on the last day of such fiscal year in accordance with applicable Treasury
Regulations, and (b) reduced by (i) the amount of all depletion deductions
reasonably expected to be allocated to such Partner in subsequent years and
charged to such Partner's capital account, (ii) the amount of all losses and
deductions reasonably expected to be allocated to such Partner in subsequent
years under Sections 704(e)(2) and 706(d) of the Internal Revenue Code and
Treasury Regulation Section 1.751-1(b)(2)(ii), and (iii) the amount of all
distributions reasonably expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's capital account that are
reasonably expected to occur during (or prior to) the year in which such
distributions are reasonably expected to be made.

     "ADJUSTED PURCHASE PRICE" has the meaning assigned to it in the Purchase
and Sale Agreement.

     "AFFILIATE" means (a) any person directly or indirectly owning, controlling
or holding with power to vote 10% or more of the outstanding voting securities
of the General Partner, (b) any person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with power to
vote by the General Partner, (c) any person directly or indirectly controlling,
controlled by or under common control with the General Partner, (d) any officer,
director, member, manager or partner of the General Partner or any person
described in clause (a), (b), or (c) of this paragraph, or (e) any person
related by blood, adoption or marriage to any person referred to in clause (c)
or clause (d) of this paragraph. As used in this Agreement, the term "PERSON"
shall include an individual, an estate, a corporation, a partnership, a limited
liability company, an association or other entity, a joint stock company and a
trust.

     "AGREED RATE" means a rate per annum which is equal to the lesser of (a) a
rate which is two percent (2%) above the prime rate of interest of JP Morgan
Chase Bank, New York, New York, as announced or published by such bank from time
to time (adjusted from time to time to reflect any changes in such rate
determined hereunder) or (b) the maximum rate from time to time permitted by
applicable law.

     "AGREED VALUE" has the meaning assigned to it in the Contribution
Agreement.

     "AGREEMENT" means this Agreement of Limited Partnership, as hereafter
changed, modified or amended in accordance with the terms hereof.

     "AREA OF MUTUAL INTEREST" means the areas described in Exhibit 2.1--AMI.

     "CAPITAL CONTRIBUTIONS" means, for any Partner at the particular time in
question, the aggregate of the dollar amounts of any cash or the fair market
value of any properties (as agreed upon by the Partners) contributed to the
capital of the Partnership, or, if the context in which such term is used so
indicates, the dollar amounts of cash or fair market value of properties agreed
to be contributed, or requested to be contributed, by such Partner to the
capital of the Partnership.

     "CAPITAL COSTS" means (a) all costs, expenses and liabilities incurred by
the Partnership to acquire, process, reprocess and evaluate geological and
geophysical information and data regarding any Class A Asset or any additional
Leases acquired pursuant to the terms hereof ("G&G OPERATIONS"); (b) all costs,
expenses and liabilities incurred by the Partnership in

                                      -4-

<PAGE>

connection with locating, drilling, completing, equipping, deepening, or
sidetracking any well located on the Class A Assets or any additional Lease
acquired pursuant to the terms hereof, including (i) surveying and locating any
such well, coring, testing, logging and evaluating any such well, (ii) acquiring
and setting casing, cement and cement services for such any well, (iii) plugging
and abandoning any such well (including remediation activities associated
therewith) if it is determined that such well would not produce in commercial
quantities and should be abandoned or which otherwise is not completed as a well
capable of producing in commercial quantities, and (iv) all direct charges and
overhead chargeable to the Partnership with respect to any such well under any
applicable operating agreement until such time as all operations are carried out
as required by applicable regulations and sound engineering practices to make
such well ready for production, including the installation and testing of
wellhead equipment, or to plug and abandon a dry hole ("DRILLING OPERATIONS");
(c) all costs, expenses and liabilities incurred by the Partnership in
connection with recompleting or plugging back any Partnership well
("RECOMPLETING OPERATIONS") (d) all costs, expenses and liabilities incurred by
the Partnership in connection with reworking any Partnership well when the
Partnership's reasonably anticipated share of such costs is greater than $75,000
("REWORKING OPERATIONS"); (e) all costs, expenses and liabilities incurred by
the Partnership in connection with locating, drilling, completing, equipping,
deepening or sidetracking any enhanced recovery producer or injector well
(including the costs of all necessary surface equipment such as steam
generators, compressors, water treating facilities, injection pumps, flow lines
and steam lines) or otherwise conducting Enhanced Recovery Operations; and (f)
all costs and expenses incurred by the Partnership in acquiring, constructing
and installing production facilities, platforms, pipelines and other facilities
(x) included in the Properties, or (y) necessary to develop the Properties and
additional Leases acquired pursuant to the terms hereof and produce, collect,
store, treat, deliver, market, sell or otherwise dispose of oil, gas and other
hydrocarbons and minerals therefrom ("FACILITIES DEVELOPMENT OPERATIONS"); but
such term shall not include any Lease Operating and Production Costs,
Acquisition Costs or Catastrophe Costs.

     "CATASTROPHE COSTS" means all costs, expenses and damages incurred by the
Partnership as a result of the failure of the General Partner to cause the
Partnership to obtain or carry the types or amounts of insurance coverage agreed
upon from time to time by the Partners in accordance with Section 6.8 and that
is available to the Partnership on commercially reasonable terms, but such term
shall not include (a) the deductible amounts under any insurance coverage
arranged by or on behalf of the Partnership or with respect to its property or
operations to the extent such deductible amounts have been approved or agreed to
by the Limited Partner in accordance with Section 6.8, and (b) any costs,
expenses and damages incurred by the Partnership that are in excess of or
excluded from the agreed upon insurance coverage maintained in accordance with
the terms hereof.

     "CGA REPORT" means that certain final engineering report with respect to
the Properties as of April 1, 2005, prepared by Cawley, Gillespie & Associates.

     "CHANGE IN CONTROL" means (a) that point in time at which a person or
persons, other than any of the current stockholders of the Parent, acquire a
Majority of the Voting Securities of the Parent, or (b) that point in time at
which a person or persons, other than any of the current members of the General
Partner, acquire a Majority of the Voting Securities of the General Partner.

                                      -5-

<PAGE>

     "CLASS A ASSETS" means (i) those Properties listed on Exhibit 2.1--Class A
Assets, (ii) any additional Leases acquired or contributed pursuant to the terms
hereof, (iii) all wells, wellhead equipment, pumping units, flowlines, tanks,
platforms, buildings, saltwater disposal facilities, injection facilities,
compression facilities, gathering systems, and other equipment and facilities
now or hereafter located on or used in connection with such Properties and
Leases, other than any such equipment or facilities that are classified as Class
B Assets hereunder.

     "CLASS A GP SHARING PERCENTAGE" means, when used with respect to any month,
100% minus the Class A LP Sharing Percentage in effect during such month.

     "CLASS A LP SHARING PERCENTAGE" means, (a) when used with respect to each
month during the Phase I Period and Phase II Period, 80%, and (b) when used with
respect to each month during the Phase III Period, 20%.

     "CLASS B ASSETS" means those Properties listed on Exhibit 2.1--Class B
Assets plus any additional properties and assets acquired or contributed
pursuant to the terms hereof which the Partners in good faith determine should
be classified as "Class B Assets" (taking into account the nature of the
Properties listed in Exhibit 2.1--Class B Assets).

     "CLASS B GP SHARING PERCENTAGE" means, when used with respect to any month,
100% minus the Class B LP Sharing Percentage in effect during such month.

     "CLASS B LP SHARING PERCENTAGE" means:

     (a) when used with respect to each month during the Phase I Period, 80%
save and except when used with respect to Related Party Pipeline Operating
Proceeds and Related Party Pipeline Operating Expenses, in which event it shall
be 40%; provided, that if, after the third anniversary of the Acquisition
Closing Date, the Phase II Period has not commenced, then from and after such
date until the commencement of the Phase II Period, the Class B LP Percentage,
when used with respect to Related Party Pipeline Operating Proceeds and Related
Party Pipeline Operating Expenses, shall be 80%; and

     (b) when used with respect to each month during the Phase II Period or
Phase III Period, 0%, save and except:

          (i) when used with respect to Other Party Pipeline Gross Proceeds, in
     which event it shall be 100%, and;

          (ii) when used with respect to Pipeline Operating Proceeds
     attributable to fees charged for transporting Partnership production
     through the Class B Assets during the period of time after the Phase I
     Period but prior to the Distribution (as defined in Section 5.11), in which
     event is shall be 80%.

     "CONTRIBUTING PARTNER" has the meaning assigned to such term in Section
3.6(d).

     "CONTRIBUTION AGREEMENT" has the meaning assigned to such term in Section
5.2.

     "COST OVERRUNS" means (i) in the instance of the Pre-Approved Development
Operations, Capital Costs in excess of the aggregate amount of Capital
Contributions which the

                                      -6-

<PAGE>

Partners have committed to fund hereunder with respect to such Pre-Approved
Development Operations; and (ii) in the instance of an Optional Development
Operation, Capital Costs in excess of the aggregate amount of Capital
Contributions which the Partners have committed to fund hereunder with respect
to such Optional Development Operation.

     "CUMULATIVE PAYOUT NO. 1" means, with respect to each month, X minus Y,
where:

          "X" = the sum of (i) such month's Monthly Payout No. 1 plus (ii) all
          previous months' Monthly Payouts No. 1 plus (iii) any distribution
          received by the Limited Partner under Section 4.3(d) times the Payout
          No. 1 Discount Factor for the month in which such distribution is so
          received; and

          "Y" = the sum of (i) the Capital Contribution made by the Limited
          Partner pursuant to the terms hereof during such month times the
          Payout No. 1 Discount Factor for such month plus (ii) each Capital
          Contribution previously made by the Limited Partner pursuant to the
          terms hereof times the Payout No. 1 Discount Factor for the month in
          which such Capital Contribution was made.

     "CUMULATIVE PAYOUT NO. 2" means, with respect to each month, X minus Y,
where:

          "X" = the sum of (i) such month's Monthly Payout No. 2 plus (ii) all
          previous months' Monthly Payouts No. 2 plus (iii) any distribution
          received by the Limited Partner under Section 4.3(d) times the Payout
          No. 2 Discount Factor for the month in which such distribution is so
          received; and

          "Y" = the sum of (i) the Capital Contribution made by the Limited
          Partner pursuant to the terms hereof during such month times the
          Payout No. 2 Discount Factor for such month plus (ii) each Capital
          Contribution previously made by the Limited Partner pursuant to the
          terms hereof times the Payout No. 2 Discount Factor for the month in
          which such Capital Contribution was made.

     "DEFAULTING PARTNER" has the meaning assigned to such term in Section
3.6(d).

     "DEFICIT PARTNER" has the meaning assigned to such term in Section 4.3(i).

     "DELIVERY DATE" means the date on which this Agreement has been fully and
unconditionally executed and delivered by each of the parties hereto.

     "DEPLETABLE PROPERTY" has the meaning assigned to such term in Section
4.3(b).

     "DEVELOPMENT OPERATION" means any Drilling Operation, Facilities
Development Operation, G&G Operation, Recompleting Operation or Reworking
Operation.

     "DRILLING OPERATION" has the meaning assigned to such term in the
definition of Capital Costs.

     "ENHANCED RECOVERY OPERATIONS" means any operations or project intended to
increase the recovery of oil and/or gas from a pool by artificial means or by
the application of energy extrinsic to the pool, which artificial means or
application shall include pressuring, cycling,

                                      -7-

<PAGE>

pressure maintenance, injection to the pool of a substance or form of energy, or
other operations or projects that would be commonly considered secondary or
tertiary operations or projects, but such term shall not include the injection
in a well of a substance or form of energy for the sole purpose of (a) aiding in
the lifting of fluids in the well or (b) stimulation of the pool at or near the
well by mechanical, chemical, thermal or explosive means.

     "ENVIRONMENTAL LAWS" means all applicable federal, state and local laws,
rules and regulations, orders, judgments, decrees and other legal requirements
relating to pollution or the regulation and protection of human health, safety,
the environment or natural resources, including, but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601 et seq.); the Hazardous Material
Transportation Act, as amended (49 U.S.C. Section 180 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136 et
seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
6901 et seq.); the Toxic Substance Control Act, as amended (42 U.S.C. Section
7401 et seq.); the Clean Air Act, as amended (42 U.S.C. Section 740 et seq.);
the Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et
seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section 651
et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f et
seq.); and their state and local counterparts or equivalents and any transfer of
ownership notification or approval laws relating to any environmental matter.

     "EVENT OF DEFAULT" has the meaning assigned to such term in Section 3.6(b).

     "FACILITIES DEVELOPMENT OPERATIONS" has the meaning assigned to such term
in the definition of Capital Costs.

     "FINAL CLOSING STATEMENT" mean the Final Closing Statement as defined in
each of the Purchase and Sale Agreement and the Contribution Agreement,
respectively, and identified in writing by the Partners.

     "FINAL SETTLEMENT DATE" means the Final Settlement Date as defined in each
of the Purchase and Sale Agreement and the Contribution Agreement, respectively.

     "G&G OPERATIONS" has the meaning assigned to such term in the definition of
Capital Costs.

     "GENERAL PARTNER" means F-W Oil Exploration L.L.C., a Delaware limited
liability company, in its capacity as general partner of the Partnership and any
person who becomes a substituted general partner of the Partnership pursuant to
the terms hereof.

     "GP MONTHLY CASH DISTRIBUTION" means, with respect to any month:

     (a) the Production Sales Proceeds received during such month from the sale
of hydrocarbons multiplied by the Class A GP Sharing Percentage for such month;
less

     (b) Lease Operating and Production Costs paid during such month multiplied
by the Class A GP Sharing Percentage for such month; plus

     (c) Pipeline Operating Proceeds received during such month multiplied by
the Class B GP Sharing Percentage for such month; less

                                      -8-

<PAGE>

     (d) Pipeline Operating Expenses (including Partnership level insurance
expenses) during such month multiplied by the Class B GP Sharing Percentage for
such month; less

     (e) the amounts which the General Partner reasonably determines should be
added to the Partnership's cash reserves (exclusive of the Abandonment Reserves)
for uses related to the Class A Assets and any additional Leases acquired
pursuant to the terms hereof multiplied by the Class A GP Sharing Percentage (it
being agreed that the Partnership's cash reserves (exclusive of the Abandonment
Reserves), including all additions thereto, shall not exceed the remainder of
the total Partnership costs and expenses the General Partner reasonably
anticipates will be incurred within a 90-day period commencing as of the date of
the determination of the Class A GP Monthly Cash Distribution, minus the total
Production Sales Proceeds the General Partner reasonably anticipates will be
received by the Partnership during such period); less

     (f) the amounts which the General Partner reasonably determines should be
added to the Partnership's cash reserves for uses related to the Class B Assets
multiplied by the Class B GP Sharing Percentage (it being agreed that the
Partnership's cash reserves (exclusive of the Abandonment Reserves), including
all additions thereto, shall not exceed the remainder of the total Partnership
costs and expenses the General Partner reasonably anticipates will be incurred
within a 90-day period commencing as of the date of the determination of the
Class B GP Monthly Cash Distribution, minus the total Pipeline Operating
Proceeds the General Partner reasonably anticipates will be received by the
Partnership during such period); plus

     (g) any cash reserves attributable to the Class A Assets and any additional
Leases acquired pursuant to the terms hereof (exclusive of the Abandonment
Reserves) which the General Partner reasonably believes are no longer necessary
to retain multiplied by the Class A GP Sharing Percentage for such month; plus

     (h) any cash reserves attributable to the Class B Assets (exclusive of the
Abandonment Reserves) which the General Partner reasonably believes are no
longer necessary to retain multiplied by the Class B GP Sharing Percentage for
such month; plus

     (i) the net proceeds derived from the sale by the Partnership of
properties, fixtures and equipment (exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class A Assets and any additional Leases
acquired pursuant to the terms hereof multiplied by the Class A GP Sharing
Percentage for such month; plus

     (j) the net proceeds derived from the sale by the Partnership of
properties, fixtures and equipment (exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class B Assets multiplied by the Class B GP
Sharing Percentage for such month; plus

     (k) any other funds received by the Partnership during such month
(including insurance proceeds, to the extent not expended by the Partnership)
attributable to the Class A Assets and any additional Leases acquired pursuant
to the terms hereof multiplied by the Class A GP Sharing Percentage for such
month; plus

     (l) any other funds received by the Partnership during such month
(including insurance proceeds, to the extent not expended by the Partnership)
attributable to the Class B Assets multiplied by the Class B GP Sharing
Percentage for such month; less

                                      -9-

<PAGE>

     (m) payments made during such month on principal and interest on permitted
Partnership indebtedness secured by the Class A Assets and any additional Leases
acquired pursuant to the terms hereof multiplied by the Class A GP Sharing
Percentage for such month; less

     (n) payments made during such month on principal and interest on permitted
Partnership indebtedness secured by the Class B Assets multiplied by the Class B
GP Sharing Percentage for such month; less

     (o) the Management Fee multiplied by the Class A GP Sharing Percentage for
such month; less

     (p) other third party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of the Partnership's books and records,
fees and expenses attributable to the preparation of the Partnership's tax
returns) attributable to the Class A Assets and any additional Leases acquired
pursuant to the terms hereof multiplied by the Class A GP Sharing Percentage for
such month; less

     (q) other third party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of the Partnership's books and records,
fees and expenses attributable to the preparation of the Partnership's tax
returns) attributable to the Class B Assets multiplied by the Class B GP Sharing
Percentage for such month; less

     (r) amounts added to the Abandonment Reserves multiplied by the Class A GP
Sharing Percentage; plus

     (s) any amounts held in the Abandonment Reserves which the Partners agree
are no longer necessary to retain multiplied by the Class A GP Sharing
Percentage; less

     (t) any amounts paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class A Assets or any additional Leases acquired
pursuant to the terms hereof multiplied by the Class A GP Sharing Percentage for
such month; less

     (u) any amounts paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class B Assets multiplied by the Class B GP
Sharing Percentage for such month; plus

     (v) Related Party Pipeline Operating Proceeds received during such month
multiplied by the Class B GP Sharing Percentage for such month; less

     (w) Related Party Pipeline Operating Expenses incurred during such month
multiplied by the Class B GP Sharing Percentage for such month; less

     (x) any other costs or expenses (other than Acquisition Costs, Capital
Costs or, Catastrophe Costs) paid by the Partnership during such month
attributable to the ownership or operation of the Class A Assets or any
additional Leases acquired pursuant to the terms hereof multiplied by the Class
A GP Sharing Percentage for such month; less

                                      -10-

<PAGE>

     (y) any other costs or expenses (other than Capital Costs or, Catastrophe
Costs) paid by the Partnership during such month attributable to the ownership
or operation of the Class B Assets multiplied by the Class B GP Sharing
Percentage for such month.

To the extent a cost or revenue appears in two subsections of this definition,
the GP Monthly Cash Distribution will be adjusted to remove any such
duplications.

     "HEDGE COSTS" means all costs incurred by the Partnership in connection
with, or that otherwise arise in respect of or as a result of, any Hedging
Transaction, including costs of arranging, modifying, performing, settling or
terminating any Hedging Transaction.

     "HEDGE PROCEEDS" means any proceeds received by the Partnership with
respect to a Hedging Transaction.

     "HEDGING TRANSACTION" means any commodity hedging transaction pertaining to
oil, gas and related hydrocarbons and minerals, whether in the form of a swap
agreement, option to acquire or dispose of a futures contract, whether on an
organized commodities exchange or otherwise, or similar type of financial
transaction classified as "notional principal contracts" pursuant to Treasury
Regulation Section 1.446-3. Any Hedging Transaction shall be identified in the
books and records of the Partnership as a "hedging transaction" in the manner
and at the times prescribed by Treasury Regulation Section 1.1221-2(e).

     "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute or statutes.

     "JOA" means the joint operating agreement attached hereto as Exhibit
2.1--JOA.

     "JOA NON-CONSENT PROVISIONS" means the terms of the JOA applicable to
"Non-Consent Operations" (as that term is used in the JOA).

     "KEY PERSON" means each of Jim Brock and Doug Nester.

     "LEASE" means a lease, mineral interest, royalty or overriding royalty, fee
right, mineral servitude, license, concession or other right covering oil, gas
and related hydrocarbons (or a contractual right to acquire such an interest) or
an undivided interest therein or portion thereof, together with all
appurtenances, easements, permits, licenses, servitudes and rights-of-way
situated upon or used or held for future use in connection with such an interest
or the exploration, development or operation thereof. A "LEASE" shall also mean
and include all rights and interests in all lands and interests unitized or
pooled therewith pursuant to any law, rule, regulation or agreement.

     "LEASE OPERATING AND PRODUCTION COSTS" means all costs incurred by the
Partnership in connection with the operation and maintenance of the Class A
Assets and any additional Leases acquired pursuant to the terms hereof and the
production and marketing of oil, gas and related hydrocarbons from completed
wells (including wells which have been involved in Enhanced Recovery Operations)
in which the Partnership has an interest pursuant to this Agreement, including
costs incurred for all delay rentals, shut-in royalties and similar payments,
royalties on lost or flared gas or gas used for which payment is required,
labor, fuel, repairs, transportation, supplies, materials, utility charges, ad
valorem, severance, excise and similar taxes, the cost of

                                      -11-

<PAGE>

reworking any well (except to the extent provided in the definition of Capital
Costs), the costs of plugging and abandoning any well (except to the extent
provided in the definition of Capital Costs), costs of complying with applicable
legal, environmental or other regulatory requirements or obligations in
connection with the foregoing, costs under applicable operating agreements in
connection with the foregoing, costs of prosecuting, defending and settling any
claims arising in connection with the foregoing, compensation to well operators,
consultants and others and insurance in connection with the foregoing; but such
term shall not include any Capital Costs, Catastrophe Costs, or Acquisition
Costs.

     "LIMITED PARTNER" means TIFD III-X LLC, a Delaware limited liability
company, and any person who becomes a substituted limited partner of the
Partnership pursuant to the terms hereof.

     "LOSS OF PRODUCTION INCOME INSURANCE" means the insurance coverage
identified in II.l of Exhibit 6.8 as "Loss of Production Income (Loss of
Earnings)."

     "LP MONTHLY CASH DISTRIBUTION" means, with respect to any month:

     (a) the Production Sales Proceeds received during such month from the sale
of hydrocarbons multiplied by the Class A LP Sharing Percentage for such month;
less

     (b) Lease Operating and Production Costs paid during such month multiplied
by the Class A LP Sharing Percentage for such month; plus

     (c) Pipeline Operating Proceeds received during such month multiplied by
the Class B LP Sharing Percentage for such month; less

     (d) Pipeline Operating Expenses (including Partnership level insurance
expenses) during such month multiplied by the Class B LP Sharing Percentage for
such month; less

     (e) the amounts which the General Partner reasonably determines should be
added to the Partnership's cash reserves (exclusive of the Abandonment Reserves)
for uses related to the Class A Assets and any additional Leases acquired
pursuant to the terms hereof multiplied by the Class A LP Sharing Percentage (it
being agreed that the Partnership's cash reserves (exclusive of the Abandonment
Reserves), including all additions thereto, shall not exceed the remainder of
the total Partnership costs and expenses the General Partner reasonably
anticipates will be incurred within a 90-day period commencing as of the date of
the determination of the Class A LP Monthly Cash Distribution, minus the total
Production Sales Proceeds the General Partner reasonably anticipates will be
received by the Partnership during such period); less

     (f) the amounts which the General Partner reasonably determines should be
added to the Partnership's cash reserves (exclusive of the Abandonment Reserves)
for uses related to the Class B Assets multiplied by the Class B LP Sharing
Percentage (it being agreed that the Partnership's cash reserves (exclusive of
the Abandonment Reserves), including all additions thereto, shall not exceed the
remainder of the total Partnership costs and expenses the General Partner
reasonably anticipates will be incurred within a 90-day period commencing as of
the date of the determination of the Class B LP Monthly Cash Distribution, minus
the total Pipeline Operating Proceeds the General Partner reasonably anticipates
will be received by the Partnership during such period); plus

                                      -12-

<PAGE>

     (g) any cash reserves attributable to the Class A Assets and any additional
Leases acquired pursuant to the terms hereof (exclusive of the Abandonment
Reserves) which the General Partner reasonably believes are no longer necessary
to retain multiplied by the Class A LP Sharing Percentage for such month; plus

     (h) any cash reserves attributable to the Class B Assets (exclusive of the
Abandonment Reserves) which the General Partner reasonably believes are no
longer necessary to retain multiplied by the Class B LP Sharing Percentage for
such month; plus

     (i) the net proceeds derived from the sale by the Partnership of
properties, fixtures and equipment (exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class A Assets and any additional Leases
acquired pursuant to the terms hereof multiplied by the Class A LP Sharing
Percentage for such month; plus

     (j) the net proceeds derived from the sale by the Partnership of
properties, fixtures and equipment (exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class B Assets multiplied by the Class B LP
Sharing Percentage for such month; plus

     (k) any other funds received by the Partnership during such month
(including insurance proceeds, to the extent not expended by the Partnership)
attributable to the Class A Assets and any additional Leases acquired pursuant
to the terms hereof multiplied by the Class A LP Sharing Percentage for such
month; plus

     (l) any other funds received by the Partnership during such month
(including insurance proceeds, to the extent not expended by the Partnership)
attributable to the Class B Assets multiplied by the Class B LP Sharing
Percentage for such month; less

     (m) payments made during such month on principal and interest on permitted
Partnership indebtedness secured by the Class A Assets and any additional Leases
acquired pursuant to the terms hereof multiplied by the Class A LP Sharing
Percentage for such month; less

     (n) payments made during such month on principal and interest on permitted
Partnership indebtedness secured by the Class B Assets multiplied by the Class B
LP Sharing Percentage for such month; less

     (o) the Management Fee multiplied by the Class A LP Sharing Percentage for
such month; less

     (p) other third party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of the Partnership's books and records,
fees and expenses attributable to the preparation of the Partnership's tax
returns) attributable to the Class A Assets and any additional Leases acquired
pursuant to the terms hereof multiplied by the Class A LP Sharing Percentage for
such month; less

     (q) other third party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of the Partnership's books and records,
fees and expenses attributable to the preparation of the Partnership's tax
returns) attributable to the Class B Assets multiplied by the Class B LP Sharing
Percentage for such month; plus

                                      -13-

<PAGE>

     (r) any Hedge Proceeds received by the Partnership during such month; less

     (s) any Hedge Costs paid by the Partnership during such month; less

     (t) amounts added to the Abandonment Reserves multiplied by the Class A LP
Sharing Percentage; plus

     (u) any amounts held in the Abandonment Reserves which the Partners agree
are no longer necessary to retain multiplied by the Class A LP Sharing
Percentage; plus

     (v) Related Party Pipeline Operating Proceeds received by the Partnership
during such month multiplied by the Class B LP Sharing Percentage for such
month; less

     (w) Related Party Pipeline Operating Expenses incurred by the Partnership
during such month multiplied by the Class B LP Sharing Percentage for such
month; plus

     (x) Other Party Pipeline Gross Proceeds received by the Partnership during
such month multiplied by the Class B LP Sharing Percentage for such month; less

     (y) any amounts paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class A Assets or any additional Leases acquired
pursuant to the terms hereof multiplied by the Class A LP Sharing Percentage for
such month; less

     (z) any amounts paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class B Assets multiplied by the Class B LP
Sharing Percentage for such month; less

     (aa) any other costs or expenses (other than Acquisition Costs, Capital
Costs or, Catastrophe Costs) paid by the Partnership during such month
attributable to the ownership or operation of the Class A Assets or any
additional Leases acquired pursuant to the terms hereof multiplied by the Class
A LP Sharing Percentage for such month; less

     (bb) any other costs or expenses (other than Capital Costs or, Catastrophe
Costs) paid by the Partnership during such month attributable to the ownership
or operation of the Class B Assets multiplied by the Class B LP Sharing
Percentage for such month.

To the extent a cost or revenue appears in two subsections of this definition,
the LP Monthly Cash Distribution will be adjusted to remove any such
duplications.

     "MAJORITY OF THE VOTING SECURITIES" means, when used with respect to an
entity, stock or other equity interests which have general voting power under
ordinary circumstances to elect a majority of the board of directors (if the
entity is a corporation) or to otherwise control the management and policies of
such entity (if the entity is not a corporation).

     "MANAGEMENT FEE" has the meaning assigned to such term in Section 6.6(b).

     "MARKET RATE" shall be an amount determined by the General Partner in good
faith and reasonably acceptable to the Limited Partner.

                                      -14-

<PAGE>

     "MINIMUM GAIN" means (a) with respect to Partnership Nonrecourse
Liabilities, the amount of gain that would be realized by the Partnership if it
disposed of (in a taxable transaction) all Partnership properties which are
subject to Partnership Nonrecourse Liabilities in full satisfaction of such
liabilities, computed in accordance with applicable Treasury Regulations and (b)
with respect to each Partner Nonrecourse Debt, the amount of gain that would be
realized by the Partnership if it disposed of (in a taxable transaction) the
Partnership property that is subject to such liability in full satisfaction of
such liability, computed in accordance with applicable Treasury Regulations.

     "MONTHLY PAYOUT NO. 1" means, with respect to any month, an amount equal to
the LP Monthly Cash Distribution received by the Limited Partner during such
month times the Payout No. 1 Discount Factor for such month.

     "MONTHLY PAYOUT NO. 2" means, with respect to any month, an amount equal to
the LP Monthly Cash Distribution received by the Limited Partner during such
month times the Payout No. 2 Discount Factor for such month.

     "OPTIONAL DEVELOPMENT OPERATION" means any Development Operation with
respect to which the General Partner requests additional Capital Contributions
from the General Partner pursuant to Section 3.3(a).

     "ORGANIZATION AND THIRD PARTY ACQUISITION COSTS" has the meaning assigned
to such term in Section 6.7.

     "OTHER PARTY PIPELINE GROSS PROCEEDS" means an amount equal to 20% of gross
proceeds received during the Phase II Period or, prior to any distribution of
the Class B Assets pursuant to Section 5.11, the Phase III Period by the
Partnership (without any deduction for expenses) in connection with the
transportation of natural gas or gaseous substances of a third party, excluding
the Partnership or a Related Party, through the Class B Assets.

     "OVERRUN OPERATION" has the meaning assigned to such term in Section
3.3(c).

     "PARENT" means PrimeEnergy Corporation, a Delaware corporation.

     "PARTNER NONRECOURSE DEBT" means any nonrecourse debt of the Partnership
(or portions thereof) for which any Partner bears the economic risk of loss.

     "PARTNER NONRECOURSE DEDUCTIONS" means the amount of deductions, losses and
expenses equal to the net increase during the year in Minimum Gain attributable
to a Partner Nonrecourse Debt, reduced (but not below zero) by proceeds of such
Partner Nonrecourse Debt distributed during the year to the Partners who bear
the economic risk of loss for such debt, as determined in accordance with
applicable Treasury Regulations.

     "PARTNERS" means the General Partner and the Limited Partner.

     "PARTNERSHIP" has the meaning assigned to it in Section 1.1.

     "PARTNERSHIP NONRECOURSE LIABILITIES" means any nonrecourse liabilities (or
portions thereof) of the Partnership for which no Partner bears the economic
risk of loss.

                                      -15-

<PAGE>

     "PAYOUT NO. 1 DISCOUNT FACTOR" means, as of any given month, the value for
such month as set forth in Exhibit 2.1--Payout No. 1 Discount Factor Table.

     "PAYOUT NO. 2 DISCOUNT FACTOR" means, as of any given month, the value for
such month as set forth in Exhibit 2.1--Payout No. 2 Discount Factor Table.

     "PHASE I PERIOD" means the period from the Delivery Date until the end of
the first calendar month in which Cumulative Payout No. 1 is greater than or
equal to zero; provided, that in the event Cumulative Payout No. 1 is greater
than or equal to zero as a result of a sale of property or other similar
transaction occurring at a point in time during any calendar month, the Phase I
Period shall be deemed to have expired as of such point in time and with respect
to all amounts in excess of the amount required to cause the Cumulative Payout
No. 1 to be greater than or equal to zero.

     "PHASE II PERIOD" means the period commencing immediately upon the
expiration of the Phase I Period and ending at the end of the first calendar
month in which Cumulative Payout No. 2 is greater than or equal to zero;
provided, that in the event Cumulative Payout No. 2 is greater than or equal to
zero as a result of a sale of property or other similar transaction occurring at
a point in time during any calendar month, the Phase II Period shall be deemed
to have expired as of such point in time and with respect to all amounts in
excess of the amount required to cause the Cumulative Payout No. 2 to be equal
to zero.

     "PHASE III PERIOD" means the period commencing immediately upon the
expiration of the Phase II Period and ending upon the termination and
liquidation of the Partnership.

     "PIPELINE OPERATING EXPENSES" means all third party costs and expenses
incurred by the Partnership in connection with the operation and maintenance of
the Class B Assets, including costs and expenses to operate, repair, maintain,
and improve the Class B Assets, costs and expenses of electricity, water, and
other utilities, and costs and expenses of complying with applicable legal,
environmental and other regulatory requirements or obligations, taxes (excluding
the federal, state, and local income taxes of the Partners), costs of
prosecuting, defending and settling any claims arising in connection with the
foregoing, compensation to consultants and others and costs and expenses of
insurance in connection with the foregoing; provided, that during the Phase I
Period, Pipeline Operating Expenses shall exclude any Related Party Pipeline
Operating Expenses; provided, further, that Pipeline Operating Expenses shall
not include costs classified hereunder as Capital Costs.

     "PIPELINE OPERATING PROCEEDS" means all revenues received by the
Partnership from the ownership and operation of the Class B Assets, including
revenues received in connection with the transportation of natural gas and other
gaseous substances or the net proceeds received for the purchase or resale
thereof, but excluding any revenues received in connection with the sale or
other disposition of all or any portion of the Class B Assets; provided,
however, that during the Phase I Period, Pipeline Operating Proceeds shall
exclude any Related Party Pipeline Operating Proceeds; provided, further, that
during the Phase II Period and, prior to any distribution of the Class B Assets
pursuant to Section 5.11, the Phase III Period, Pipeline Operating Proceeds
shall exclude Other Party Pipeline Gross Proceeds.

     "POSITIVE PARTNER" has the meaning assigned to such term in Section 4.3(i).

                                      -16-

<PAGE>

     "PRE-APPROVED DEVELOPMENT OPERATIONS" means those Development Operations
described in Exhibit 2.1--Pre-Approved Development Operations.

     "PRELIMINARY CLOSING STATEMENT" mean the "Preliminary Closing Statement,"
as defined in the Purchase and Sale Agreement and the Contribution Agreement,
respectively, and identified in writing by the Partners.

     "PRODUCTION SALES PROCEEDS" means revenues received from the sale of
production from the Class A Assets and any additional Leases acquired pursuant
to the terms hereof, net of (a) any royalties, overriding royalty interests and
other similar interests burdening such Class A Assets and Leases and (b)
production taxes and ad valorem taxes attributable to such Class A Assets and
Leases, and not including any Hedge Proceeds.

     "PROPERTIES" means the "Properties" as such term is defined in the
Contribution Agreement and the Purchase and Sale Agreement, respectively.

     "PURCHASE AND SALE AGREEMENT" has the meaning assigned to such term in
Section 5.2.

     "RECOMPLETING OPERATIONS" has the meaning assigned to such term in the
definition of Capital Costs.

     "RELATED PARTY" means the General Partner, any Affiliate of the General
Partner (exclusive of the Partnership), Frank Wade, any affiliate of Frank Wade
(which, for purposes hereof, means any person directly or indirectly
controlling, controlled by or under common control with Frank Wade), or its or
their respective successors and assigns.

     "RELATED PARTY GAS" means natural gas and other gaseous substances produced
by a Related Party for its own account outside of the Partnership and from
Leases that do not comprise the Class A Assets and are connected to the Class B
Assets.

     "RELATED PARTY PIPELINE OPERATING EXPENSES" means that portion of the costs
and expenses generally described in "Pipeline Operating Expenses" above
allocable to the generation of Related Party Pipeline Operating Expenses, as
determined by the General Partner in good faith and reasonably acceptable to the
Limited Partner.

     "RELATED PARTY PIPELINE OPERATING PROCEEDS" means a portion of the proceeds
generally described in "Pipeline Operating Proceeds" above derived by the
Partnership from Related Party Gas.

     "RESERVE REPORT" has the meaning assigned to such term in Section 8.2(f).

     "REWORKING OPERATIONS" has the meaning assigned to such term in the
definition of Capital Costs.

     "SIMULATED BASIS," "SIMULATED GAIN," "SIMULATED DEPLETION," and "SIMULATED
LOSS" have the respective meanings assigned to such terms in Section 8.1(b).

                                      -17-

<PAGE>

     "SOLE RISK OPERATION" means any Optional Development Operation with respect
to which, pursuant to Section 3.3(d)(5), the Limited Partner has elected not to
make Capital Contributions and the General Partner has elected to treat as a
Sole Risk Operation.

     "SPECIAL DISTRIBUTION" means a distribution to the General Partner pursuant
to Section 4.3(b) or Section 4.3(c).

     "THIRD PARTY JOA" means a joint operating (or similar) agreement governing
operations on Leases in which the Partnership has an interest and under which a
Person (not the General Partner or an Affiliate thereof) is the operator.

     "THIRD PARTY JOA NON-CONSENT PROVISIONS" means the terms of the Third Party
JOA applicable to operations in which a party thereto elects to go
"non-consent."

     SECTION 2.2. REFERENCES AND CONSTRUCTION.

     (a) 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.

     (b) Titles appearing at the beginning of any of such subdivisions are for
convenience only and shall not constitute part of such subdivisions and shall be
disregarded in construing the language contained in such subdivisions.

     (c) 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.

     (d) Words in the singular form shall be construed to include the plural and
vice versa, unless the context otherwise requires.

     (e) Examples shall not be construed to limit, expressly or by implication,
the matter they illustrate.

     (f) The word "or" is not exclusive and the word "includes" and its
derivatives means "includes, but is not limited to" and corresponding derivative
expressions.

     (g) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.

     (h) All references herein to $ or dollars shall mean to United States
dollars.

     (i) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.

                                      -18-

<PAGE>

                                   ARTICLE III
                                 CAPITALIZATION

     SECTION 3.1. CAPITAL CONTRIBUTIONS OF GENERAL PARTNER.

     (a) Contemporaneously with the Capital Contribution of the Limited Partner
provided for in Section 3.2(a), the General Partner shall cause to be
contributed and assigned to the Partnership an undivided 60.08% interest in and
to the Properties pursuant to the Contribution Agreement. The agreed upon fair
market value of the General Partner's Capital Contribution to the Partnership
pursuant to this Section 3.1(a) shall equal the Agreed Value (as finally
determined in accordance with the terms of the Contribution Agreement).

     (b) Subject to Section 3.1(h), the General Partner shall make a Capital
Contribution to the Partnership in an aggregate amount equal to the General
Partner's allocated share (in accordance with Section 4.1), which Capital
Contribution shall be used exclusively by the Partnership for the payment of the
General Partner's allocated share (in accordance with Section 4.1) of
Organization and Third Party Acquisition Costs.

     (c) Subject to Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$8,832,000, which Capital Contributions shall be used exclusively to pay the
General Partner's allocated share (in accordance with Section 4.1) of the
Capital Costs of the Pre-Approved Development Operations which Capital
Contributions shall be used exclusively by the Partnership for the payment of
the General Partner's allocated share (in accordance with Section 4.1) of the
Capital Costs of such Pre-Approved Development Operations.

     (d) Subject to Section 3.1(h), if a distribution is required to be made to
the Limited Partner under Section 4.3(c), the General Partner shall make a
Capital Contribution to the Partnership in an amount equal to such distribution
(which Capital Contribution shall be used exclusively by the Partnership for the
payment of such distribution due and owing the Limited Partner).

     (e) Subject to Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an aggregate amount equal to the General
Partner's allocated share (in accordance with Section 4.1) of the Capital Costs
of any Optional Development Operation and Cost Overruns with respect to which
the Limited Partner elects to make Capital Contributions pursuant to Section 3.3
which Capital Contributions shall be used exclusively by the Partnership for the
payment of the General Partner's allocated share (in accordance with Section
4.1) of the Capital Costs of such Optional Development Operations or Cost
Overruns.

     (f) Subject to Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an aggregate amount equal to the Capital
Costs of any Sole Risk Operation that the General Partner elects to undertake
pursuant to Section 3.3(d)(5), which Capital Contributions shall be used
exclusively by the Partnership for the payment of the Capital Costs of such Sole
Risk Operation.

     (g) Subject to Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an aggregate amount equal to any Catastrophe
Costs incurred by the

                                      -19-

<PAGE>

Partnership, which Capital Contributions shall be used exclusively by the
Partnership for the payment of such Catastrophe Costs.

     (h) The Capital Contributions referenced in Sections 3.1(b), 3.1(c) and
3.1(e) shall be paid to the Partnership by the General Partner from time to time
in the appropriate amounts concurrently with each payment to the Partnership by
the Limited Partner of its Capital Contributions. The Capital Contributions
referenced in Section 3.1(f) and Section 3.1(g) shall be paid to the Partnership
by the General Partner when necessary for the Partnership to pay timely such
costs.

     (i) Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in Sections 3.1(a), (b), and (c) above shall be the
maximum contribution to the Partnership that the General Partner shall be
required to make (unless (i) the Limited Partner elects to make Capital
Contributions with respect to an Optional Development Operation or Cost Overruns
as provided in Section 3.3 in which case the General Partner shall also make
Capital Contributions with respect to such Optional Development Operation or
Cost Overruns, (ii) a distribution is due and owing the Limited Partner under
Section 4.3(c), (iii) unless the General Partner elects to undertake a Sole Risk
Operation, or (iv) unless the Partnership incurs Catastrophe Costs), and shall
be subject to reduction as provided in Section 3.4.

     SECTION 3.2. CAPITAL CONTRIBUTIONS OF LIMITED PARTNER.

     (a) Subject to Section 3.5(a), the Limited Partner shall make a Capital
Contribution to the Partnership in an aggregate amount not to exceed
$72,000,000, which Capital Contribution shall be used exclusively by the
Partnership for the payment of the Adjusted Purchase Price and the Special
Distribution.

     (b) Subject to Section 3.5(b), the Limited Partner shall make a Capital
Contribution to the Partnership in an aggregate amount not to exceed $300,000,
which Capital Contribution shall be used exclusively by the Partnership for the
payment of the Limited Partner's allocated share (in accordance with Section
4.1) of Organization and Third Party Acquisition Costs.

     (c) Subject to Section 3.5(c), the Limited Partner shall make Capital
Contributions to the Partnership in an aggregate amount equal to the Hedge
Costs, which Capital Contributions shall be used exclusively by the Partnership
for such purpose; without limiting the foregoing, the Limited Partner shall make
Capital Contributions to the Partnership in an amount sufficient for the
Partnership to fund 100% of the costs and expenses attributable to the Hedging
Transaction described in Exhibit 5.7(a).

     (d) Subject to Section 3.5(d), the Limited Partner shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$35,325,000 (which amount shall be reduced by an amount equal to that portion of
the Capital Contributions paid under Section 3.2(a) in respect of the
adjustments reflected in the Preliminary Closing Statement and the Final Closing
Statement, as applicable, for the costs of Pre-Approved Development Operations),
which Capital Contributions shall be used exclusively by the Partnership for the
payment of the Limited Partner's allocated share (in accordance with Section
4.1) of the Capital Costs attributable to the Pre-Approved Development
Operations.

                                      -20-

<PAGE>

     (e) Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in Sections 3.2(a), (b), (c) and (d) above shall be the
maximum contribution to the Partnership that the Limited Partner shall be
required to make (unless the Limited Partner elects to make Capital
Contributions with respect to an Optional Development Operation, Cost Overruns
or an Acquisition as provided in Section 3.3) and shall be subject to reduction
as provided in Section 3.4.

     SECTION 3.3. OPTIONAL CAPITAL CONTRIBUTIONS.

     (a) Subject to this Section 3.3 and the other terms and provisions hereof,
the General Partner may request that the Limited Partner agree to make
additional Capital Contributions to be used exclusively for the payment of its
allocated share (pursuant to Section 4.1) of (i) the Capital Costs of any
Optional Development Operation, (ii) the Acquisition Costs of any Acquisition or
(iii) Cost Overruns.

     (b) Requests to agree to make additional Capital Contributions pursuant to
this Section 3.3 shall be made by the General Partner and agreed to by the
Limited Partner separately with respect to each Optional Development Operation,
Acquisition or Cost Overrun. Requests pursuant to this Section 3.3 shall not be
made more often than quarterly each year unless approved by the Limited Partner
(i) except for requests to make Capital Contributions to pay Acquisition Costs
of any Acquisition or to pay Cost Overruns, (ii) except in the event the request
is attributable to a proposal from an unrelated third party, or (iii) unless an
emergency or some other urgent need for funds exists outside of the reasonable
control of the General Partner. Payments of any additional Capital Contributions
agreed to be made by the Limited Partner pursuant to this Section 3.3 shall be
requested by the General Partner and made by the Limited Partner in the manner
provided for in Section 3.5(d).

     (c) Notice of any request to agree to make additional Capital Contributions
made by the General Partner shall be in writing and sent to the Limited Partner
at its address as provided in Section 12.1 or made on the online reporting
system selected by the Limited Partner to the extent operational. With respect
to the any Optional Development Operation, each request shall cover all of the
Capital Costs estimated to be incurred in connection therewith (and with respect
to any Partnership well or Enhanced Recovery Operation or facility, the costs
estimated to be incurred in connection with such well or operation or facility).
It is understood that any estimate of the Capital Costs of an Optional
Development Operation may include such contingent amounts as the General Partner
in good faith shall determine to be appropriate under the circumstances but not
to exceed 25% of the authority for expenditure submitted with respect to such
Optional Development Operation. With respect to any Acquisition, each request to
make additional Capital Contributions in connection therewith shall contain the
information specified in Section 5.3. With respect to Cost Overruns, each
request shall cover the reasonably anticipated costs associated with the subject
operation or project (an "OVERRUN OPERATION"). Each such request shall set
forth, (i) the date by which the Limited Partner must elect in writing to make
the requested additional Capital Contributions, which date shall be as follows:
(A) if the request by the General Partner is made in connection with a proposal
to the Partnership under the terms of any applicable operating agreement with
any third party, not later than three (3) business days prior to the last day a
response to such proposal is required by the Partnership under the terms of such
operating agreement, unless a shorter period is provided to the Partnership
under such third party operating agreement, in which event such shorter period
(but

                                      -21-

<PAGE>

not less than twenty-four (24) hours prior to the time a response to such
proposal is due by the Partnership) shall be applicable to the election period
of the Limited Partner, or (B) if the request by the General Partner is not made
in connection with a proposal to the Partnership under the terms of any
applicable operating agreement with any third party, the last day a response to
a proposal to conduct such Optional Development Operation would be due under the
JOA assuming that a proposal to conduct Optional Development Operation were made
under the JOA at the same time that such request is given to the Limited
Partner; (ii) the purpose or purposes for which the proceeds of the requested
additional Capital Contributions are to be used, (iii) a copy of the applicable
authority for expenditure submitted in connection with the well or operation,
(iv) to the extent practicable, a summary of the pertinent geological data
relating to each well or operation with respect to which the proceeds that are
requested are to be expended and financial projections with respect to the
expenditure of such additional Capital Contributions and the revenue projected
to be received therefrom, (v) with respect to any well or operation with respect
to which the proceeds requested are to be expended, a statement as to whether or
not the General Partner recommends the Partnership participate therein, and (vi)
a summary of the action that the General Partner anticipates it will take under
Section 3.3(d) and any applicable operating agreement if the Limited Partner
does not elect to make such requested additional Capital Contributions. In
connection with any request pertaining to an Enhanced Recovery Operation, the
General Partner shall endeavor to confine such request to the extent possible in
accordance with generally accepted industry standards to those matters or items
which should be conducted in conjunction with each other. Thereafter, the
General Partner shall promptly furnish to the Limited Partner such additional
information concerning the use and application of the requested additional
Capital Contributions as the Limited Partner shall reasonably request. The
Limited Partner may make a separate election with respect to each separate
Optional Development Operation or Acquisition submitted by the General Partner.
The General Partner shall not use any Capital Contributions received from the
Limited Partner pursuant to this Section 3.3 and designated for payment of
Capital Costs of an Optional Development Operation, Acquisition Costs of an
Acquisition or Cost Overruns on a particular operation or project (as
applicable) to pay Capital Costs of any other Optional Development Operation,
Acquisition Costs of any other Acquisition or Cost Overruns on any other
operation or project, except to the extent multiple Optional Development
Operations or Acquisitions are included in the same approved additional Capital
Contribution request, in which case the total amount reflected in such request
may be used to pay any of the Capital Costs or Acquisition Costs Optional
Development Operations or Acquisitions included in that approved request.

     (d) If the Limited Partner declines to agree to make additional Capital
Contributions requested by the General Partner or fails to give timely notice to
the General Partner pursuant to a request to agree to make additional Capital
Contributions made pursuant to Section 3.3(a), the General Partner may elect to
take any action specified in paragraphs (1) through (6) below with respect to
each Lease, Partnership well, operation or project to which the request
pertains, if appropriate:

          (1) With respect to an Acquisition, the General Partner or its
     Affiliates may purchase or retain for its or their own account the Leases
     not acquired by the Partnership.

          (2) The General Partner may cause the Partnership (to the extent it
     can do so under any applicable operating agreement) to abandon the
     operation or project, in which

                                      -22-

<PAGE>

     event all costs (if any) thereafter incurred in abandoning the operation or
     project shall be borne by the Partnership.

          (3) The General Partner may cause the Partnership to sell, farm-out or
     otherwise dispose of the well or Lease (or the applicable part thereof) to
     which such operation or project pertains to any person; provided, however,
     that no such sale, farm-out or other disposition may be made to the General
     Partner or any Affiliate thereof without the prior written consent of the
     Limited Partner.

          (4) In the event a well or Lease to which such proposed operation or
     project pertains is subject to an operating agreement, the General Partner
     may cause the Partnership to elect not to participate in a proposed
     operation and to assume the status of a "non-consenting party" under such
     operating agreement; provided, however, that neither the General Partner
     nor any of its Affiliates shall be permitted to pay or shall pay the
     Partnership's non-consenting share of costs or expenses or any part thereof
     with respect to such operation or project under such operating agreement.

          (5) The General Partner may (provided that it has recommended under
     Section 3.3(c) that the Partnership participate in such proposed operation
     or project) agree to make additional Capital Contributions to pay (i) all
     of the Capital Costs of the subject Optional Development Operation or (ii)
     all of the Cost Overruns of the subject Overrun Operation (as applicable),
     in which event the Optional Development Operation or Overrun Operation will
     constitute a Sole Risk Operation. The General Partner will thereafter be
     allocated all of the costs, expenses and revenues (and all items of income,
     gain, credit, loss and deduction relating thereto) of any Sole Risk
     Operation, for the same period of time (and on the terms) that a party not
     participating in such Sole Risk Operation would be required to relinquish
     its interest therein to the participating parties under (x) if the Property
     on which such Sole Risk Operation is conducted is subject to a Third Party
     JOA, the Third Party JOA Non-Consent Provision, or (y) if the Property on
     which such Sole Risk Operation is not subject to a Third Party JOA, the JOA
     Non-Consent Provisions. In addition, if under the Third Party JOA
     Non-Consent Provisions or JOA Non-Consent Provisions (as applicable, as
     determined in the immediately preceding sentence), a party not
     participating in the Sole Risk Operation would be required to relinquish
     all or part of its interest in any portion of a Lease, platform or facility
     or any wells to be drilled thereon or to be operated in connection
     therewith, in addition to its interest in the Sole Risk Operation, as a
     result of not participating in such Sole Risk Operation, then all costs,
     expenses and revenues (and all items of income, gain, credit, loss and
     deduction relating thereto) attributable to the Partnership's interest in
     such property that would be relinquished shall be allocated to and borne
     and funded by the General Partner for the same period that a party not
     participating in such Sole Risk Operation under the Third Party JOA or the
     JOA (as applicable) would be required to suffer such relinquishment under
     the Third Party JOA or the JOA (as applicable).

          (6) The General Partner may take such other actions as may be mutually
     agreed upon by the Partners.

     SECTION 3.4. REDUCED CAPITAL CONTRIBUTIONS OF A PARTNER. In the event the
Partnership properly retains a portion of a Partner's share of Partnership
revenues in accordance

                                      -23-

<PAGE>

with Section 4.4 for the purpose of paying any Acquisition Costs, Capital Costs,
Hedge Costs, or Organization and Third Party Acquisition Costs allocated to that
Partner hereunder, the amount so retained and not distributed shall reduce pro
tanto the amount of Capital Contributions the Partner is required to thereafter
make for the purpose of paying such costs.

     SECTION 3.5. PAYMENTS OF CAPITAL CONTRIBUTIONS.

     (a) The Limited Partner shall pay the Capital Contributions referenced in
Section 3.2(a) as follows:

          (i) the Limited Partner shall pay the Capital Contributions referenced
     in Section 3.2(a) on the Acquisition Closing Date to the extent of 80% of
     the sum of (i) the Adjusted Purchase Price plus (ii) the Adjusted Agreed
     Value, as all such amounts are reflected in the applicable Preliminary
     Closing Statement; and

          (ii) thereafter, if the sum of the Adjusted Purchase Price plus the
     Adjusted Agreed Value (as reflected in the applicable Final Closing
     Statement) exceeds the sum of the Adjusted Purchase Price plus the Adjusted
     Agreed Value (as reflected in the applicable Preliminary Closing
     Statement), the Limited Partner shall pay the Capital Contributions
     referenced in Section 3.2(a) on the Final Settlement Date to the extent of
     80% of the difference.

     (b) The Limited Partner shall pay the Capital Contributions referenced in
Section 3.2(b) within five business days of the Limited Partner's receipt of a
request from the General Partner for such purpose.

     (c) The Limited Partner shall pay the Capital Contributions referenced in
Section 3.2(c) promptly after receipt of a request from the General Partner for
such purpose.

     (d) Except as otherwise provided in subsections (a), (b), and (c) above,
the Limited Partner shall pay its Capital Contributions monthly upon request by
the General Partner in such amounts as are required to pay its share of all
costs and expenses properly allocated to it hereunder. The General Partner may
request on a monthly basis additional payments of the Capital Contributions
agreed to be made by the Limited Partner for the Limited Partner's share of (i)
all costs and expenses estimated to have been and/or to be incurred by the
Partnership during that calendar month except those for which advances have
previously been made or for which payment will be made from another source and
(ii) those costs and expenses estimated to be incurred by the Partnership during
the next succeeding calendar month. Each monthly request for payment shall be
adjusted to the extent the Limited Partners' cumulative share of actual
Partnership disbursements for the preceding calendar month's costs and expenses
is either greater or less than the amounts previously contributed by the Limited
Partner for such purpose. Any request for payment by the Limited Partner of
Capital Contributions shall be in writing and shall set forth (1) the type,
nature or items of Partnership costs or expenses for which such payment will be
used by the Partnership, including a division of the costs and expenses as
contemplated in clauses (i) and (ii) of this Section 3.5(d) and the adjustment
referred to in this Section 3.5(d), (2) the net amount of the Capital
Contributions to be paid by the Limited Partner, and (3) the date by which
payment of such Capital Contributions shall be received, which shall not be less
than five business days from the date the notice is received by the Limited
Partner.

                                      -24-

<PAGE>

     (e) Payments by the Limited Partner of its Capital Contributions shall be
made by wire transfer of immediately available funds to the Partnership's
account as designated by the General Partner by notice to the Limited Partner
pursuant to Section 12.1.

     (f) Any additional Capital Contributions agreed to be made by the Limited
Partner pursuant to Section 3.3 with respect to any Optional Development
Operation may be requested only if the Optional Development Operation is
commenced within six months following the date the request to agree to make such
additional Capital Contributions was made by the General Partner to the Limited
Partner pursuant to Section 3.3(c). Any additional Capital Contributions agreed
to be made by the Limited Partner pursuant to Section 3.3 with respect to any
Acquisition may be requested only during the period commencing on the date the
request to elect to make such additional Capital Contributions was made by the
General Partner to the Limited Partner under Section 3.3 and ending three months
thereafter.

     SECTION 3.6. NON-PAYMENT OF CAPITAL CONTRIBUTIONS.

     (a) Except as otherwise provided in the following sentence, the Partnership
shall have the right to pursue the remedies described in this Section 3.6 and
any remedy existing at law or in equity for the collection of the unpaid amount
of the Capital Contributions agreed to be made in Sections 3.1 and 3.2 or
hereafter agreed to be made in accordance with Section 3.3, including the
prosecution of a suit against a defaulting Partner.

     (b) In the event that the Limited Partner fails or refuses to make when due
its share of Capital Contributions, the General Partner shall be entitled (but
shall not be obligated) to make such Capital Contributions to the Partnership
which the Limited Partner is obligated to make and the amount so advanced shall
be treated as a loan from the General Partner to the Limited Partner and shall
bear interest from the date of such advance at a rate equal to the Agreed Rate.
The General Partner shall notify the Limited Partner of any such advance and
request payment by the Limited Partner of the amount so advanced, together with
interest thereon from the date of the advance. If the Limited Partner fails or
refuses to pay to the General Partner the amount so advanced, together with
interest thereon from the date of the advance, and if such failure or refusal
persists for a period of 3 business days following notice from the General
Partner to the Limited Partner, (such occurrence being called herein an "EVENT
OF DEFAULT"), the General Partner shall be entitled to proceed pursuant to any
remedy available under applicable law.

     (c) The Partnership may retain any revenues otherwise distributable to the
Limited Partner pursuant to this Agreement in an amount equal to the amount the
Limited Partner failed or refused to contribute as required pursuant to the
terms of this Agreement, together with interest on such past-due amounts at a
rate equal to the Agreed Rate. Any amount so withheld shall be deemed, for all
purposes of this Agreement, to have been distributed to the Limited Partner and,
other than that portion of such amounts representing interest, be deemed to have
been recontributed by the Limited Partner to the capital of the Partnership for
the purposes for which contributions were initially requested. To the extent
that the General Partner has advanced funds to the Partnership as a result of
the default of the Limited Partner, the General Partner shall be entitled to be
reimbursed and paid the amount of such advance plus interest at the Agreed Rate
from the amounts so withheld from the Limited Partner. If any dispute as to
whether an Event of Default existed is resolved in favor of the Limited Partner,
then the General Partner shall pay to the Partnership for distribution to the
Limited Partner an amount equal to any

                                      -25-

<PAGE>

amounts wrongly paid by the Limited Partner to the Partnership which should have
instead been paid to the Partnership by the General Partner, or any amounts
distributed by the Partnership to the General Partner instead of the Limited
Partner, in connection with such Event of Default together with interest thereon
at a rate equal to the Agreed Rate, and all costs and expenses of the Limited
Partner in resolving such dispute, including all attorneys' fees expended in
connection therewith. The General Partner shall be free at any time also to
proceed under this Section 3.6(c) in addition to any other remedies hereunder or
as provided by law.

     (d) In addition to all other rights and remedies available to the
Partnership and the General Partner, if the Limited Partner (the "DEFAULTING
PARTNER") fails or refuses to make Capital Contributions to the Partnership
hereunder when due to pay Hedge Costs and the General Partner (the "CONTRIBUTING
PARTNER") in the Defaulting Partner's stead makes such Capital Contributions to
the Partnership, then the General Partner may elect to exercise either of the
following options:

          (i) The Contributing Partner may treat the payment by it of the
     Defaulting Partner's Capital Contributions as a loan to the Defaulting
     Partner, which loan shall bear interest from the date the payment is made
     at a rate equal to the Agreed Rate. Further, as between the Contributing
     Partner and the Defaulting Partner, the terms and provisions of Sections
     3.6(b) and 3.6(c) shall be applicable, mutatis mutandis.

          (ii) The Contributing Partner may treat the payment by it of the
     Defaulting Partner's Capital Contributions as Capital Contributions from
     the Contributing Partner, in which case the Contributing Partner shall be
     entitled to receive all of the distributions that would otherwise be paid
     to the Defaulting Partner hereunder until that point in time at which the
     Contributing Partner has received from such distributions an amount equal
     to 300% of the amount of the Capital Contributions made by the Contributing
     Partner in the Defaulting Partner's stead; provided, however, that if this
     option is elected, the Defaulting Partner's share of the Hedge Costs paid
     with such Capital Contributions, and any deductions or losses relating
     thereto for state or federal income tax purposes, shall be allocated to the
     Contributing Partner; and provided further, that the Defaulting Partner's
     share of Partnership revenues, and any income or gain relating thereto for
     state or federal income tax purposes, shall be allocated to the
     Contributing Partner until the revenues so allocated equal the
     distributions to be made to the Contributing Partner under this paragraph
     (ii).

          (iii) If the Contributing Partner borrows funds in order to make the
     payment required by the Defaulting Partner, the Contributing Partner may
     pledge its right to receive distributions under this Section 3.6(d) which
     would have been made to the Defaulting Partner to secure such borrowings.

     SECTION 3.7. INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS.

     (a) No interest shall accrue on any contributions to the capital of the
Partnership; however, all interest which accrues on Partnership funds shall be
allocated and credited to the Partners in accordance with Section 4.2.

                                      -26-

<PAGE>

     (b) No Partner shall have the right to withdraw or be repaid any capital
contributed by such Partner except (a) as provided in Sections 4.3(c), 10.2, and
10.3 or (b) in the instance when the Partnership receives a return of cash funds
under the Purchase and Sale Agreement due to a post-closing adjustment to the
Purchase Price, as defined in the Purchase and Sale Agreement (in which event
the General Partner shall cause the Partnership to refund immediately to each of
the Limited Partner and the General Partner its respective allocable share of
such cash funds).

     SECTION 3.8. PAYMENTS AND ADVANCES BY GENERAL PARTNER. The General Partner
shall have the right to pay any indebtedness or obligation of the Partnership
out of funds of the General Partner, and may bill the Partnership therefor.
Further, if at any time the General Partner advances funds to or on behalf of
the Partnership or the General Partner is required to pay any indebtedness or
obligation of the Partnership in excess of the Capital Contributions of the
General Partner agreed to be made in this Article III, such advance or payment
shall constitute a loan by the General Partner to the Partnership. If such
advance or payment is outstanding for more than 30 days, such advance or payment
shall bear interest from the date first made at a rate equal to the Agreed Rate.
No such advance or payment by the General Partner shall be deemed to be a
contribution by the General Partner to the capital of the Partnership. Any loan
made by the General Partner hereunder to pay any costs or expenses allocated and
charged to any Partner shall be repaid (with payments to be applied first to the
payment of interest and then to the repayment of principal) from the revenues
that would otherwise be next distributed to such Partner hereunder.

                                   ARTICLE IV
                          ALLOCATIONS AND DISTRIBUTIONS

     SECTION 4.1. ALLOCATIONS. Except as provided in Sections 3.3 and 3.6, for
purposes of maintaining the Capital Accounts, all income, gain, loss and
deduction of the Partnership shall be allocated among the Partners as follows:

     (a) All items of income, gain, loss and deduction not specifically
allocated below attributable to the Class A Assets and any additional Leases
acquired pursuant to the terms hereof shall be allocated (i) to the General
Partner in accordance with its Class A GP Sharing Percentage and (ii) to the
Limited Partner in accordance with its Class A LP Sharing Percentage.

     (b) All items of income, gain, loss and deduction attributable to the Class
B Assets shall be allocated (i) to the General Partner in accordance with its
Class B GP Sharing Percentage and (ii) to the Limited Partner in accordance with
its Class B LP Sharing Percentage.

     (c) All Catastrophe Costs incurred by the Partnership shall be allocated
100% to the General Partner.

     (d) All items of income, gain, loss and deduction relating to any Sole Risk
Operation shall be allocated as provided in Section 3.3(d)(5).

     (e) Organization and Third Party Acquisition Costs shall be allocated 20%
to the General Partner and 80% to the Limited Partner.

     (f) All items of income, gain, loss and deduction attributable to any
Hedging Transaction shall be allocated 100% to the Limited Partner.

                                      -27-

<PAGE>

     (g) All items of income, gain, loss and deduction attributable to Loss of
Production Income Insurance shall be allocated 100% to the Limited Partner.

     (h) Simulated Depletion with respect to each separate oil and gas property
shall be allocated to the Partners in the same proportion that the Partners were
allocated the adjusted tax basis of such property under Section 4.2(b).
Simulated Gain attributable to the sale or other disposition of an oil or gas
property shall be allocated to the Partners in the same manner as the amount
realized from such sale or other disposition in excess of the Simulated Basis of
such property is allocated to Partners pursuant to Section 4.2(c)(ii). Simulated
Loss attributable to the sale or disposition of an oil or gas property shall be
allocated to the Partners in the same proportion that the Partners (or their
predecessors in interest) were allocated the adjusted tax basis of such property
under Section 4.2(b).

     (i) Except as provided in Section 4.1(j), all depreciation, cost recovery
and amortization deductions attributable to the Class B Assets shall be
allocated 80% to the Limited Partner and 20% to the General Partner.

     (j) In any year in which there is a distribution of Class B Assets pursuant
to Section 5.11, to the extent possible depreciation, cost recovery and
amortization deductions attributable to the Class B Assets shall be allocated to
the Limited Partner and items of income and gain attributable to the Class B
Assets shall be allocated to the General Partner until the total amount of
deduction, income and gain allocated pursuant to this section equals the excess,
if any, of 80% of the book value of the Class B Assets over the value of the
rights granted to the Limited Partner pursuant to Section 5.11.

     (k) In the year in which liquidation occurs, notwithstanding the foregoing
provisions of Section 4.1, all items of income, gain, loss and deduction
(including Simulated Gain, but not Simulated Loss or Simulated Depletion) shall
be allocated among the Partners in such a manner that, to the extent possible,
results in each Partner having a capital account balance (after taking into
account all other allocation under this Section 4.1) equal to the amount that
would be distributed to such Partner if, following the payment of all of the
debts and liabilities of the Partnership (or the establishing of adequate
provision therefor), all of the cash of the Partnership and amount of cash equal
to the fair market values of all remaining assets of the Partnership were
distributed pursuant to Section 4.3.

     (l) Regulatory Allocations.

          (i) If during any fiscal year of the Partnership there is a net
     increase in Minimum Gain attributable to a Partner Nonrecourse Debt that
     gives rise to Partner Nonrecourse Deductions, each Partner bearing the
     economic risk of loss for such Partner Nonrecourse Debt shall be allocated
     items of Partnership deductions and losses for such year (consisting first
     of cost recovery or depreciation deductions with respect to property that
     is subject to such Partner Nonrecourse Debt and then, if necessary, a pro
     rata portion of the Partnership's other items of deductions and losses,
     with any remainder being treated as an increase in Minimum Gain
     attributable to Partner Nonrecourse Debt in the subsequent year) equal to
     such Partner's share of Partner Nonrecourse Deductions, as determined in
     accordance with applicable Treasury Regulations.

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<PAGE>

          (ii) If for any fiscal year of the Partnership there is a net decrease
     in Minimum Gain attributable to Partnership Nonrecourse Liabilities, each
     Partner shall be allocated items of Partnership income and gain for such
     year (consisting first of gain recognized, including Simulated Gain, from
     the disposition of Partnership property subject to one or more Partnership
     Nonrecourse Liabilities and then, if necessary, a pro rata portion of the
     Partnership's other items of income and gain, and if necessary, for
     subsequent years) equal to such Partner's share of such net decrease
     (except to the extent such Partner's share of such net decrease is caused
     by a change in debt structure with such Partner commencing to bear the
     economic risk of loss as to all or part of any Partnership Nonrecourse
     Liability or by such Partner contributing capital to the Partnership that
     the Partnership uses to repay a Partnership Nonrecourse Liability), as
     determined in accordance with applicable Treasury Regulations.

          (iii) If for any fiscal year of the Partnership there is a net
     decrease in Minimum Gain attributable to a Partner Nonrecourse Debt, each
     Partner shall be allocated items of Partnership income and gain for such
     year (consisting first of gain recognized, including Simulated Gain, from
     the disposition of Partnership property subject to Partner Nonrecourse
     Debt, and then, if necessary, a pro rata portion of the Partnership's other
     items of income and gain, and if necessary, for subsequent years) equal to
     such Partner's share of such net decrease (except to the extent such
     Partner's share of such net decrease is caused by a change in debt
     structure or by the Partnership's use of capital contributed by such
     Partner to repay Partner Nonrecourse Debt) as determined in accordance with
     applicable Treasury Regulations.

          (iv) If for any fiscal year of the Partnership the allocation of any
     loss or deduction (net of any income or gain) to any Partner would cause or
     increase a negative balance in such Partner's Adjusted Capital Account as
     of the end of such fiscal year (the "DEFICIT PARTNER"), only the amount of
     such loss or deduction that reduces the balance to zero shall be allocated
     to such Deficit Partner and the remaining loss or deduction shall be
     allocated to the Partner whose Adjusted Capital Account has a positive
     balance remaining at such time (the "POSITIVE PARTNER"). After any such
     allocation, any Partnership income or gain (including Simulated Gain) that
     would otherwise be allocated to the Deficit Partner shall be allocated
     instead to the Positive Partner up to an amount equal to the Partnership
     loss or deduction allocated to the Positive Partner under the preceding
     sentence; provided, however, that no allocation of income or gain realized
     shall be made under this sentence if the effect of such allocation would be
     to cause the Adjusted Capital Account of the Deficit Partner to be less
     than zero. If, after taking into account the allocation in the first
     sentence of this Section 4.1(l)(iv), the Adjusted Capital Account balance
     of the Deficit Partner remains less than zero at the end of a fiscal year,
     a pro rata portion of each item of Partnership income or gain (including
     Simulated Gain) otherwise allocable to the Positive Partners for such
     fiscal year (or if there is no such income or gain allocable to the
     Positive Partners for such fiscal year, all such income or gain (including
     Simulated Gain) so allocable in the succeeding fiscal year or years) shall
     be allocated to the Deficit Partner in an amount necessary to cause its
     Adjusted Capital Account balance to equal zero; provided, that no
     allocation under this sentence shall have the effect of causing the
     Positive Partner's Adjusted Capital Account to be less than zero. After any
     such allocation, any Partnership gain (including Simulated Gain) resulting
     from the sale or other disposition of Partnership property that would
     otherwise be allocated to

                                      -29-

<PAGE>

     the Deficit Partner for any fiscal year under this Section 4.1 shall be
     allocated instead to the Positive Partner until the amount of gain so
     allocated equals the amount of gain (including Simulated Gain) previously
     allocated to such Deficit Partner under the preceding sentence of this
     Section 4.1(l)(iv); provided, however, that no allocation of gain
     (including Simulated Gain) shall be made under this sentence if the effect
     of such allocation would be to cause the Adjusted Capital Account of a
     Deficit Partner to be less than zero.

          (v) To the extent an adjustment to the adjusted tax basis of any
     Company asset pursuant to Sections 734(b) or 743(b) of the Code is
     required, pursuant to Treasury Regulation 1.704-1(b)(2)(iv)(m), to be taken
     into account in determining capital accounts, the amount of such adjustment
     to the capital accounts shall be treated as an item of gain (if the
     adjustment increases the basis of the asset) or loss (if the adjustment
     decreases such basis), and such item of gain or loss shall be specially
     allocated to the Partners in a manner consistent with the manner in which
     their capital accounts are required to be adjusted pursuant to such
     provisions.

     SECTION 4.2. INCOME TAX ALLOCATIONS. Except as otherwise provided below,
for purposes of any applicable federal, state or local income tax law, rule or
regulation items of income, gain, deduction, loss, credit and amount realized
shall be allocated to the Partners in the same manner as provided for in Section
4.1.

     (a) Any credits allowed by Section 29 of the Internal Revenue Code relating
thereto shall be allocated in the same manner as income therefrom is allocated
and credited pursuant to Section 4.1.

     (b) The deduction for depletion with respect to each Depletable Property
shall, in accordance with Section 613A(c)(7)(D) of the Code, be computed for
federal income tax purposes separately by the Partners rather than the
Partnership. Except as provided in Section 4.2(e), for purposes of such
computation, the adjusted tax basis of each oil and gas property shall be
allocated among the Partners based upon Class A GP Sharing Percentage and Class
A LP Sharing Percentage in effect at the time of acquisition or development of
the relevant property.

     (c) Except as provided in Section 4.2(e), for purposes of the separate
computation of gain or loss by each Partner on the sale or disposition of each
Depletable Property, the Partnership's allocable share of the "amount realized"
(as such term is defined in Section 1001(b) of the Code) from such sale or
disposition shall be allocated for federal income tax purposes among the
Partners as follows:

          (i) first, to the extent such amount realized constitutes a recovery
     of the Simulated Basis of the property, to the Partners in the same
     percentages as the depletable basis of such property was allocated to the
     Partners pursuant to Section 4.2(b); and

          (ii) second, the remainder of such amount realized, if any, to the
     Partners so that, to the maximum extent possible, the total amount realized
     allocated to each Partners under this Section 4.2(c) will equal such
     Partner's interest in the proceeds derived from

                                      -30-

<PAGE>

     such sale or disposition based on such Partner's interest in distributions
     related thereto as provided in Section 4.3.

     (d) All recapture of income tax deductions resulting from the sale or other
disposition of Partnership property shall, to the maximum extent possible, be
allocated to the Partner to whom the deduction that gave rise to such recapture
was allocated hereunder to the extent that such Partner is allocated any gain
from the sale or other disposition of such property.

     (e) In accordance with Section 704(c) of the Internal Revenue Code and the
Treasury Regulations thereunder, income and deductions with respect to any
property contributed to the Partnership shall, solely for federal income tax
purposes, be allocated among the Partners in a manner to take into account any
variation between the adjusted tax basis of such property to the Partnership and
its fair market value at the time of contribution. In making such allocations,
the General Partner shall use such method or methods permitted under applicable
Treasury Regulations as may be approved by the Limited Partner in accordance
with Section 6.9(a). It is specifically agreed, however, that, notwithstanding
Section 4.2(b) to the contrary, the adjusted tax basis in Depletable Property
contributed by the General Partner pursuant to the Contribution Agreement shall
be allocated first to the Limited Partner up to an amount equal to 80% of that
portion of the Agreed Value attributable to such Depletable Property, with any
remainder being allocated to the General Partner. Likewise, depreciation and
amortization deductions attributable to other properties contributed to the
Partnership by the General Partner under the Contribution Agreement, including
any interest in the Class B Assets so contributed, shall be allocated to the
Limited Partner up an amount equal to 80% of the depreciation and amortization
that would have been allowable to the Partnership if such properties had an
adjusted tax basis at the time of contribution equal to that portion of the
Agreed Value attributable to such properties, and any remainder shall be
allocated to the General Partner. If the adjusted tax basis of any Depletable
Property or other property contributed to the Partnership by the General Partner
under the Contribution Agreement is not sufficient to achieve the requisite
allocations to the Limited Partner as outlined in this subsection (e), the
General Partner, with the approval of the Limited Partner, shall use either
curative allocations or the remedial method of allocations, or a combination
thereof, as permitted by Treasury Regulation Section 1.704-3, to achieve the
same result so that the Limited Partner's cost depletion, depreciation and
amortization deductions, taking into account any such curative or remedial
allocations, will be the same as if the adjusted tax basis of such Depletable
Property or other property had been equal to the portion of the Agreed Value
attributable thereto on the date of contribution.

     SECTION 4.3. DISTRIBUTIONS.

     (a) Within 30 days after the end of each month, the General Partner shall
cause the Partnership to make a distribution (i) to the Limited Partner of its
LP Monthly Cash Distribution for such month and (ii) to the General Partner of
its GP Monthly Cash Distribution for such month.

     (b) On the Acquisition Closing Date the General Partner shall cause the
Partnership to make a distribution to the General Partner in an amount equal to
the sum of (i) 66.71105% of the Agreed Value, plus (ii) 80% of the adjustments
for Pre-Approved

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<PAGE>

Development Operations costs, plus (iii) 66.71105% of the adjustments other than
those relating to the Pre-Approved Development Operations, all as reflected on
the Preliminary Closing Statement under the Contribution Agreement (such amount,
the "PRELIMINARY DISTRIBUTION AMOUNT").

     (c) If, the sum of (i) 66.71105% of the Agreed Value, plus (ii) 80% of the
adjustments for Pre-Approved Development Operations costs, plus (iii) 66.71105%
of the adjustments other than those relating to the Pre-Approved Development
Operations, all as reflected on the Final Closing Statement under the
Contribution Agreement (the "FINAL DISTRIBUTION Amount"), is in excess of the
Preliminary Distribution Amount, the General Partner shall cause the Partnership
to make a distribution to the General Partner in an amount equal to the
difference. If, under the Contribution Agreement, it is determined that the
Final Distribution Amount is less than the Preliminary Distribution Amount, the
General Partner shall cause the Partnership to make a distribution to the
Limited Partner in an amount equal to the difference. If, under the Purchase and
Sale Agreement, it is determined that the Adjusted Purchase Price, as reflected
on the applicable Final Closing Statement, is less than the Adjusted Purchase
Price, as reflected on the applicable Preliminary Closing Statement, the General
Partner shall cause the Partnership to make a distribution to the Limited
Partner in an amount equal to the difference.

     (d) The General Partner shall cause the Partnership to make a distribution
to the Partners of their allocable share (as determined under Section 4.3(a)) of
the net proceeds of sale resulting from any permitted sale or disposition of
Leases or other Partnership assets (other than in connection with the
liquidation of the Partnership) within three business days after the closing of
such sale or disposition; provided, that the General Partner shall be entitled
to reserve from such distribution such amount which is, or which the General
Partner reasonably anticipates will be, subject to any post-closing adjustment
and which reserve shall be approved by the Limited Partner; provided, further,
that the General Partner shall distribute such reserve or portions thereof at
such times as it reasonably determines that the contingencies for which such
reserve has been established have been satisfied.

     (e) Notwithstanding the foregoing or any other provision contained in this
Agreement, (i) unless the Limited Partner otherwise consents in writing or
defaults in the payment of any Capital Contributions previously agreed to be
made by it, the General Partner shall not be entitled to cause the Partnership
to retain any of the Limited Partner's share of Partnership revenues for the
purpose of paying (directly or indirectly) any Acquisition Costs, Capital Costs,
Hedge Costs, or Organization and Third Party Acquisition Costs or (ii) the
Partnership may retain such insurance proceeds and other amounts as the General
Partner shall reasonably determine are necessary to pay Partnership liabilities
and expenses upon the occurrence of an accident (e.g., a blowout), catastrophe
or similar event (and, in connection therewith, to restore, preserve or protect
Partnership property) or to comply with all applicable Environmental Laws.

     (f) Payment of all distributions made by the Partnership to the Limited
Partner shall be made by wire transfer of immediately available funds in
accordance with such written instructions to the General Partner as may be
provided by the Limited Partner from time to time.

     (g) Nothing contained in this Section 4.3 shall relieve the General Partner
from its obligation to bear 100% of Catastrophe Costs pursuant to Section
4.1(c).

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<PAGE>

     (h) All distributions in liquidation of a Partner's interest in the
Partnership shall be made in accordance with Section 10.3.

                                    ARTICLE V
                              PARTNERSHIP PROPERTY

     SECTION 5.1. TITLE TO PARTNERSHIP PROPERTY. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually, shall
have any ownership of such property. The Partnership shall hold all of its
assets in the name of the Partnership unless under the law of some jurisdiction
in which the Partnership owns assets such assets must be held in another name.
In such a case, such assets in such jurisdiction shall be held under such other
name or names (except the name of the General Partner, any Affiliate of the
General Partner or the name of the Limited Partner) as the General Partner shall
determine to be necessary so long as it does not affect adversely the limited
liability of the Limited Partner hereunder or jeopardize in any manner the title
to or ownership of any Partnership Leases or other assets. The General Partner
shall promptly take all actions generally considered reasonable and customary in
accordance with accepted industry practice to perfect the ownership interest of
the Partnership in all Leases, and (if requested by the Limited Partner) upon
recordation of title to a Lease shall promptly supply the Limited Partner with a
copy of such recorded title. In the event the Partnership acquires assets in a
jurisdiction which prohibits the Partnership from holding such assets in the
name of the Partnership and such assets are held in another name, the General
Partner shall obtain an opinion of reputable counsel in such jurisdiction
addressed to the Limited Partner and satisfactory in all respects to the Limited
Partner that the Partnership has taken all actions generally considered
reasonable and customary in accordance with accepted industry practice to
perfect the ownership interest of the Partnership in all such assets.

     SECTION 5.2. ACQUISITION OF THE PROPERTIES. Immediately after the execution
and delivery of this Agreement by the parties hereto, the General Partner is
authorized to, and shall, execute and deliver on behalf of the Partnership that
certain Contribution Agreement (the "CONTRIBUTION AGREEMENT") by and between the
Partnership, as partnership, and the General Partner, as partner, and that
certain Purchase and Sale Agreement (the "PURCHASE AND SALE AGREEMENT") by and
between the Partnership, as buyer, and Frank C. Wade et al, as seller, provided
the Contribution Agreement and the Purchase and Sale Agreement are substantially
in the forms of the versions submitted to and approved by the Partners on or
prior to the date hereof as the final draft in all material respects, and to
consummate the transactions contemplated thereby.

     SECTION 5.3. ADDITIONAL ACQUISITIONS OF LEASES. If, during the term of this
Agreement but after the Acquisition Closing Date, the General Partner or an
Affiliate thereof acquires (or proposes to acquire) a Lease or Leases inside of
the Area of Mutual Interest (in this Section 5.3 called the "SUBJECT LEASES"),
the terms and provisions of this Section 5.3 shall be operative. Specifically,
upon the acquisition (or proposed acquisition) under the circumstances described
above, the General Partner shall notify the Limited Partner, which notice shall
(a) specify the interest the General Partner or its Affiliates have acquired (or
propose to acquire) in the Subject Leases, (b) specify the purchase price (or
proposed purchase price), (c) describe the development and/or Enhanced Recovery
Operations, if any, the General Partner reasonably anticipates will be engaged
in on the Subject Leases and the estimated costs associated therewith, (d)
include a

                                      -33-

<PAGE>

summary description of the pertinent geological and geophysical information
relating to the Subject Leases or proposed development/Enhanced Recovery
Operations, (e) include financial projections relating to the Subject Leases and
any internally or externally prepared related engineering or reserve reports,
(f) describe the nature and extent of planned title examination and property
related due diligence (including, without limitation, environmental due
diligence), and (g) such other information as the General Partner deems
material, including the depths to be acquired and whether the Partnership or a
third party presently owns such depths as covered by the Subject Leases in the
Area of Mutual Interest. Thereafter, the General Partner shall promptly furnish
to the Limited Partner any additional information concerning the Subject Leases
or the proposed development/Enhanced Recovery Operations as the Limited Partner
may reasonably request (including, without limitation, the reports of
consultants and outside engineers). Subject to the Limited Partner agreeing to
make additional Capital Contributions to the Partnership with respect to the
Subject Leases pursuant to Section 3.3 or as otherwise provided below in this
Section 5.3, the Partnership shall acquire not less than all of the interest of
the General Partner and its Affiliates in such Subject Leases (or, if
applicable, which the General Partner or its Affiliates propose to acquire
therein) pursuant to the terms set forth in the notice. Prior to the acquisition
by the Partnership of the Subject Leases, the General Partner shall notify the
Limited Partner of any material change in the nature and extent of the title
examination and property related due diligence plan and the reason therefor and
of any fact discovered in due diligence that materially adversely affects the
economics or risks associated with the Subject Leases; provided that no such
notice need be given to the Limited Partner if the Limited Partner has elected
not to make additional Capital Contributions with respect thereto. The Limited
Partner may withdraw its election to make additional Capital Contributions with
respect to the proposed acquisition and related activity, at any time prior to
the Partnership committing to acquire the Subject Leases, by so notifying the
General Partner in writing if (i) there is discovered during due diligence a
fact or facts not presented to the Limited Partner in the initial evaluation of
the proposed acquisition that materially adversely affects the economics or
risks associated with the Subject Leases to be acquired and such material
adverse effect cannot be remedied to the reasonable satisfaction of the Limited
Partner prior to the acquisition by the Partnership or (ii) more than three
months have passed since the Limited Partner notified the General Partner of
such Limited Partner's election to make Capital Contributions with respect to
such acquisition and related activity. The interest in each Lease assigned by
the General Partner and each Affiliate thereof to the Partnership pursuant to
this Section 5.3 shall be assigned, conveyed and transferred without warranty of
title, either express or implied, except as to all persons claiming or to claim
the same or any part thereof by, through and under the General Partner or such
Affiliate but not otherwise and with a further warranty that the General Partner
or such Affiliate has not placed any lien, encumbrance, burden or other
restriction on such Lease or, if the General Partner or such Affiliate has
previously placed a lien, encumbrance, burden or other restriction on such
Lease, that such lien, encumbrance, burden or other restriction is being
concurrently released or has been released. In connection with any acquisition
of Leases by the Partnership pursuant to this Section 5.3, the General Partner
or an Affiliate thereof shall not retain from or otherwise burden the interest
in any Lease assigned to the Partnership with any overriding royalty, net
profits interest, carried interest, reversionary interest, production payment or
other burden in favor of itself, its officers, directors and employees or any
other person, except in connection with an acquisition by the General Partner or
such Affiliate pursuant to a transaction where an unrelated third party retains
or is entitled to receive such an interest or burden with respect to all of the
Lease acquired by the General Partner or Affiliate. With respect to each Lease
acquired by the

                                      -34-

<PAGE>

Partnership pursuant to this Section 5.3, such acquisition shall include all
rights to all horizons under such Lease which were available for purchase and
considered appropriate for acquisition by the Partnership. Under no
circumstances shall the General Partner or any Affiliate thereof acquire rights
to any separate horizon within or under a Lease in which the Partnership has an
interest without first offering such rights to the Partnership under this
Section 5.3.

     SECTION 5.4. LEASE SALES.

     (a) Except as provided in this Section 5.4, in Section 6.2(c) and elsewhere
herein, the General Partner may sell, farm-out, abandon or otherwise dispose of
any Partnership Lease, on such terms as the General Partner deems reasonable and
in the best interests of the Partnership.

     (b) Except as expressly permitted and recognized in Sections 5.3 and 10.3,
neither the General Partner or any of its Affiliates nor any of their employees
shall acquire, directly or indirectly, any Lease (or any interest therein) from
the Partnership unless the Limited Partner has previously approved in writing
such acquisition.

     SECTION 5.5. SALES OF PRODUCTION. The General Partner shall have the right
to cause the Partnership to sell any oil or gas produced by or for the account
of the Partnership, including but not limited to crude oil, condensate, natural
gas liquids and natural gas (including casinghead gas) which may be produced
from or allocated to the Class A Assets or any additional Leases acquired
pursuant to the terms hereof, to such purchaser and on such terms and conditions
as the General Partner shall determine to be in the best interest of the
Partnership taking into account all relevant circumstances, including but not
limited to, price, quality of production, access to markets, minimum purchase
guarantees, identity of purchaser, and length of commitment and, in any event,
on terms no less favorable to the Partnership than the General Partner or any
Affiliate thereof is obtaining for arm's length sales, exchanges or dispositions
of the General Partner's or such Affiliate's production of similar quantity and
quality in the same geographic area where the Partnership's production is
located under agreements entered into at or about the same time as the
agreements for the sale of the comparable Partnership production were entered
into.

     SECTION 5.6. OPERATIONS ON PARTNERSHIP LEASES.

     (a) The General Partner or an Affiliate thereof, shall act as operator in
connection with operations on each Partnership Lease and, subject to subsection
(b) below, receive compensation and reimbursement from the Partnership in
connection therewith (regardless of whether there is an operating agreement)
unless (i) another person is serving as operator under an agreement to which a
Lease is subject or (ii) any third party or third parties (not Affiliates of the
General Partner) jointly owning such Lease and with a controlling interest will
not agree. As to those Partnership Leases with respect to which the General
Partner is not the operator, the General Partner shall cause the Partnership to
take such actions that are reasonable and appropriate to enforce the terms of
the applicable operating agreement in all material respects (including terms
relating to the operation and development of such Leases).

     (b) In the event the Partnership and any third party jointly own any Lease
and operations thereon are conducted pursuant to an operating agreement, (i) if
the third party is designated as operator thereunder, the Partnership shall pay
the costs and expenses charged to it thereunder and (ii) if the General Partner
or any of its Affiliates is designated as operator, the

                                       -35-

<PAGE>

General Partner or such Affiliate shall receive for its account from the third
party such third party's share and from the Partnership the Partnership's share
of all compensation and reimbursement provided to the operator thereunder;
provided, however, that the charges to the Partnership by the General Partner or
any of its Affiliates when acting as the designated operator (regardless of
whether there is an operating agreement or regardless of whether or not a third
party is also a party thereto) shall be those set forth in the "ACCOUNTING
PROCEDURE" (as herein called) attached hereto as Exhibit 5.6 (although the
operating agreement, if any, may otherwise provide), and in no event shall the
terms of any such operating agreement vary or effect this Agreement or the
Accounting Procedure or the duties and obligations of the General Partner
hereunder (and in the event of a conflict the terms and provisions of this
Agreement shall prevail).

     (c) Other than assignments among the General Partner and entities which are
Affiliates of the General Partner pursuant to clause (c) of the definition
thereof, the General Partner, or any such Affiliate, shall not substitute
another party as operator, resign as operator or assign its obligations as
operator with respect to any Partnership Lease where it acts as operator, unless
the Limited Partner so requests in the event the General Partner is removed as
such pursuant to Section 9.4 or the Limited Partner elects to dissolve the
Partnership pursuant to any of subsections (c), (e), (f), (g), or (i) of Section
10.1 (in which event the General Partner agrees that it or its Affiliates will
immediately resign as operator, that the Partnership will vote to support the
person designated by the Limited Partner to be the successor operator and, that
the General Partner act in good faith and cooperate in all respects with the
Partnership, the Limited Partner, and the successor operator in transferring
operations in an efficient manner).

     SECTION 5.7. HEDGE ARRANGEMENT.

     (a) Immediately after the execution and delivery of this Agreement by the
parties hereto, the General Partner is authorized to, and shall, execute and
deliver on behalf of the Partnership, the Hedging Transactions described in
Exhibit 5.7(a) attached hereto.

     (b) The General Partner covenants and agrees that, at the request of the
Limited Partner and subject to the condition described below, it will hereafter
execute on behalf of the Partnership such additional Hedging Transactions as are
arranged by the Limited Partner and submitted by it to the General Partner, of
up to 85% of the Limited Partner's share (determined by reference to the Limited
Partner's LP Sharing Percentage) of the Partnership's forecast production from
proved producing reserves (as reflected in the then most recent Reserve Report)
attributable to the Properties and any additional Leases acquired pursuant to
the terms hereof. Notwithstanding the foregoing, it is agreed that the General
Partner's obligation under this Section 5.7(b) shall be conditioned upon the
General Partner having received from the Limited Partner assurance satisfactory
to the General Partner that the Limited Partner has the financial ability to
fund the Hedge Costs attributable to the subject Hedging Transaction (it being
agreed, however, that the guaranty by GE Capital Corporation of the
Partnership's funding obligations in respect of such Hedging Transaction shall
be deemed to satisfy this condition).

     (c) Any Hedging Transaction contemplated hereunder is intended to be a
"hedging transaction" as described in Treasury Regulation Section 1.1221-2 to
reduce the risk of price changes for oil and gas produced by the Partnership in
volumes equal to the notional amounts provided in the documents evidencing such
Hedging Transaction. At the time of the execution and delivery

                                      -36-

<PAGE>

by the Partnership of the documents evidencing a Hedging Transaction, the
General Partner shall take such additional steps as may be requested by the
Limited Partner to identify the Hedging Transaction in the books and records of
the Partnership as a "hedging transaction" in the manner and at the time
prescribed by Treasury Regulation Section 1.1221-2(e).

     SECTION 5.8. PRODUCTION. Throughout the term of the Partnership, the
General Partner shall instruct any operator of any Partnership Lease to produce
on behalf of the Partnership not less than the Partnership's entire working
interest in the production attributable to such Lease that is not shut in or
restricted due to good engineering practices or lack of market; provided,
however, the General Partner shall not be so obligated (a) in circumstances when
it is necessary to restrict production on such Lease for the purpose of
performing general maintenance and workover activities thereon in connection
with maintaining production; (b) if the Partnership is precluded from so doing
by any applicable state, local or federal law, order or regulation; (c) if the
Production Sales Proceeds attributable to such Lease are inadequate to cover
Lease Operating and Production Expenses attributable thereto; or (d) if the
General Partner gives notice to the Limited Partner that due to a cause or
causes beyond the reasonable control of the General Partner, including, for
purposes of illustration, an act of God, strike, act of public enemy, war,
blockade, public riot, lightening, fire, violent storm, flood, explosion or
governmental restraint, it is unable to do so.

     SECTION 5.9. ENVIRONMENTAL, HEALTH AND SAFETY PROGRAM. The General Partner,
at the cost and expense of the Partnership, shall implement and maintain a
formal, comprehensive written environmental health and safety program (in this
Section 5.9, the "EH&S PROGRAM"), including regular review and evaluations, for
the purpose of establishing procedures and guidelines to be utilized by the
Partnership for the express aim of facilitating compliance with applicable
Environmental Laws. At a minimum, the EH&S Program shall include: (a)
identification of potentially significant environmental concerns associated with
any environmental regulations applicable to the Partnership's operations; (b)
adoption and implementation of an environmental management system to assess and
control the environmental impact of the Partnership's operations; and (c)
implementation of periodic EH&S audits conducted either internally or by
independent consultants with documented corrective action responding to
deficiencies specifically noted in such audits. The EH&S Program shall involve
senior management of the General Partner, include a formal written corporate
environmental policy, and identify by name or position the person with overall
responsibility for EH&S compliance, as well as those person(s) who are
responsible for specific EH&S areas.

     SECTION 5.10. PLUGGING AND ABANDONMENT LIABILITIES. The General Partner
shall cause the Partnership to deposit, over the life of anticipated production
from the Partnership's properties, Partnership proceeds in accordance with the
schedule attached hereto as Exhibit 5.10 for the purpose of creating a special
fund for the Partnership to pay future plugging and abandonment liabilities.
Such deposits shall be deposited in and maintained in a segregated account with
a bank or banks that comply with the provisions of Section 8.3. The Partners
agree to review Exhibit 5.10 and the assumptions underlying such Exhibit on a
yearly basis no later than 30 days after the issuance of an updated Reserve
Report and make a good faith determination as to whether any modifications are
appropriate given changing facts or circumstances (e.g.'s, additional wells
brought on line, production rates of wells).

                                       -37-

<PAGE>

     SECTION 5.11. AGREEMENT REGARDING DISTRIBUTION OF THE CLASS B ASSETS.

     (a) At any time after the expiration of the Phase II Period, upon 15 days'
advance written notice to the Limited Partner by the General Partner, the
Partners agree to takes the steps necessary to cause the following transactions
(the "DISTRIBUTION") to occur:

          (i) the Partnership and the Limited Partner shall execute and deliver
     that certain letter agreement substantially in the form attached hereto as
     Exhibit 5.11(a)(i) (the "LP LETTER AGREEMENT"); and

          (ii) the Partnership shall distribute, assign and convey the Class B
     Assets (subject to the rights of the Limited Partner under the LP Letter
     Agreement) to the General Partner by execution and delivery, in the name
     and on behalf of the Partnership, of that certain conveyance substantially
     in the form attached hereto as Exhibit 5.11(a)(ii) (the "CONVEYANCE").

     (b) Simultaneously with the Conveyance, the General Partner agrees to
execute and deliver (i) in the name and on behalf of the Partnership, as
shipper, and (ii) in its separate capacity, as gatherer, that certain Gas
Gathering Agreement substantially in the form attached hereto as Exhibit
5.11(b).

     (c) The General Partner will cause the Partnership to adjust the Partners'
capital accounts to the extent required by applicable Treasury Regulations to
reflect the Distribution. Upon the Distribution, if requested by the Limited
Partner, the General Partner shall cause the Partnership to make an election
under Section 754 of the Internal Revenue Code to adjust the tax basis of its
remaining assets under Section 734 of the Internal Revenue Code. Any such
adjustment will be allocated to the Limited Partner to the extent required(after
taking into account Section 4.1(j)) to avoid the loss of depreciation and
amortization deductions attributable to any portion of the Class B Assets so
distributed.

                                   ARTICLE VI
                                   MANAGEMENT

     SECTION 6.1. POWER AND AUTHORITY OF GENERAL PARTNER. Except as provided in
Section 6.2 and elsewhere in this Agreement and except as otherwise provided by
applicable law, the General Partner shall have full and exclusive power and
authority on behalf of the Partnership to manage, control, administer and
operate the properties, business and affairs of the Partnership in accordance
with this Agreement and to do or cause to be done any and all acts deemed by the
General Partner to be necessary or appropriate thereto.

     SECTION 6.2. CERTAIN RESTRICTIONS ON GENERAL PARTNER'S POWER AND AUTHORITY.

     (a) Notwithstanding any other provisions of this Agreement to the contrary,
the General Partner shall not do, perform or authorize any of the following (x)
prior to the commencement of the Phase III Period, without the prior written
consent of the Limited Partner, and (y) after the commencement of the Phase III
Period, as provided in Section 6.2(b):

          (i) To borrow any money in the name or on behalf of the Partnership,
     or otherwise draw, make, execute and issue promissory notes and other
     negotiable or non-

                                      -38-

<PAGE>

     negotiable instruments and evidences of indebtedness, except that the
     General Partner may borrow money in the name and on behalf of the
     Partnership in such amounts as the General Partner shall reasonably
     determine are necessary to preserve and protect Partnership property upon
     the occurrence of an accident (e.g., a blowout), catastrophe or similar
     event or to comply with all applicable Environmental Laws;

          (ii) To mortgage, pledge, assign in trust or otherwise encumber any
     Partnership property, or to assign any monies owing or to be owing to the
     Partnership, except to secure the payment of any borrowing permitted in
     Section 6.2(a) and except for customary liens contained in or arising under
     any operating agreements, construction contracts and similar agreements
     executed by or binding on the Partnership with respect to amounts not yet
     due or not yet delinquent (or, if delinquent, that are being contested by
     the General Partner in good faith) or except for statutory liens for
     amounts not yet due or not yet delinquent (or, if delinquent, that are
     being contested by the General Partner in good faith), provided that in no
     event shall the General Partner mortgage, pledge, assign in trust or
     otherwise encumber the Partnership's right to receive Capital Contributions
     from the Limited Partner;

          (iii) To sell, assign, farm-out, abandon or otherwise dispose of any
     Partnership Lease or Class B Asset except (i) as provided in Sections
     3.3(d)(2) and 3.3(d)(3), (ii) with respect to any given calendar year, for
     sales or other dispositions by the Partnership during such year up to (but
     not to exceed) an aggregate (non-cumulative) amount equal to $25,000 in
     proceeds received by the Partnership, or (iii) for such Leases or interests
     therein as the General Partner shall reasonably determine to be necessary
     to raise funds to pay Partnership liabilities and expenses (other than
     Catastrophe Costs) upon the occurrence of an accident, catastrophe or
     similar event (and, in connection therewith, to restore, preserve and
     protect Partnership property) or to comply with all applicable
     Environmental Laws or other laws, ordinances, rules and regulations;

          (iv) To guarantee in the name or on behalf of the Partnership the
     payment of money or the performance of any contract or other obligation of
     any person other than the Partnership;

          (v) To make any advance payments of compensation or other
     consideration to the General Partner or any of its Affiliates, except as
     provided in the applicable operating agreement under which the General
     Partner or any of its Affiliates serves as operator of any Partnership
     Lease;

          (vi) To bind or obligate the Partnership with respect to any matter
     outside the scope of the Partnership business;

          (vii) To merge or consolidate the Partnership with any partnership or
     other person or entity, convert the Partnership to a general partnership or
     other entity or agree to an exchange of interests with any other person;

          (viii) To use the Partnership name, credit or property for other than
     Partnership purposes;

                                      -39-

<PAGE>

          (ix) To loan any Partnership funds to the General Partner or any of
     its Affiliates, except to the extent that any advance under any operating
     agreement pursuant to which the General Partner or any of its Affiliates
     serves as operator of any Partnership Lease constitutes a loan;

          (x) To enter into a Hedging Transaction, except as provided in Section
     5.7, and to amend or terminate any agreements or other document evidencing
     a Hedging Transaction or waive any material rights of the Partnership
     thereunder;

          (xi) To acquire any Lease in violation of the terms of this Agreement;

          (xii) To alter, supplement, modify or amend the Purchase and Sale
     Agreement or the Contribution Agreement or any other document or instrument
     executed in connection therewith in any material respect, waive any of the
     Partnership's rights or any of seller's duties and obligations thereunder
     in any material respect, or make any material election, determination or
     agreement thereunder;

          (xiii) To compromise or settle any lawsuit, administrative matter or
     other dispute where the amount the Partnership may recover or might be
     obligated to pay, as applicable, is in excess of $25,000;

          (xiv) To cause the Partnership to incur any fee or similar charge
     payable to the General Partner or its Affiliates with respect to the
     marketing of the Partnership's gas production; or

          (xv) Except as expressly provided herein, to take any action with
     respect to the assets or property of the Partnership which benefits the
     General Partner or any of its Affiliates to the detriment of the Limited
     Partner or the Partnership, including, among other things, utilization of
     funds of the Partnership as compensating balances for its own benefit.

     (b) After commencement of the Phase III Period, the General Partner: (i)
shall have the power and authority to do, perform or authorize the actions
described in Section 6.2(iii) or Section 6.2(xiii) without the need to obtain
the prior written consent or other approval of the Limited Partner; and (ii)
shall not have the power or authority to, and shall not, do, perform or
authorize any of the actions described in Sections 6.2(a)(i), (ii), (iv), (v),
(vi), (vii), (viii), (ix), (x), (xi), (xii), (xiv) or (xv), without the prior
written consent of the Limited Partner, which consent shall not be unreasonably
withheld or delayed.

     SECTION 6.3. DUTIES AND SERVICES OF GENERAL PARTNER.

     (a) The General Partner shall comply in all material respects with the
terms of this Agreement and shall use its reasonable commercial efforts (i) to
cause its Affiliates to comply in all material respects with the terms of this
Agreement and (ii) in the conduct of the business and operations of the
Partnership to cause the Partnership (A) to comply in all material respects with
the terms and provisions of all agreements to which the Partnership is a party
or to which its properties are subject, (B) to comply in all material respects
with all applicable laws, ordinances or governmental rules and regulations to
which the Partnership is subject (including, without limitation, all applicable
Environmental Laws), and (C) to obtain and maintain all licenses,

                                      -40-

<PAGE>

permits, franchises and other governmental authorizations necessary with respect
to the ownership of Partnership properties and the conduct of Partnership
business and operations. The General Partner also covenants and agrees with the
Limited Partner that it will use its best efforts to cause the Partnership to
conduct the construction operations relating to the Class B Assets pursuant to
the time frame for such operations set forth in Exhibit 6.3(a).

     (b) In conducting the activities and operations of the Partnership and in
carrying out (or causing to be carried out) the maintenance, exploration,
development and operation of the Properties and any additional Leases acquired
pursuant to the terms hereof with respect to which the General Partner or any of
its Affiliates serves as operator, the General Partner shall act (and shall
cause its Affiliates to act) as a reasonable prudent operator, but neither the
General Partner nor any of its Affiliates shall have any liability to the
Partnership or the Limited Partner for any failure so to act as a reasonable
prudent operator, or for any loss, damage, cost, or expense to the extent caused
by any such failure, EVEN IF SUCH LOSS, DAMAGE, COST OR EXPENSE AROSE SOLELY OR
IN PART FROM THE ACTIVE, PASSIVE, SOLE OR CONCURRENT NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT OF THE MANAGING GENERAL PARTNER OR ANY OF ITS
AFFILIATES OTHER THAN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE MANAGING
GENERAL PARTNER OR ANY OF ITS AFFILIATES, and the Partnership shall bear any
such loss, damage, cost or expense. Except to the extent modified by the terms
of this Agreement, the General Partner shall have the duties of loyalty and care
set forth in Section 4.04 of the Texas Revised Partnership Act and shall
discharge such duties in good faith and in a manner the General Partner
reasonably believes to be in the best interest of the Partnership. During the
existence of the Partnership, the General Partner shall devote such time and
effort to the Partnership business and operations as the General Partner
reasonably believes to be in the best interest of the Partnership; however, and
subject to the foregoing and the other express provisions of this Agreement, it
is specifically understood and agreed that the General Partner shall not be
required to devote full time to Partnership business. Subject to the other
express provisions of this Agreement, the Limited Partner acknowledges that the
General Partner and its Affiliates currently engage in and possesses, and agrees
that the General Partner and its Affiliates may continue to engage in and
possess, interests in other business ventures of any and every type and
description, independently or with others, including the ownership, acquisition,
exploration, development, operation and management of oil and gas properties,
oil and gas drilling programs and partnerships similar to this Partnership, and
neither the Partnership nor the Limited Partner shall by virtue of this
Agreement have any right, title or interest in or to such independent ventures,
and the General Partner and its Affiliates shall not be required to offer any
business opportunity of any kind to the Partnership or the Limited Partner
except as expressly provided in Section 5.3. The General Partner in its capacity
as such, is not a trustee and is not held liable to the same standards as a
trustee. The General Partner shall have no other duties (fiduciary or
otherwise), at law or in equity, to the Partnership or to the Limited Partner
except as otherwise expressly provided herein.

     (c) The General Partner covenants and agrees that it will at all
appropriate times retain and have available to it and the Partnership a
professional staff and outside consultants which together will be reasonably
adequate in size, experience and competency to discharge properly the duties and
functions of the General Partner hereunder and under any applicable operating
and other agreements, including, engineers, geologists and other technical
personnel, attorneys, accountants and secretarial and clerical personnel.

                                      -41-

<PAGE>

     SECTION 6.4. LIABILITY OF GENERAL PARTNER. The General Partner shall not be
liable, responsible or accountable in damages or otherwise to the Partnership or
the Limited Partner for, and (subject to Section 6.5) the Partnership shall
protect, defend, indemnify and save harmless the General Partner and its
Affiliates, and the officers, directors, partners, employees and agents of each
of them, for any costs, expenses, liabilities, losses, claims and damages
(including attorneys' fees and expenses, court costs, judgments and amounts paid
in settlement) incurred by the indemnified person arising out of or in
connection with the Partnership, REGARDLESS OF THE NEGLIGENCE, STRICT LIABILITY,
FAULT, OR OTHER RESPONSIBILITY OF THE INDEMNIFIED PERSON, and on request by the
person indemnified the Partnership shall advance expenses associated with
defense of any related action; provided, however, that this indemnity does not
apply to actions constituting gross negligence, willful misconduct, or
intentional breach of this Agreement by the indemnified person, and provided
further that the satisfaction of any indemnification and any saving harmless
shall be from and limited to Partnership assets (which shall be converted to
cash to the extent necessary in a manner appropriate to protect the interests of
all indemnified persons) and not from any Capital Contributions to be made by
the Partners hereunder.

     SECTION 6.5. LIMITATIONS ON INDEMNIFICATION. The rights of the General
Partner under Section 6.4 with respect to indemnification from the Partnership
shall be subject to the provisions of Article 11 of the Act. Notwithstanding
anything herein to the contrary, and notwithstanding Section 11.05 of the Act,
the General Partner shall not be entitled to advancement or reimbursement of any
attorneys' fees, expenses, or court costs in connection with a proceeding
between the General Partner, on the one hand, and the Partnership or any Limited
Partner, on the other.

     SECTION 6.6. COSTS, EXPENSES AND REIMBURSEMENT.

     (a) Subject to the terms of this Agreement, all direct, third-party out of
pocket costs and expenses reasonably incurred in the Partnership's business
shall be paid from Partnership funds, including but not limited to, costs of
obtaining audits of the Partnership's books and records (including the fees and
expenses of the Partnership's independent public accountants), the fees and
expenses attributable to the preparation of the Partnership's tax returns and
reports, the fees and expenses of the independent petroleum engineer referenced
in Section 8.2(f), outside legal costs, general taxes, fees, costs and expenses
in connection with the winding up and termination of the Partnership's business
and affairs, and other direct, third-party out of pocket costs and expenses of
the Partnership.

     (b) Commencing on the Acquisition Closing Date, the Partnership shall pay,
and the General Partner shall be entitled to receive, a monthly fee (the
"MANAGEMENT FEE") in an amount equal to 4% of Net Monthly Operating Income,
subject to the following:

          (i) if (A) either the Partnership's right to receive revenues has been
     assigned to a trustee pursuant to Section 6.11, the General Partner
     withdraws from the Partnership, the General Partner has been removed as
     provided herein, or the Partnership is being wound up for liquidation
     pursuant to Section 10.3 and the General Partner is not acting as
     liquidator, and (B) the General Partner or an Affiliate thereof continues
     to serve as operator of the Properties with respect to which it is acting
     as operator on the date hereof,

                                      -42-

<PAGE>

     the monthly Management Fee during the General Partner's tenure thereafter
     as operator shall equal 3% of Net Monthly Operating Income;

          (ii) if (A) the General Partner or an Affiliate thereof ceases to be
     operator of any of the Properties with respect to which it is acting as
     operator on the date hereof and (B) the General Partner continues to act as
     the general partner of the Partnership, the Monthly Management Fee during
     the General Partner's remaining tenure as general partner of the
     Partnership shall equal 1% of Net Monthly Operating Income plus 3% of the
     Net Monthly Operating Income attributable to those Properties, if any, with
     respect to which the General Partner or an Affiliate thereof continues to
     act as operator; and

          (iii) with respect to the last month during which the Management Fee
     is payable hereunder if the obligation to pay such fee terminates prior to
     the last day of such month, the monthly Management Fee shall be prorated
     based on the number of days during such month in which the General Partner
     is entitled to receive the Management Fee divided by the total number of
     days in such month.

As used in this subsection (b), the term "NET MONTHLY OPERATING INCOME" means,
with respect to a given month, (1) the Hedge Proceeds for such month received by
the Partnership and attributable to any Hedging Transaction plus (2) the
Production Sales Proceeds for such month received by the Partnership from the
sale of hydrocarbons produced from or otherwise attributable to the Properties
and any additional Leases acquired pursuant to the terms hereof less (3) any
Hedge Costs for such month less (4) Lease Operating and Production Costs for
such month.

     (c) Except as provided in this Section 6.6(c), Sections 3.6, 3.8, 5.6 and
6.7, and in any other provision of this Agreement, the General Partner and its
Affiliates shall not be paid any fee, compensation or reimbursement or be
entitled to or charge the Partnership for or on account of their services,
services of their officers, employees or consultants, fees or compensation of
those geologists, geophysicists and engineers who are employed by them or
otherwise retained by them, office expense, overhead or any other general or
administrative costs or expense.

     SECTION 6.7. ORGANIZATION AND THIRD PARTY ACQUISITION COSTS. The
Partnership from time to time shall pay directly, or shall reimburse the General
Partner and the Limited Partner for any payment by them of, the following fees,
costs and expenses incurred in connection with the initial organization of the
Partnership and the acquisition of the Properties ("ORGANIZATION AND THIRD PARTY
ACQUISITION COSTS"): (a) all reasonable fees and expenses incurred by them
(including fees for outside legal services) in connection with the preparation
and filing of all certificates, opinions and documents required pursuant to
Sections 1.2 and 1.6; (b) the fees, costs and expenses of the outside petroleum
engineers and other third party consultants retained by the Limited Partner in
connection with the formation of the Partnership or the acquisition of the
Properties; (c) all reasonable fees, costs and expenses of legal counsel to the
Limited Partner in connection with (i) the negotiation, preparation and
execution (or review, as applicable) of this Agreement, the Purchase and Sale
Agreement and the Contribution Agreement and all related documents, (ii) a due
diligence review of the Properties, and (iii) the closing of the transactions
contemplated hereunder and under the Purchase and Sale Agreement and the
Contribution Agreement.

                                      -43-

<PAGE>

     SECTION 6.8. INSURANCE. The General Partner shall cause the Partnership to
obtain (and maintain during the entire term of the Partnership), or the General
Partner shall carry for the benefit of the Partnership, to the extent available
on commercially reasonable terms, insurance coverage in such amounts, with
provisions for such deductible amounts and for such purposes as the General
Partner and the Limited Partner have agreed upon below and thereafter shall
agree upon in writing on or about July 1 of each year. Where appropriate, the
General Partner may include the Partnership or the Limited Partner as additional
insureds on any policies otherwise carried by the General Partner and the costs
thereof shall be allocated to the Partnership on a basis mutually agreed upon in
writing by the General Partner and the Limited Partner from time to time. The
Partners hereby agree that the General Partner shall initially carry for the
benefit of the Partnership insurance coverage in the amounts, with provisions
for such deductible amounts and for the purposes, specified in Exhibit 6.8.
Thereafter, the Partners shall review and agree in writing upon the
Partnership's insurance coverage as provided above.

     SECTION 6.9. TAX ELECTIONS.

     (a) The General Partner shall make the following elections on behalf of the
Partnership:

          (i) To elect, in accordance with Section 263(c) of the Internal
     Revenue Code and applicable regulations and comparable state law
     provisions, to deduct as an expense all intangible drilling and development
     costs with respect to productive and non-productive wells and the
     preparation of wells for the production of oil or gas;

          (ii) To elect the calendar year as the Partnership's fiscal year if
     permitted by applicable law;

          (iii) To elect the accrual method of accounting;

          (iv) If requested by the Limited Partner, to elect, in accordance with
     Sections 734, 743 and 754 of the Internal Revenue Code and applicable
     regulations and comparable state law provisions, to adjust basis in the
     event any Partnership interest is transferred in accordance with this
     Agreement or any Partnership property is distributed to any Partner;

          (v) To elect to treat all organizational and start-up costs of the
     Partnership as deferred expenses amortizable over 60 months under Sections
     195 and 709 of the Internal Revenue Code; and

          (vi) To elect with respect to such other federal, state and local tax
     matters as the General Partner and the Limited Partner shall agree upon
     from time to time.

     (b) No Partner shall elect or cause the Partnership to elect to have the
Partnership treated as an association taxable as a corporation.

     (c) The General Partner agrees to use its best efforts to cause any tax
partnership which governs any of the Properties or any additional Leases
acquired pursuant to the terms hereof to make an election under Section 754 of
the Internal Revenue Code if such election would be beneficial to the
Partnership.

                                      -44-

<PAGE>

     SECTION 6.10. TAX RETURNS. The General Partner shall cause to be prepared
and timely filed (including extensions) all federal, state and local income and
other tax returns and reports as may be required as a result of the business of
the Partnership, which returns shall be signed by Deloitte & Touche, or such
other independent certified public accountants of the Partnership as the
Partners may approve from time to time. Not less than 20 days prior to the date
(as extended) on which the Partnership intends to file its federal income tax
return or any state income tax return, the return proposed to be filed by the
General Partner shall be furnished to the Limited Partner for review and
comments. In addition, not more than 10 days after the date on which the
Partnership actually files its federal income tax return or any state income tax
return, a copy of the return so filed by the General Partner shall be furnished
to the Limited Partner. The General Partner shall be designated the tax matters
partner under Section 6231 of the Internal Revenue Code and shall promptly
notify the Limited Partner if any tax return or report of the Partnership is
audited or if any adjustments are proposed by any governmental body. In
addition, the General Partner shall promptly furnish to the Limited Partner all
notices concerning administrative or judicial proceedings relating to federal
income tax matters as required under the Internal Revenue Code. During the
pendency of any such administrative or judicial proceeding, the General Partner
shall furnish to the Limited Partner periodic reports, not less often than
monthly, concerning the status of any such proceeding. Without the consent of
the Limited Partner, the General Partner shall not extend the statute of
limitations, file a request for administrative adjustment, file suit concerning
any tax refund or deficiency relating to any Partnership administrative
adjustment or enter into any settlement agreement relating to any Partnership
item of income, gain, loss, deduction or credit for any fiscal year of the
Partnership.

     SECTION 6.11. APPOINTMENT OF TRUSTEE TO RECEIVE PAYMENTS. The Limited
Partner may cause the Partnership at the Partnership's expense to assign the
Partnership's right to receive revenues to a trustee named by the Limited
Partner (a) if the General Partner has committed fraud, willful or intentional
misconduct or gross negligence in the performance of its duties hereunder, (b)
if the General Partner is in default in the performance or observance of any
material agreement, covenant, term, condition or obligation hereunder relating
to the handling or disbursement of funds of the Partnership, and such default is
not cured within five days after notice in writing from the Limited Partner to
the General Partner, (c) if the General Partner is in default in the performance
or observance of any material agreement, covenant, term, condition or obligation
hereunder (other than default described in clause (b) above), and such default
is not cured within 30 days after notice in writing from the Limited Partner to
the General Partner, (d) if a representation or warranty made by the General
Partner herein or by the General Partner or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be false in
material respect on the date as of which made, and such breach, if susceptible
to cure, is not cured within 30 days after notice in writing from the Limited
Partner to the General Partner, or (e) upon the occurrence of any of the events
described in either Section 4.02(a)(4) or in Section 4.02(a)(5) of the Act. Such
trustee shall receive and hold Partnership revenues for the benefit of all the
Partners, but shall not have the rights of the General Partner hereunder. The
trustee's sole right and responsibility shall be to receive Partnership funds
and disburse them in accordance with the other provisions of this Agreement. In
the event a trustee is appointed pursuant to this Section 6.11 and the default
is cured or the action or event under or with respect to the bankruptcy law is
completely dismissed or eliminated, the General Partner and the Limited Partner
shall, at the request of either the General Partner or the Limited Partner,
cause the trustee to be discharged at the Partnership's expense.

                                      -45-

<PAGE>

     SECTION 6.12. CONTRACTS WITH AFFILIATES. The Partnership may enter into
contracts and agreements with the General Partner and its Affiliates for the
rendering of services and the sale and lease of supplies and equipment, provided
that the amount of the compensation, price or rental that can be charged to the
Partnership must be no less favorable to the Partnership than those available
from qualified unrelated third parties in the area engaged in the business of
rendering comparable services or selling or leasing comparable equipment or
supplies which could reasonably be made available to the Partnership; and,
provided, further, that any such contract for services shall be terminable by
the Partnership without penalty at any time upon written notice. It is agreed
that the fees charged for gathering Related Party Gas through the Class B Assets
will be at the Market Rate as determined at the time the gathering agreement to
gather such Related Party Gas is entered into. Without limiting its other rights
hereunder, the Limited Partner shall, upon request to the General Partner, have
the right to receive (a) copies of all contracts and agreements between the
Partnership and the General Partner or its Affiliates and (b) true and full
information from the General Partner verifying compliance by the General Partner
and its Affiliates with this Section 6.12.

                                  ARTICLE VII
                    RIGHTS AND OBLIGATIONS OF LIMITED PARTNER

     SECTION 7.1. RIGHTS OF LIMITED PARTNER. In addition to the other rights
specifically set forth herein, the Limited Partner shall have the right to: (a)
have the Partnership books and records (including those required in Section 1.07
of the Act) kept at the principal United States office of the Partnership and at
all reasonable times to inspect and copy any of them, (b) upon written request,
have an accounting of the Partnership's business to the extent permitted by the
Act, (c) have dissolution and winding up by decree of court as provided for in
the Act, (d) consult with or advise the General Partner, and (e) exercise all
rights of a limited partner under the Act (except to the extent otherwise
specifically provided for herein).

     SECTION 7.2. RIGHT OF LIMITED PARTNER TO COMPEL SALE.

     (a) Subject to the terms and provisions of this Section 7.2, the Limited
Partner shall have the right, upon written notice to the General Partner and the
Partnership, to request that the Partnership (i) sell all the Class A Assets and
any additional Leases acquired pursuant to the terms hereof, (ii) sell all the
Class B Assets, (iii) sell all the Class A Assets, any additional Leases
acquired pursuant to the terms hereof, and all the Class B Assets, (iv)
contribute all the Class A Assets and any additional Leases acquired pursuant to
the terms hereof to a wholly-owned subsidiary of the Partnership and sell the
equity interests in such subsidiary, (v) contribute all the Class B Assets to a
wholly-owned subsidiary of the Partnership and sell the equity interests in such
subsidiary, or (vi) contribute all the Class A Assets, any additional Leases
acquired pursuant to the terms hereof, and the Class B Assets to a wholly-owned
subsidiary of the Partnership and sell the equity interests in such subsidiary.

     (b) The Limited Partner's rights under this Section 7.2 shall arise and be
operative only after the third anniversary date of the Acquisition Closing Date
and provided the Phase III Period has not theretofore commenced. Further, the
Limited Partner's rights under this Section 7.2 shall extend only to the Class A
Assets (and not the Class B Assets) after the expiration of the Phase I Period.

                                      -46-

<PAGE>

     (c) If the Limited Partner submits a request to the General Partner and the
Partnership to take any of the actions described in Section 7.2(a) (and provided
that the Limited Partner rights to submit such request are operative under
Section 7.2(b)), the General Partner shall thereupon be obligated to promptly
take all steps reasonably necessary to market and sell the subject assets or
interests (as applicable). Notwithstanding the foregoing, if, within ten
business days of receipt by the General Partner of a request under Section
7.2(a), the General Partner makes a Capital Contribution to the Partnership
which, when distributed to the Limited Partner, will cause the Phase III Period
to commence (and such amount is distributed to the Limited Partner within such
ten-business day period), the Limited Partner's rights under this Section 7.2
shall immediately expire.

     SECTION 7.3. LIMITATIONS ON LIMITED PARTNER. The Limited Partner shall not
have the authority or power in its capacity as a Limited Partner to act as agent
for or on behalf of the Partnership or any other Partner, to do any act which
would be binding on the Partnership or any other Partner, or to incur any
expenditures on behalf of or with respect to the Partnership. The General
Partner shall not hold out or represent to any third party that the Limited
Partner has any such right or power or that the Limited Partner is anything
other than a "limited partner" in the Partnership.

     SECTION 7.4. LIABILITY OF LIMITED PARTNER. To the extent provided by
applicable law, the Limited Partner shall not be liable for the debts,
liabilities, contracts or other obligations of the Partnership except to the
extent of any unpaid Capital Contributions agreed to be made by the Limited
Partner as set forth in Section 3.2 (which shall be subject to reduction as
provided for in Section 3.4), any additional Capital Contributions hereafter
agreed to be made by the Limited Partner in accordance with Section 3.3 (which
shall also be subject to reduction as provided for in Section 3.4) and the
Limited Partner's share of the assets (including undistributed revenues) of the
Partnership; and in all events, the Limited Partner shall be liable and
obligated to make payments of its Capital Contributions only as and when such
payments are due in accordance with the terms of this Agreement, and the Limited
Partner shall not be required to make any loans to the Partnership. The
Partnership shall indemnify and hold harmless the Limited Partner in the event
it (a) becomes liable for any debt, liability, contract or other obligation of
the Partnership, except to the extent expressly provided in the preceding
sentence, or (b) is directly or indirectly required to make any payments with
respect thereto.

     SECTION 7.5. ACCESS OF LIMITED PARTNER TO DATA. During the term of the
Partnership, the Partnership may acquire or have access to geophysical,
geological and other similar data and information. The Limited Partner and its
agents and representatives shall have the right to inspect, review and copy
(subject to the terms of any valid, bona fide agreement binding upon the
Partnership prohibiting such inspection, review or copying) any such data or
information (or studies, maps, evaluations or reports derived therefrom) which
relates to the Properties or other Leases which the Partnership owns and to
consult with the Partnership's independent certified public accountants and
independent petroleum engineers and the General Partner's technical personnel
with respect to Partnership matters. Upon liquidation of the Partnership, copies
of all such documents shall be distributed to a Partner if so requested by it
and provided it pays any additional licensing fees (if applicable) associated
therewith. If the Partnership is subject to a valid, bona fide agreement
prohibiting the inspection, review or copying of certain Partnership data or
information, the General Partner shall, if requested by the Limited Partner,
attempt to obtain an amendment or waiver of any such agreement to permit such
data or information to be

                                      -47-

<PAGE>

inspected, reviewed or copied by the Limited Partner or provided to the Limited
Partner upon execution by the Limited Partner of a similar agreement and payment
by the Limited Partner of any applicable licensing fees.

     SECTION 7.6. WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTION. The Limited
Partner shall not be entitled to (a) withdraw from the Partnership except upon
the assignment by the Limited Partner of all of its interest in the Partnership
and the substitution of such Limited Partner's assignee as a Limited Partner of
the Partnership in accordance with Section 9.1, or (b) the return of its Capital
Contributions except to the extent, if any, that distributions made pursuant to
the express terms of this Agreement may be considered as such by law or by
unanimous agreement of the Partners, or upon dissolution and liquidation of the
Partnership, and then only to the extent expressly provided for in this
Agreement and as permitted by law.

                                  ARTICLE VIII
                    BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS

     SECTION 8.1. CAPITAL ACCOUNTS, BOOKS AND RECORDS.

     (a) Except as may otherwise be required by this Agreement, the General
Partner shall keep books of account for the Partnership in accordance with
generally accepted accounting principles consistently applied in accordance with
the terms of this Agreement. Such books shall be maintained at the principal
United States office of the Partnership and shall be maintained by the General
Partner for review by the Limited Partner during the term of the Partnership and
for a period of five years thereafter. The calendar year shall be selected as
the accounting year of the Partnership and the books of account shall be
maintained on an accrual basis.

     (b) An individual capital account shall be maintained by the Partnership
for each Partner as provided below:

          (i) The capital account of each Partner shall, except as otherwise
     provided herein, be (A) credited by such Partner's Capital Contributions
     when made, (B) credited by the fair market value of any property
     contributed to the Partnership by such Partner (net of liabilities secured
     by such contributed property that the Partnership is considered to assume
     or take subject to under Section 752 of the Internal Revenue Code), (C)
     credited with the amount of any item of income or gain and the amount of
     any item of income or gain exempt from tax allocated to such Partner
     (taking into account any reallocation pursuant to Sections 3.3 and 3.6),
     (D) credited with the Partner's share of Simulated Gain as provided in
     paragraph (ii) of this Section 8.1(b), (E) debited by the amount of any
     item of deduction or loss allocated to such Partner (taking into account
     any reallocation pursuant to Sections 3.3 and 3.6), (F) debited with the
     Partner's share of Simulated Loss and Simulated Depletion as provided in
     paragraph (ii) of this Section 8.1(b), (G) debited by such Partner's
     allocable share of expenditures of the Partnership not deductible in
     computing the Partnership's taxable income and not properly chargeable as
     capital expenditures, including any non-deductible book amortizations of
     capitalized costs, and (H) debited by the amount of cash or the fair market
     value of any property distributed to such Partner (net of liabilities
     secured by such distributed property that such Partner is considered to
     assume or take subject to under Section 752 of the Internal Revenue Code).
     Immediately prior to any distribution of

                                      -48-

<PAGE>

     assets by the Partnership that is not pursuant to a liquidation of the
     Partnership or all or any portion of a Partner's interest therein, the
     Partners' capital accounts shall be adjusted by (X) assuming that the
     distributed assets were sold by the Partnership for cash at their
     respective fair market values as of the date of distribution by the
     Partnership and (Y) crediting or debiting each Partner's capital account
     with its respective share of the hypothetical gains or losses, including
     Simulated Gains and Simulated Losses, resulting from such assumed sales in
     the same manner as each such capital account would be debited or credited
     for gains or losses on actual sales of such assets. Notwithstanding the
     foregoing sentence, the Partnership shall not distribute any property in
     kind to any Partner except as provided in Section 10.3.

          (ii) The allocation of basis prescribed by Section 613A(c)(7)(D) of
     the Internal Revenue Code and provided for in Section 4.2(b) and each
     Partner's separately computed depletion deductions shall not reduce such
     Partner's capital account, but such Partner's capital account shall be
     decreased by an amount equal to the product of the depletion deductions
     that would otherwise be allocable to the Partnership in the absence of
     Section 613A(c)(7)(D) of the Internal Revenue Code (computed without regard
     to any limitations which theoretically could apply to any Partner) times
     such Partner's percentage share of the adjusted basis of the property
     (determined under Section 4.2(b)) with respect to which such depletion is
     claimed (herein called "SIMULATED DEPLETION"). The Partnership's basis in
     any Depletable Property as adjusted from time to time for the Simulated
     Depletion allocable to all Partners (and where the context requires, each
     Partner's allocable share thereof, which share shall be determined in the
     same manner as the allocation of basis prescribed in Section 4.2(b)) is
     herein called "SIMULATED BASIS." No Partner's capital account shall be
     decreased, however, by Simulated Depletion deductions attributable to any
     Depletable Property to the extent such deductions exceed such Partner's
     allocable share of the Partnership's remaining Simulated Basis in such
     property. The Partnership shall compute simulated gain ("SIMULATED GAIN")
     or simulated loss ("SIMULATED LOSS") attributable to the sale or other
     disposition of a Depletable Property based on the difference between the
     amount realized from such sale or other disposition and the Simulated Basis
     of such property, as theretofore adjusted. Any Simulated Gain shall be
     allocated to the Partners and shall increase their respective capital
     accounts in the same manner as the amount realized from such sale or other
     disposition in excess of Simulated Basis shall have been allocated pursuant
     to Section 4.2(b). Any Simulated Loss shall be allocated to the Partners
     and shall reduce their respective capital accounts in the same percentages
     as the costs of the property sold were allocated up to an amount equal to
     each Partner's share of the Partnership's Simulated Basis in such property
     at the time of such sale.

          (iii) Any adjustments of basis of Partnership property provided for
     under Sections 734 and 743 of the Internal Revenue Code and comparable
     provisions of state law (resulting from an election under Section 754 of
     the Internal Revenue Code or comparable provisions of state law) and any
     election by an individual Partner under Section 59(e)(4) of the Internal
     Revenue Code to amortize such Partner's share of intangible drilling and
     development costs shall not affect the capital accounts of the Partners
     (unless otherwise required by applicable Treasury Regulations), and the
     Partners' capital accounts shall be debited or credited pursuant to the
     terms of this Section 8.1 as if no such election had been made.

                                      -49-

<PAGE>

          (iv) Capital accounts shall be adjusted, in a manner consistent with
     this Section 8.1, to reflect any adjustments in items of Partnership
     income, gain, loss or deduction that result from amended returns filed by
     the Partnership or pursuant to an agreement by the Partnership with the
     Internal Revenue Service or a final court decision.

          (v) In the case of property carried on the books of the Partnership at
     an amount which differs from its adjusted basis, the Partners' capital
     accounts shall be debited or credited for items of depreciation, cost
     recovery, Simulated Depletion, amortization and gain or loss (including
     Simulated Gain or Simulated Loss) with respect to such property computed in
     the same manner as such items would be computed if the adjusted tax basis
     of such property were equal to such book value, in lieu of the capital
     account adjustments provided above for such items, all in accordance with
     Treasury Regulation Section 1.704-1(b)(2)(iv)(g).

          (vi) It is the intention of the Partners that the capital accounts of
     each Partner be kept in the manner required under Treasury Regulation
     Section 1.704-1(b)(2)(iv). To the extent any additional adjustment to the
     capital accounts is required by such regulation, the General Partner is
     hereby authorized to make such adjustment after notice to the Limited
     Partner.

     SECTION 8.2. REPORTS. The General Partner shall deliver to the Limited
Partner the following financial statements, data files, and reports at the times
indicated below:

     (a) Daily, via email to a person designated by the Limited Partner, when
the Partnership has any direct drilling operations in progress, a drilling
report detailing the progress as reported by the subject drilling
superintendent, and weekly, via e-mail, while the Partnership is constructing
the Class B Assets, a report detailing the progress of such construction.

     (b) Monthly, within 30 days after the end of the month for which such
report is given, (i) a general description of the Properties (it being agreed
that the attached Exhibit 2.1--Class A Assets and Exhibit 2.1--Class B Assets
shall serve as such general description for purposes of this Section 8.2(b)) and
any additional Leases acquired pursuant to the terms hereof, except succeeding
reports need contain only material changes (if any) regarding the Properties and
such Leases, (ii) a description of each sale, farmout or other transfer or
disposition by the Partnership of any Lease occurring during such month,
including the reasons therefor, parties thereto and terms thereof, (iii) a
statement of the volume of natural gas or other gaseous substances transported
through any Class B Asset (regardless of whether the Partnership owns such Class
B Asset during such month), and (iv) a statement of the Pipeline Operating
Expenses and Pipeline Operating Proceeds for such month; provided, that if there
is no activity to report with respect to a given month, the report may state
that. This report shall be uploaded into an online reporting system of the
Limited Partner's choice.

     (c) Monthly, within 30 days after the end of each month in which joint
interest billings are processed and revenue disbursements are made or capital is
received or distributed by the General Partner, a schedule prepared on a cash
basis for such month indicating capital contributions and distributions for both
the General Partner and Limited Partner. This schedule shall be entered into an
online reporting system of the Limited Partner's choice or, alternatively, at
the written request of the Limited Partner, provided in writing.

                                      -50-

<PAGE>

     (d) Monthly, within 30 days after the end of each month in which joint
interest billings are processed and revenue disbursements are made, a data file
prepared on a production month accrual basis with respect to the following month
and for all months of the Partnership's term prior to the following month, not
to exceed twelve months, substantially in the form of Exhibit 8.2(d) in all
material respects, including all lease operating expense categories tracked by
the Partnership, and by individual well whenever possible. This data file shall
be uploaded to the online reporting system selected by the Limited Partner. To
the extent that required information is not included in the uploaded data file,
the information may be manually entered into the online reporting system. This
reporting requirement will not be considered complete until the General Partner
has uploaded or inputted all the required categories from Exhibit 8.2(d),
including all lease operating expense categories tracked by the Partnership,
reviewed the uploaded data on the online reporting system and certified that to
the best of its knowledge, it is reasonable in all material respects; provided,
that if the General Partner is unable to comply with its obligations as
described in this sentence as a result of technical problems or other
malfunctions at the online reporting system level, the General Partner shall not
be deemed in breach of this Agreement as a result of such non-compliance. At the
written request of the Limited Partner, a summary of this report may be provided
in writing to the Limited Partner, rather than in a data file.

     (e) Quarterly within 45 days after the end of each fiscal quarter of the
Partnership, including the fourth fiscal quarter, and annually within 120 days
after the end of each fiscal year of the Partnership, (i) financial statements
as of the end of and for such period, including a balance sheet and statements
of income (subject to estimated, not actual depletion for quarterly reporting
purposes), Partners' equity, and cash flows, prepared in accordance with
generally accepted accounting principles (excluding, in the instance of the
quarterly financial statements, the footnote requirement) and, with respect to
the annual financial statements, accompanied by a report of the Partnership'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 the Partnership's financial
position, results of operations and cash flow in accordance with generally
accepted accounting principles consistently applied, (ii) a schedule reflecting
for such period the total costs of the Partnership and the costs charged to the
General Partner and the costs charged to the Limited Partner, the total revenues
of the Partnership and the revenues credited to the account of the General
Partner and to the account of the Limited Partner and a reconciliation of such
expenses and revenues to the provisions of Section 4.1, as well as Sections 3.3
and 3.6, and, with respect to the annual financial statements, with such
reconciliation to be detailed by well, Lease, or unit, as appropriate, and to
include the original requested amount and the actual amount received or spent,
(iii) a summary itemization by type and/or classification of the total fees,
compensation and reimbursement paid by the Partnership (or indirectly on behalf
of the Partnership) to the General Partner and its Affiliates, (iv) a schedule
reflecting the capital account balances of each Partner prepared pursuant to the
provisions of Section 8.1(b), (v) a schedule reflecting the unit of production
that was used by the Partnership to calculate depletion amounts set forth in the
quarterly or annual financial statement, as applicable, (vi) accompanying the
annual financial statement, a schedule setting forth the current book value of
each property of the Partnership, with such amount further listed by well,
Lease, or unit, as appropriate, (vii) a summary of the information previously
submitted to the Partnership by the General Partner pursuant to Section 8.2(d),
and (viii) a report detailing the status of Cumulative Payout No. 1 and
Cumulative Payout No. 2, including detail regarding all Capital Contributions
made by both the General Partner and the Limited Partner since the formation of
the Partnership and all distributions made by the Partnership since its
formation.

                                      -51-

<PAGE>

The independent certified public accountants for the Partnership shall be
Deloitte & Touche or such other nationally recognized firm of independent
certified public accountants as shall be designated by the General Partner and
approved by the Limited Partner.

     (f) Annually within 90 days after the end of each fiscal year of the
Partnership, beginning with the fiscal year ending December 31, 2005, a report
(a "RESERVE REPORT") containing (i) an estimation of the oil and gas reserves,
classified by appropriate categories, as of the end of the preceding fiscal year
attributable to the interest of the Partnership, (ii) a projection of the rate
of production of and net income from such reserves with respect to each such
interest, (iii) a calculation of the present worth of such net income discounted
at a rate or rates designated from time to time by the Limited Partner, (iv) a
reconciliation of these reserves (to include production, revisions, and
additions) to the prior fiscal year and to the preliminary engineering
evaluations), and (v) the estimated future product prices, capital expenditures,
operating expenses and taxes utilized in preparing such report. Each Reserve
Report shall be prepared in accordance with customary and generally accepted
standards and practices for petroleum engineers, and shall be based on such
assumptions as to costs, product prices and similar factors as (x) prescribed by
Rule 4-10 of Regulation S-X promulgated by the Securities and Exchange
Commission and (y) the Limited Partner shall designate from time to time and
shall be prepared by an independent petroleum engineer designated by the General
Partner and approved by the Limited Partner. The forecast of production
contained in the Reserve Report will be utilized by the General Partner in
connection with the preparation of the reports contemplated by Section 8.2(d).
The General Partner shall provide such additional material or data as the
Limited Partner may reasonably request with respect to the information contained
in the Reserve Report.

     (g) Annually within 90 days after the end of each fiscal year of the
General Partner, unaudited financial statements of the General Partner similar
to those required for the Partnership in Section 8.2(e)(i) (provided, that this
reporting requirement shall expire after the commencement of the Phase III
Period).

     (h) Quarterly, within 45 days after the end of each fiscal quarter of the
Partnership, including the fourth fiscal quarter, a description and the status
of any environmental remediation activities then being conducted by the
Partnership.

     (i) Annually, within 90 days after the end of each fiscal year of the
Partnership, a statement from the General Partner to the effect that, to the
best of its knowledge, the Partnership is in compliance in all material respects
with all applicable Environmental Laws (provided, that if the General Partner is
unable to make such statement on an unqualified basis, the General Partner shall
generally describe any qualifications or exceptions to such statement).

     (j) Such other reports and financial statements as the General Partner
shall determine or as the Limited Partner shall reasonably request in writing
from time to time, including all filings, if any, with the Securities and
Exchange Commission or public announcements of the General Partner.

     The cost of such reporting paid to third parties (except pursuant to
Section 8.2(g)) shall be paid by the Partnership as a Partnership expense. The
Partnership's allocated cost (not to exceed $15,000 during the first year and
$8,000 per annum thereafter) for maintaining the online reporting system shall
be paid by the Partnership as a Partnership expense.

                                      -52-

<PAGE>

     In connection with the foregoing, the Partners agree that: (i) the
Partnership shall adopt SFAS 133, Accounting for Derivative Instruments and
Hedging Activities (in this paragraph, the "STATEMENT"), (ii) the Partnership
will comply with the terms and provisions of the Statement, including measuring
the value of the Partnership's derivative instruments on at least a quarterly
basis and maintaining all required documentation, in each case as may be
directed by the Limited Partner in writing, and (iii) they will cooperate in
good faith to determine the form and nature of all reports reasonably requested
in writing by the Limited Partner to verify compliance with the Statement.

     SECTION 8.3. BANK ACCOUNTS. The General Partner shall cause one or more
accounts to be maintained in the name of the Partnership in one or more banks
which each have capital, surplus and undivided profits of at least $200,000,000,
which accounts shall be used for the payment of expenditures incurred by the
Partnership in connection with the business of the Partnership and in which
shall be deposited any and all receipts of the Partnership. All amounts shall be
and remain the property of the Partnership and shall be received, held and
disbursed by the General Partner for the purposes specified in this Agreement.
There shall not be deposited in any of such accounts any funds other than funds
belonging to the Partnership, and no other funds shall in any way be commingled
with such funds. It is acknowledged and agreed, however, that the General
Partner or an Affiliate thereof, acting in its capacity as the operator of a
Partnership Lease or Leases, will maintain an operating account into which the
proceeds from third party purchasers of production attributable to such Lease(s)
will be deposited, and that such arrangement will not be deemed violative of
this Section 8.3.

     SECTION 8.4. INFORMATION RELATING TO THE PARTNERSHIP. Upon request and at
the expense of the Partnership, the General Partner shall supply to the Limited
Partner any information reasonably requested regarding the Partnership or its
activities. During ordinary business hours, the Limited Partner and its
authorized agents and representatives shall have reasonable access to all books,
records and materials in the Partnership's offices regarding the Partnership or
its activities to which the Limited Partner is entitled to have access under
applicable law and that is not restricted by applicable confidentiality
agreements.

     SECTION 8.5. CERTAIN NOTICES. Without limiting its obligations hereunder,
the General Partner shall promptly notify the Limited Partner in writing:

     (a) of the occurrence of any material adverse change in the Partnership's
operations or properties;

     (b) of the occurrence of any material adverse change in the General
Partner's financial condition taken on a consolidated basis;

     (c) of any material default by the General Partner in the performance of
any of its obligations hereunder;

     (d) of any inspection by governmental authorities, notice of violations
issued by any such entities, pending administrative or judicial proceeding,
claim or any violation identified by the General Partner, to the extent any such
inspection, notice, proceeding, claim or violation relate to compliance by the
Partnership with Environmental Laws and could reasonably be expected to result
in a fine, penalty, loss or damage to the Partnership of $50,000 or more;

                                      -53-

<PAGE>

     (e) in the event the General Partner changes the location of its principal
office or principal place of business; and

     (f) in the event the Limited Partner becomes entitled to remove the General
Partner pursuant to Section 9.4(a), immediately after the General Partner
becomes aware of such event.

                                   ARTICLE IX
                   ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS

     SECTION 9.1. ASSIGNMENTS BY LIMITED PARTNER.

     (a) The interest of the Limited Partner in the Partnership shall be
assignable in whole or in part, subject to the following: (i) no such assignment
shall be made if such assignment would result in the violation of any applicable
federal or state securities laws and (ii) the Partnership shall not be required
to recognize any such assignment until the instrument conveying such interest
has been delivered to the General Partner for recordation on the books of the
Partnership.

     (b) Unless an assignee becomes a substituted Limited Partner in accordance
with the provisions set forth below, such assignee shall not be entitled to any
of the rights granted to the Limited Partner hereunder, other than the right to
receive allocations of income, gain, loss, deduction, credit and similar items
and distributions to which the assignor would otherwise be entitled, to the
extent such items are assigned, and the Limited Partner shall continue to be
responsible for its obligations hereunder.

     (c) An assignee of the interest of the Limited Partner, or any portion
thereof, shall become a substituted Limited Partner entitled to all of the
rights of the Limited Partner if, and only if (i) the assignor gives the
assignee such right, (ii) the General Partner consents to such substitution
(which consent shall not be unreasonably withheld), and (iii) the assignee
executes and delivers such instruments, in form and substance reasonably
satisfactory to the General Partner, as the General Partner may deem necessary
or desirable to effect such substitution and to confirm the agreement of the
assignee to be bound by all of the terms and provisions of this Agreement. Upon
the satisfaction of such requirements, the General Partner shall concurrently
(or as of such later date as shall be provided for in any applicable written
instruments furnished to the General Partner) admit any such assignee as a
substituted Limited Partner of the Partnership and reflect such admission and
the date thereof in the records of the Partnership.

     (d) The Partnership and the General Partner shall be entitled to treat the
record owner of any Partnership interest as the absolute owner thereof in all
respects and shall incur no liability for distributions of cash or other
property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.

     (e) Notwithstanding the foregoing or anything else herein to the contrary,
the Limited Partner shall be permitted to assign its interest in the Partnership
to a "PERMITTED AFFILIATE" (which, for purposes of this Section 9.1(e), shall
mean any person (i) directly or indirectly, controlling, controlled by or under
common control with the Limited Partner and (ii) which is the primary investment
entity utilized by General Electric Capital Corporation to own its oil and gas

                                      -54-

<PAGE>

reserve based equity investments). Such permitted affiliate will be
automatically substituted as a limited partner in place of the Limited Partner
upon receipt by the General Partner of a document or instrument executed by both
the Limited Partner and such permitted affiliate that provides (A) that the
Limited Partner has assigned its interest in the Partnership to the permitted
affiliate with the intent that such permitted affiliate be substituted in its
place as a limited partner of the Partnership and (B) that the permitted
affiliate agrees to be admitted to the Partnership as a substitute limited
partner in place and stead of the Limited Partner and to be bound by all of the
terms and provisions of this Agreement, and includes a representation and
warranty by the Limited Partner and the permitted affiliate (which the
Partnership and the General Partner shall be entitled to rely upon) that such
permitted affiliate, for its owns account or with the support of a related
entity, has sufficient capital to fund its remaining required Capital
Contributions under this Agreement.

     SECTION 9.2. ASSIGNMENT BY GENERAL PARTNER. The interest of the General
Partner in the Partnership shall not be assigned or transferred, in whole or in
part, without the prior written consent of the Limited Partner in its sole and
absolute discretion. The General Partner shall be permitted to mortgage or
pledge its interest in the Partnership as security for third party indebtedness
of the General Partner, provided that the outstanding principal amount of such
indebtedness at any time shall not exceed $5,000,000.

     SECTION 9.3. MERGER OR CONSOLIDATION. Notwithstanding the provisions of
Sections 9.1 or 9.2, the merger or consolidation by a Partner with another
entity shall not be considered an assignment of an interest in the Partnership,
and upon the merger or consolidation of such Partner, the resulting entity shall
continue as a Partner.

     SECTION 9.4. REMOVAL OF GENERAL PARTNER.

     (a) During the Phase I Period or the Phase II Period the Limited Partner
may (subject to the provisions hereof) remove the General Partner with cause and
select a new General Partner to operate and carry on the business and affairs of
the Partnership. As used in this Section 9.4 and in Section 9.5, "with cause"
means the occurrence of any of the following: (i) the commission by the General
Partner of fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder; (ii) a default by the General Partner in
the performance or observance of any material agreement, covenant, term,
condition or obligation hereunder relating to the handling or disbursement of
funds of the Partnership, and such default is not cured within 5 days after
notice in writing from the Limited Partner to the General Partner, (iii) a
default by the General Partner in the performance or observation of any material
agreement, covenant, term, condition or obligation hereunder (other than a
default described in clause (ii) above), and such default is not cured within 30
days after notice in writing from the Limited Partner to the General Partner or
such greater number of days as is reasonably necessary to cure such default
within reasonable diligence; (iv) a representation or warranty made by the
General Partner herein or by the General Partner or any of its officers or
Affiliates in any writing furnished in connection with or pursuant to this
Agreement shall be false in any material respect on the date as of which made
and such default, if susceptible to cure, is not cured within 30 days after
notice in writing from the Limited Partner to the General Partner or such
greater number of days as is reasonably necessary to cure such default within
reasonable diligence; (v) the occurrence of any of the events described in
Section 4.02(a)(4) or Section 4.02(a)(5) of the Act; and (vi) (A) the
dissolution (or other similar event) of the General Partner; (B) the death,

                                      -55-

<PAGE>

insanity, legal disability, bankruptcy or insolvency of any Key Person unless
replaced within 90 days by a person reasonably acceptable to the Limited
Partner; (C) the resignation, retirement or removal of any Key Person as a
manager (or comparable title or position) of the General Partner or the
determination by the Limited Partner that any Key Person is not otherwise
actively involved in the day-to-day management of the business and operations of
the General Partner and the Partnership, in each case unless such Key Person is
replaced within 90 days by a person reasonably acceptable to the Limited
Partner, or (D) a Change in Control.

     (b) In the event the Limited Partner elects to remove the General Partner
in accordance with the provisions of Section 9.4(a) hereinabove, any successor
General Partner will be named in, and its appointment as such will be effective
as of a date specified in, a notice to the General Partner from the Limited
Partner exercising its right to remove the General Partner and select the
successor General Partner. The removal of the General Partner shall be effective
when the following conditions have been satisfied: (i) a successor General
Partner shall have been selected and shall have agreed to accept the
responsibilities of a General Partner; and (ii) this Agreement and the
Certificate of Limited Partnership of the Partnership shall have been duly
amended to name the new General Partner. To the extent required by the laws of
any jurisdiction to which the Partnership or this Agreement is subject, the
Partners hereby unanimously consent to the admission of such successor General
Partner and hereby appoint such successor General Partner as the agent and
attorney in fact for each Partner (including the retiring General Partner) for
the purpose of signing, swearing to and filing an amendment to the certificate
of limited partnership of the Partnership and all other necessary or appropriate
documents in connection with the substitution of such successor General Partner.

     (c) The provisions of this Section 9.4 shall not be the sole remedy of the
Limited Partner in the event the General Partner is removed with cause, and in
such event the Partnership and/or the Limited Partner shall have all other
rights and remedies as shall be available to them pursuant to this Agreement, at
law or in equity to redress any wrong or damage arising from the event or
circumstances giving rise to the General Partner's removal with cause.

     SECTION 9.5. RIGHT OF GENERAL PARTNER UPON REMOVAL. In the event the
General Partner is removed in accordance with Section 9.4, the incoming General
Partner shall have the right to purchase from the removed General Partner a one
percent general partner interest in the Partnership at a price equal to the
appraised value thereof. Such appraised value shall be determined by a qualified
independent appraiser who is mutually agreed upon by both the removed General
Partner and the incoming General Partner within 30 days after the selection of
the incoming General Partner. If the removed General Partner and the incoming
General Partner cannot mutually agree upon a single independent appraiser within
such period, they shall each select their own independent appraiser and those
two appraisers shall select a third independent appraiser. The cost of such
appraisal shall be borne by the removed General Partner. The incoming General
Partner's option to acquire such interests must be exercised by notice in
writing to the removed General Partner not more than 20 days after the selection
of the incoming General Partner and the purchase price for such interest shall
be paid in cash not more than 30 days after receipt by the parties of the report
of the appraiser setting forth the appraised value. In the event the incoming
General Partner does not elect to purchase the one percent general partner
interest of the removed General Partner pursuant to the provisions of this
Section 9.5, such interest shall be converted to a limited partner interest in
the Partnership. Further, any remaining general partner interest of the removed
General Partner in the Partnership (i.e., the additional

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interests in profits, losses and distribution received or to be received after
the expiration of the Phase I Period) shall be converted to a limited partner
interest in the Partnership and the removed General Partner shall continue as a
limited partner, with:

     (a) in instance of a removal arising from a Change of Control, the same
rights with respect to information and reporting and the same right to vote,
consent, approve or otherwise make any determination under this Agreement as the
Limited Partner enjoys under the terms of this Agreement; and

     (b) in the instance of a removal arising other than a result of a Change of
Control, without any right to vote, consent, approve or otherwise make
determinations under this Agreement; provided, that any amendment to this
Agreement which would change (i) the status of the removed General Partner as a
limited partner hereof, (ii) the removed General Partner's participation in the
income, gain, loss, credits or distributions of the Partnership (including any
increase upon the expiration of the Phase I Period), (iii) the removed General
Partner's obligation to contribute capital to the Partnership, or (iv) this
proviso, shall require the written consent of the removed General Partner;
provided, further, that in the instance of an Optional Development Operation,
the removed General Partner shall have the same right to elect whether or not to
participate in such Optional Development Operation and Overrun Operation as the
Limited Partner possesses under Section 3.3.

     SECTION 9.6. RIGHT OF FIRST OFFER.

     (a) If the Limited Partner proposes to make any sale or other disposition
of all or any portion of its interest in the Partnership (other than a sale or
other disposition to a person controlling, controlled by or under common control
with the Limited Partner and whether or not the Limited Partner has received an
offer for such interest), the Limited Partner shall so inform the General
Partner by notice in writing (in this Section 9.6, the "TRANSFER NOTICE")
describing the interest (or portion thereof) that is the subject of such
proposed disposition (in this Section 9.6, the "OFFERED INTEREST") and
requesting that the General Partner submit an offer to purchase the Offered
Interest. The General Partner shall thereupon have 30 days after receipt of the
Transfer Notice to submit an offer in writing to the Limited Partner to purchase
the Offered Interest, which offer shall be in reasonable detail. Failure of the
General Partner to submit an offer in writing to the Limited Partner to purchase
the Offered Interest within such 30-day period shall be deemed an election by
the General Partner not to submit an offer. If the General Partner submits an
offer in writing to purchase the Offered Interest in accordance with this
Section 9.6(a), the Limited Partner shall have the option to accept such offer,
to decline the offer and retain the Offered Interest, or to sell the Offered
Interest to a third party, provided that (i) any sale to a third party is
consummated within 120 days after the expiration of the above 30-day period and
is on terms and conditions no less favorable to the Limited Partner than those
contained in the offer submitted by the General Partner and (ii) the terms of
Section 9.1 are complied with. If the General Partner elects not to, or fails
to, deliver any such offer in writing to the Limited Partner within such 30-day
period, the Limited Partner shall have the option to sell the Offered Interest
to a third party on such terms and conditions as agreed upon between them,
provided that any such sale is consummated within 120 days after the expiration
of the above 30-day period and the terms of Section 9.1 are complied with.

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     (b) If the Limited Partner elects to accept an offer of the General Partner
to purchase the Offered Interest as provided in subsection (a) above, the
closing of the purchase and sale of an Offered Interest shall take place on the
30th day following the date of delivery to the General Partner of the Limited
Partner's election to accept such offer (or if such day is a Saturday, Sunday,
or legal holiday in the State of Connecticut, the first day thereafter that is
not a Saturday, Sunday, or legal holiday) at 10:00 a.m., local time, in the
offices of the Limited Partner set forth on the Limited Partner's signature page
of this Agreement, or on such other date and at such other time and place as may
be agreed to by both Partners. At the closing, the Limited Partner shall take
all action necessary to convey the Offered Interest to the General Partner, free
of all liens and encumbrances, against receipt of the purchase price therefor.

                                   ARTICLE X
                    DISSOLUTION, LIQUIDATION AND TERMINATION

     SECTION 10.1. DISSOLUTION. The Partnership shall be dissolved upon the
occurrence of any of the following:

     (a) The occurrence of August 31, 2025.

     (b) The consent in writing of the General Partner and the Limited Partner.

     (c) The election of the Limited Partner by written notice to the General
Partner if at the time such notice is given (i) the General Partner has
committed fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder, (ii) the General Partner has defaulted in
the performance or observance of any material agreement, covenant, term,
condition or obligation hereunder relating to the handling or disbursement of
funds of the Partnership, and such default is not cured within 5 days after
notice in writing from the Limited Partner to the General Partner, (iii) the
General Partner has defaulted in the performance or observation of any material
agreement, covenant, term, condition or obligation hereunder (other than a
default described in clause (ii) above), and such default is not cured within 30
days after notice in writing from the Limited Partner to the General Partner or
such greater number of days as is reasonably necessary to cure such default
within reasonable diligence, or (iii) a representation or warranty made by the
General Partner herein or by the General Partner or any of its officers or
Affiliates in any writing furnished in connection with or pursuant to this
Agreement shall be false in any material respect on the date as of which made
and such default, if susceptible to cure, is not cured within 30 days after
notice in writing from the Limited Partner to the General Partner or such
greater number of days as is reasonably necessary to cure such default within
reasonable diligence.

     (d) The sale or other disposition of all or substantially all of the assets
of the Partnership.

     (e) The occurrence of an event of withdrawal from the Partnership by the
General Partner as provided for in Section 4.02(a) of the Act.

     (f) The election of the Limited Partner by written notice to the General
Partner if at the time such notice is given (i) the General Partner has breached
Section 9.2 and such breach is not cured within 30 days after notice in writing
from the Limited Partner to the General Partner,

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or (ii) prior to the commencement of the Phase III Period the General Partner
has merged or consolidated with another entity without the prior written consent
of the Limited Partner.

     (g) The election of the Limited Partner by written notice to the General
Partner (i) at any time prior to the third anniversary of the Acquisition
Closing Date, if (A) the Phase III Period has commenced and (B) an event
described in clauses (i) through (vi) in Section 9.4 has occurred, or (ii) at
any time after the third anniversary of the Acquisition Closing Date.

     (h) The failure of the Partnership to consummate the acquisition of the
Properties.

     (i) The election of the Limited Partner by written notice to the General
Partner upon (i) the dissolution (or other similar event) of the General
Partner; (ii) the death, insanity, legal disability, bankruptcy or insolvency of
any Key Person unless such Key Person is replaced within 90 days by a person
reasonably acceptable to the Limited Partner; (iii) the resignation, retirement
or removal of any Key Person as a manager (or comparable title or position) of
the General Partner or the determination by the Limited Partner that any Key
Person is not otherwise actively involved in the day-to-day management of the
business and operations of the General Partner and the Partnership in each case
unless such Key Person is replaced within 90 days by a person reasonably
acceptable to the Limited Partner; or (iv) the occurrence of a Change of
Control.

     (j) The occurrence of any other event which under the Act causes the
dissolution of a limited partnership.

     SECTION 10.2. WITHDRAWAL BY GENERAL PARTNER AND RECONSTITUTION.

     (a) Except as specifically permitted in Section 9.2, the General Partner
covenants and agrees not to (i) withdraw voluntarily from the Partnership,
either directly, by dissolution, by transfer of its Partnership interest or by
any other voluntary act (including any event of withdrawal from the Partnership
by the General Partner as provided in Section 4.02(a) of the Act), or (ii) allow
seizure, attachment, garnishment, foreclosure or other taking of its Partnership
interest.

     (b) Notwithstanding the foregoing Section 10.2(a) or any other provision of
this Agreement, (i) the Partnership may be reconstituted and its business
continued without being wound up if the Limited Partner so elects within 90 days
after the event causing dissolution of the Partnership and (ii) the provisions
of Section 6.02 (including subsection (b) thereof) of the Act shall be
applicable to the Partnership.

     SECTION 10.3. LIQUIDATION AND TERMINATION. Upon dissolution of the
Partnership (unless it is reconstituted and its business continued without being
wound up as provided for in Section 10.2(b)), the General Partner shall act as
liquidator or may appoint in writing one or more liquidators who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that if dissolution is caused by any of
the events specified in Section 10.1(c), (e), (f), (g), or (i), the liquidator
shall be a person selected in writing by the Limited Partner. The liquidator
shall continue to operate the Partnership properties with all of the power and
authority of the General Partner, and, as soon as reasonably possible, shall
take all steps reasonably necessary to market and sell the Partnership or its
assets

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<PAGE>

to a bona fide third-party purchaser on the best terms and conditions available
to the Partnership and approved by the Limited Partner. If the liquidator is
someone appointed by the Limited Partner in accordance with the terms hereof,
the General Partner shall act in good faith and cooperate in all respects with
the liquidator in connection with the liquidation and winding up of the
Partnership, including the process of marketing and selling the Partnership's
assets to a third party or parties. The steps to be accomplished by the
liquidator are as follows:

     (a) As promptly as possible, and, in any event, within 45 days after
dissolution and again after final liquidation (unless, in either instance,
waived by the Limited Partner), the liquidator shall cause a proper accounting
to be made by the Partnership's independent accountants of the Partnership's
assets, liabilities and operations through the last day of the month in which
the dissolution occurs or the final liquidation is completed, as appropriate.

     (b) Following the occurrence of an event of dissolution, but prior to the
making of any liquidating distributions pursuant to Section 10.3(c), the General
Partner shall have the right, but not the obligation, to contribute additional
cash to the Partnership to enable the Partnership to make distributions pursuant
to Section 4.3 sufficient to cause Cumulative Payout No. 2 to occur.

     (c) The liquidator shall pay all of the debts and liabilities of the
Partnership or otherwise make adequate provision therefor (including the
establishment of a cash escrow fund for contingent liabilities in such amount
and for such term as the liquidator may reasonably determine). After making
payment or provision for all debts and liabilities of the Partnership, the
Partners' capital accounts shall then be adjusted by (i) assuming the sale of
all remaining assets of the Partnership for cash at their respective fair market
values (or if the remaining assets of the Partnership are not sold for cash, and
the liquidator and Limited Partner cannot agree to the fair market value of the
assets of the Partnership, then as determined by an appraiser selected by the
Limited Partner within 30 days after receipt by the Limited Partner of notice
that the liquidator has paid or made provision for all debts and liabilities of
the Partnership) as of the date of termination of the Partnership, and (ii)
allocating all hypothetical gains or losses resulting from such assumed sales in
the manner provided for in Section 4.1(h). In the event that the Limited Partner
fails to notify the General Partner of its selection of an appraiser pursuant to
the preceding sentence within the time period specified therein, the General
Partner shall be entitled to select such appraiser. The liquidator shall then
distribute all the cash and property (valued as of the date of termination of
the Partnership at its fair market value by the appraiser selected in the manner
provided above) to the Partners in accordance with their respective positive
capital account balances. To the extent possible and provided that the ownership
of such property would not be in violation of any governmental rule or
regulation then applicable to the Limited Partner, such a distribution shall be
in kind unless otherwise agreed to by the General Partner and the Limited
Partner; in connection therewith, the Limited Partner agrees to use its
reasonable best efforts to take all reasonable and customary actions to qualify
under applicable law to hold interests in U.S. Federal offshore oil and gas
leases and rights of way and in oil and gas leases issued by the State of Texas.
In making distributions of property in satisfaction of such capital account
balances, the liquidator shall distribute, to the extent possible, undivided
interests in each Lease in the same percentages as the Partners share revenues
from such Lease. Each Partner shall have the right to designate another person
to receive any property which otherwise would be distributed in kind to that
Partner pursuant to this Section 10.3 and Section 10.2 if that Section is
applicable. Any distributions to the Partners in liquidation of the Partnership
shall be made by the later of the end of the taxable year in which the
liquidation occurs, or 90 days after the date

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of such liquidation. For purposes of the preceding sentence, the term
"liquidation" shall have the same meaning as set forth in Treasury Regulation
Section 1.704-1(b)(2)(ii)(g) as in effect at such time.

     (d) Any Leases distributed to the Partners shall be subject to the
operating agreements then in effect with respect to such Leases; provided,
however, that if any of such Leases is subject to an operating agreement to
which an unaffiliated third person is not a party, such Leases shall be subject
to the JOA. Upon written request made by any Partner, the liquidator shall sell
the Partnership Leases and other properties and assets that otherwise would be
distributable to such Partner under this Section 10.3 at the best cash price
available therefor and distribute such cash (after deducting all expenses
reasonably relating to such sale) to such Partner. Such sale shall be on behalf
of such Partner and shall be treated as the sale by such Partner of its interest
in such properties, and any gain or loss attributable to such sale and any
proceeds therefrom shall be for the account of such Partner.

     (e) The provisions of subsections (b) and (c) of this Section 10.3 shall be
subject to the effect of Section 10.2 if that Section is applicable.

     (f) Except as expressly provided herein, the liquidator shall comply with
any applicable requirements of the Act and all other applicable laws pertaining
to the winding up of the affairs of the Partnership and the final distribution
of its assets.

     (g) The distribution of cash and/or property to the Limited Partners in
accordance with the provisions of this Section 10.3 shall constitute a complete
return to the Limited Partner of its Capital Contributions and a complete
distribution to the Limited Partner of its interests in the Partnership and all
Partnership property.

     (h) No Partner with a negative balance in its capital account shall be
liable to the Partnership or any other Partner for the amount of such negative
balance upon dissolution and liquidation.

     SECTION 10.4. CANCELLATION OF CERTIFICATE. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the liquidator (or the Partners if necessary) shall cause the
cancellation of the certificate of limited partnership of the Partnership and
shall take such other actions as may be necessary to terminate the Partnership.

                                   ARTICLE XI
                         REPRESENTATIONS AND WARRANTIES

     SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF GENERAL PARTNER. The
General Partner represents, warrants and covenants to the Limited Partner as
follows:

     (a) The General Partner is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Texas.

     (b) The General Partner is duly qualified or will qualify to transact
business in every jurisdiction where the character of the properties owned or
held by the Partnership or where the nature of the business transacted by the
Partnership makes qualification by it necessary or appropriate in order for the
Partnership to conduct its business.

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     (c) The General Partner has the requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder (including,
without limitation, the power and authority to act as General Partner of the
Partnership).

     (d) The execution, delivery and performance by the General Partner of this
Agreement has been duly and validly authorized by all requisite limited
liability company action of the General Partner, and no other such action is
required to be taken to authorize such execution, delivery and performance.

     (e) The execution, delivery and performance by the General Partner of this
Agreement is within its limited liability company powers and will not (i) be in
contravention of or violate any provisions of its certificate of formation,
limited liability company agreement, or other governing documents, as amended to
the date hereof, or (ii) be in contravention of or result in any breach or
constitute a default under any applicable law, rule, regulation, judgment,
license, permit or order or any material loan, note or other agreement or
instrument to which the General Partner is a party or by which it or any of its
properties are bound.

     (f) When delivered to the Limited Partner, this Agreement will have been
duly and validly executed and will be binding upon the General Partner and
enforceable in accordance with the terms hereof.

     (g) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by the General Partner of this Agreement (exclusive of normal and customary
consents, approvals, filings or permits which the General Partner is required to
obtain for or on behalf of the Partnership in the ordinary course of its
business after the execution and delivery of this Agreement and approvals
required from the United States of America for the transfer of the Properties to
the Partnership and for the Partnership to qualify as an owner of interests in
the Properties).

     (h) Neither the General Partner nor any of its Affiliates has employed or
retained any broker, agent or finder in connection with this Agreement or the
transactions contemplated herein, or paid or agreed to pay any brokerage fee,
finder's fee, commission or similar payment to any person on account of this
Agreement or the transactions provided for herein; and the General Partner shall
indemnify and hold harmless the Partnership and the Limited Partner from any
costs, including attorneys' fees, and liability arising from the claim of any
broker, agent or finder employed or retained by the General Partner in
connection with the Partnership or this Agreement.

     (i) Except with respect to projections, estimates and interpretations, and
pricing with respect with respect to which the General Partner makes no
representations, to the General Partner's knowledge, all of the information
(written or oral) heretofore or hereafter furnished by the General Partner with
respect to the General Partner, the Properties and the operations to be
conducted hereunder taken in the aggregate is true and correct in all material
respects, and, to the General Partner's knowledge, does not omit any information
that is necessary to prevent such information in the light of the circumstances
under which it was provided from being misleading in any material respect.

                                      -62-

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     (j) To the best knowledge of the General Partner, the General Partner and
its Affiliates and persons acting on their behalf have not taken any action, or
failed to take any action, which has caused the organization of the Partnership
and the issuance of the interests in the Partnership to be required to be
registered under the Securities Act of 1933, as amended, or any applicable state
blue sky laws.

     (k) There is no pending or, to the best of the General Partner's knowledge,
threatened judicial, administrative or arbitral action, suit or proceeding
against or investigation of the General Partner which is not fully insured
against (except standard deductible amounts) and which could reasonably be
expected to materially and adversely affect the financial condition of the
General Partner or its ability to perform its obligations under this Agreement.

     (l) During the preceding 12-month period, the General Partner and its
Affiliates and persons acting on their behalf have not sold (except to a limited
number of persons who have represented themselves to be accredited investors, as
defined in Rule 501 promulgated by the Securities and Exchange Commission) any
interest in the Partnership or similar interests; with respect to any sales of
interests similar to the Partnership by the General Partner and its Affiliates
and persons acting on their behalf within six months after the date of this
Agreement, the General Partner shall do nothing which would require the
registration of these interests under the Securities Act of 1933, and the rules
and regulations promulgated thereunder, as well as applicable state securities
laws.

     (m) The General Partner has delivered to the Limited Partner a true,
accurate and complete copy of the Purchase and Sale Agreement and the
Contribution Agreement and all amendments thereto. As soon as practicable after
the closing of the transactions contemplated under the Purchase and Sale
Agreement and the Contribution Agreement, the General Partner will deliver to
the Limited Partner a copy of all of the documents and other instruments
executed and delivered in connection therewith.

     (n) To the General Partner's knowledge, the historical factual information
supplied by the General Partner and its Affiliates to Cawley, Gillespie &
Associates ("CGA") in connection with the preparation by CGA of the CGA Report
was true and correct in all material respects. The estimates of future capital
expenditures and other further exploration and development, leases operating and
other similar costs and expenses supplied to CGA by the General Partner and its
Affiliates were prepared in good faith and with a reasonable basis.

     (o) Parent owns all of the outstanding membership interests of the General
Partner.

     SECTION 11.2. REPRESENTATIONS AND WARRANTIES OF LIMITED PARTNER. The
Limited Partner represents, warrants and covenants to the General Partner as
follows:

     (a) The Limited Partner is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware.

     (b) The Limited Partner has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder.

     (c) The execution, delivery and performance by the Limited Partner of this
Agreement are within its powers and do not and will not (i) contravene or
violate any provisions

                                      -63-

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of its certificate of formation or limited liability company agreement, as
amended to the date hereof, or (ii) contravene or result in any breach of or
constitute a default under any applicable law, rule or regulation or any loan,
note or other agreement or instrument to which it is a party or by which it or
any of its properties are bound.

     (d) When delivered to the General Partner, this Agreement will be duly and
validly executed by the Limited Partner and will be binding upon it in
accordance with the terms hereof.

     (e) Neither the Limited Partner nor any person acting on its behalf has
employed or retained any broker, agent or finder in connection with the
transactions provided for herein, or agreed to pay any brokerage fee, finder's
fee, commission or similar payment to any person on account of the transactions
provided for herein; and the Limited Partner shall indemnify and hold harmless
the Partnership and the General Partner from any costs, including attorneys'
fees, and liability arising from the claim of any broker, agent or finder
employed or retained by the Limited Partner in connection with the Partnership
or this Agreement.

     (f) It is acquiring its interest in the Partnership as an investment and
not with a view to the resale or other distribution to the public; provided,
however, that the disposition of its interest shall at all times be and remain
within its control.

     (g) It is a wholly-owned subsidiary of General Electric Capital
Corporation.

     (h) It is an "Accredited Investor" as that term is defined in Regulation D
promulgated by the United States Securities and Exchange Commission under the
Securities Act.

     (i) It confirms that the Partnership and the General Partner have made
available to the Limited Partner, or to the representatives of the Limited
Partner, the opportunity to ask questions and to acquire such additional
information about the business and financial condition of the Partnership and
the General Partner as the Limited Partner has requested or desired.

     (j) It understands and has taken cognizance of all risk factors related to
the purchase of its interest in the Partnership, and its knowledge and
experience, and/or that of its authorized representatives, in financial and
business matters is such that it is, and/or its authorized representatives are,
capable of evaluating the merits and risks of purchasing an interest in the
Partnership.

     (k) In making the decision to enter into this Agreement, it has relied
solely on the terms of this Agreement, the Purchase and Sale Agreement, the
Contribution Agreement and the documents and other instruments delivered in
connection with the closing of the transactions contemplated hereby (including
the express representations and warranties made by the General Partner in this
Agreement and in the Purchase and Sale Agreement and the Contribution Agreement,
and upon its independent analysis, evaluation and investigation of, and judgment
with respect to, the business economic, legal, tax, accounting and other
consequences of its investment in the Partnership, including the value of the
Properties and the Limited Partner's interest in the Partnership. Limited
Partner acknowledges that the General Partner, its Affiliates, attorneys,
engineers, and representatives have not acted as tax, accounting, engineering,
legal or regulatory advisors to Limited Partner in connection with any aspects
of its investment in the Partnership. Limited Partner has consulted with and
relied upon its own advisors regarding the

                                      -64-

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tax, accounting, engineering, legal and regulatory consequences of its
investment in the Partnership.

     SECTION 11.3. DISCLAIMER. THE LIMITED PARTNER ACKNOWLEDGES THAT THE GENERAL
PARTNER HAS NOT MADE, AND THE GENERAL PARTNER HEREBY EXPRESSLY DISCLAIMS AND
NEGATES, ANY REPRESENTATION OR WARRANTY (OTHER THAN THOSE EXPRESS
REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT AND IN THE PURCHASE AND
SALE AGREEMENT AND THE CONTRIBUTION AGREEMENT), EXPRESS, IMPLIED, AT COMMON LAW,
BY STATUTE OR OTHERWISE, RELATING TO THE PROPERTIES TO BE ACQUIRED OR DEVELOPED
BY THE PARTNERSHIP, INCLUDING (WITHOUT LIMITATION) THE TITLE TO THE PROPERTIES,
THE CONDITION OF THE PROPERTIES, THE ESTIMATED AMOUNT OF ANY PROVED, PROBABLE OR
POSSIBLE RESERVES, PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES,
FUTURE OIL OR GAS PRICES, FUTURE CAPITAL COSTS, FUTURE OPERATING COSTS, FUTURE
TAXES, RATES OF RETURN OR FACTS RELATING TO INDUSTRY-WIDE RISKS NORMALLY
ASSOCIATED WITH THE OIL AND GAS BUSINESS. THE LIMITED PARTNER ACKNOWLEDGES THAT
THE GENERAL PARTNER HAS NOT MADE, AND WILL NOT MAKE, AND THE GENERAL PARTNER
HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY SUCH REPRESENTATION OR WARRANTY
(OTHER THAN THOSE EXPRESS REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT
AND IN THE PURCHASE AND SALE AGREEMENT AND THE CONTRIBUTION AGREEMENT),WITH
REGARD TO THE INFORMATION HERETOFORE OR HEREAFTER PROVIDED PURSUANT TO ANY OF
THE PROVISIONS OF OR IN CONNECTION WITH THIS AGREEMENT.

                                   ARTICLE XII
                                  MISCELLANEOUS

     SECTION 12.1. NOTICES. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) first class mail postage prepaid, or (d) prepaid telegram, telex,
facsimile or email (provided that such telegram, telex, facsimile or email is
confirmed by proof of delivery). Each Partner's address for notices and other
communications hereunder shall be that set forth opposite such Partner's
signature hereto; provided, however, that when in this Agreement it is provided
that a time period shall commence when a notice is received, such time period
shall commence upon actual receipt by the addressee regardless of when the
notice is given or made. The Limited Partner may change its address by giving
notice in writing to the General Partner of its new address, and the General
Partner may change its address by giving notice in writing to the Limited
Partner of its new address.

     SECTION 12.2. AMENDMENTS. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by both Partners.

     SECTION 12.3. PARTITION. Each of the Partners hereby irrevocably waives for
the term of the Partnership any right that such Partner may have to maintain any
action for partition with respect to the Partnership property.

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     SECTION 12.4. ENTIRE AGREEMENT. This Agreement and the other documents
contemplated hereunder constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof.

     SECTION 12.5. NO WAIVER. The failure of any Partner to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not be a waiver of
such Partner's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance of
any obligation hereunder shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any other obligation
hereunder.

     SECTION 12.6. APPLICABLE LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted, construed and
enforced in accordance with the laws of the State of Texas.

     SECTION 12.7. SUCCESSORS AND ASSIGNS. Subject to Article IX, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.

     SECTION 12.8. EXHIBITS. Exhibits 2.1--AMI, 2.1--Class A Assets, 2.1--Class
B Assets, 2.1--JOA, 2.1--Payout No. 1 Factor Discount Table, 2.1--Payout No. 2
Factor Discount Table, 2.1--Pre-Approved Development Operations, 5.6, 5.7(a),
5.10, 5.11(a)(i), 5.11(a)(ii), 5.11(b), 6.3(a), 6.8, and 8.2(d) to this
Agreement are attached hereto. Each Exhibit is incorporated herein by reference
and made a part hereof for all purposes and references to this Agreement shall
also include such Exhibit unless the context in which used shall otherwise
require.

     SECTION 12.9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by the General Partner or the Limited
Partner in this Agreement shall be considered to have been relied upon by the
other party hereto and shall survive the execution and delivery of this
Agreement, regardless of any investigation made by or on behalf of any such
party, except for the representations and warranties contained in Sections
11.1(i) and 11.1(n), which shall survive until the first anniversary of the
Acquisition Closing Date.

     SECTION 12.10. NO THIRD PARTY BENEFIT. Nothing in this Agreement, either
express or implied, is intended to or shall confer upon any person other than
the parties hereto, and their respective successors and permitted assigns, any
rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.

     SECTION 12.11. PUBLIC ANNOUNCEMENTS. Except as may be required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange, neither the General Partner nor the Limited
Partner shall issue any press release or otherwise make any public statement
with respect to this Agreement or the transactions contemplated hereby without
the prior written approval of the other party, which approval shall not be
unreasonably withheld. Any such press release or public statement required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange shall only be made after reasonable notice to the
other party.

                                      -66-

<PAGE>

     SECTION 12.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -67-

<PAGE>

     IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.

                                        GENERAL PARTNER:

                                        F-W OIL EXPLORATION L.L.C.

                                        By:
                                            ------------------------------------
                                        Name: Jim R. Brock
                                        Title: President and CFO

                                        ADDRESS FOR NOTICE PURPOSES:

                                        9821 Katy Freeway
                                        Suite 1050
                                        Houston, Texas 77024
                                        Attention: Jim R. Brock
                                        Telecopy No.: 713-461-9231
                                        Email: jbrock@fwoil.com

      SIGNATURE PAGE--AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
                              OF FWOE PARTNERS L.P.

<PAGE>

     IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.

                                        LIMITED PARTNER:

                                        TIFD III-X LLC

                                        By: AIRCRAFT SERVICES CORPORATION,
                                            Managing Member

                                        By:
                                            ------------------------------------
                                            Jane S. Reichle, Vice President

                                        ADDRESS FOR NOTICE PURPOSES:

                                        c/o GE Commercial Finance -- EFS
                                        120 Long Ridge Road, 3rd Floor
                                        Stamford, Connecticut 06927-1550
                                        Attention: Global Asset Management
                                        Operations
                                        Telecopy No.: 203-961-2017
                                        Email: jane.reichle@ge.com

      SIGNATURE PAGE--AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
                              OF FWOE PARTNERS L.P.

<PAGE>

                               EXHIBIT 2.1 -- AMI

OPERATED PROPERTIES

PN-996 - Oil and Gas Lease No. OCS-G 23130 dated effective December 1, 2001, by
and between the United States of America, as Lessor, and F-W Oil Interests,
Inc., as Lessee, covering all of Block 996, North Padre Island Area, East
Addition, OCS Leasing Map, Texas Map No. 2A, containing 5,760 acres, more or
less.

PS-1145 - Oil and Gas Lease No. OCS-G 24304 dated effective November 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering all of Block 1145, South Padre Island Area, OCS
Leasing Map, Texas Map No. 1, containing 5,760 acres, more or less.

PS-1152 - Oil and Gas Lease No. OCS-G 24306 dated effective November 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering all of Block 1152, South Padre Island Area, OCS
Leasing Map, Texas Map No. 1, containing 5,760 acres, more or less.

PS-1166 - Oil and Gas Lease No. OCS-G 24307 dated effective November 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering that portion of Block 1166, South Padre Island Area,
OCS Leasing Map, Texas Map No. 1, seaward of the 3 Marine League Line,
containing 3,254.81 acres, more or less.

MI-526 - Oil and Gas Lease No. OCS-G 24330 dated effective October 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering that portion of Block 526, Matagorda Island Area,
OCS Leasing Map, Texas Map No. 4, seaward of the 3 Marine League Line,
containing 1,328.89 acres, more or less insofar and only insofar as the lease
covers and affects rights above the stratigraphic equivalent of 12,200 feet
measured depth in the ELF OCS-G 4137 #A-4 or 10,700 feet true vertical depth,
whichever is the lesser.

NON-OPERATED PROPERTIES

MI-721-L (S/2 OF NE/4) - Oil and Gas Lease No. M-102165 dated effective October
2, 2001, by and between The State of Texas, as Lessor, in favor of Gryphon
Exploration Company and F-W Oil Exploration L.L.C., as Lessees, covering 720
acres, being the South One-Half of the Northeast Quarter (S/2 of NE/4) of Tract
721-L, Gulf of Mexico, Aransas County, Texas, recorded under File #244820, of
the Official Public Records of Aransas County, Texas.

MI-721-L (S/2 OF NW/4) - Oil and Gas Lease No. M-102166 dated effective October
2, 2001, by and between The State of Texas, as Lessor, in favor of Gryphon
Exploration Company and F-W Oil Exploration L.L.C., as Lessees, covering 720
acres, being the South One-Half of the Northwest Quarter (S/2 of NW/4) of Tract
721-L, Gulf of Mexico, Aransas County, Texas, recorded under File #244821, of
the Official Public Records of Aransas County, Texas.

MI-721-L (N/2 OF NW/4) - Oil and Gas Lease No. M-102337 dated effective January
15, 2002, by and between The State of Texas, as Lessor, in favor of Roger A.
Soape, Inc., as Lessee, covering 720 acres, being the North One-Half of the
Northwest Quarter (N/2 of NW/4) of Tract 721-L, Gulf of Mexico, Aransas County,
Texas, recorded under File #245346, of the Official Public Records of Aransas
County, Texas.

BS-41 - Oil and Gas Lease No. OCS-G 21142 dated effective May 1, 1999, by and
between the United States of America, as Lessor, and Case-Pomeroy Oil
Corporation, as Lessee, covering all of Block 41, Breton Sound Area, OCS Leasing
Map, Louisiana Map No. 10B, containing 5,000 acres, more or less, insofar and
only insofar as the lease covers and affects rights below 10,000 feet subsea
true vertical depth.

<PAGE>

                                   EXHIBIT 2.1

                                 CLASS A ASSETS

OPERATED PROPERTIES

PN-996 - OIL AND GAS LEASE NO. OCS-G 23130 dated effective December 1, 2001, by
and between the United States of America, as Lessor, and F-W Oil Interests,
Inc., as Lessee, covering all of Block 996, North Padre Island Area, East
Addition, OCS Leasing Map, Texas Map No. 2A, containing 5,760 acres, more or
less. (100.000% Working Interest; 78.1905% Net Revenue Interest) This lease is
subject to the following document(s):

TRANSFERRING SHAREHOLDERS AGREEMENT dated October 9, 2002 between F-W Oil
Exploration L.L.C. and the Transferring Shareholders.

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

PS-1145 - OIL AND GAS LEASE NO. OCS-G 24304 dated effective November 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering all of Block 1145, South Padre Island Area, OCS
Leasing Map, Texas Map No. 1, containing 5,760 acres, more or less. (100.000%
Working Interest; 80.333% Net Revenue Interest) This lease is subject to the
following document(s):

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

PS-1152 - OIL AND GAS LEASE NO. OCS-G 24306 dated effective November 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering all of Block 1152, South Padre Island Area, OCS
Leasing Map, Texas Map No. 1, containing 5,760 acres, more or less. (100.000%
Working Interest; 80.333% Net Revenue Interest) This lease is subject to the
following document(s):

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

PS-1166 - OIL AND GAS LEASE NO. OCS-G 24307 dated effective November 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering that portion of Block 1166, South Padre Island Area,
OCS Leasing Map, Texas Map No. 1, seaward of the 3 Marine League Line,
containing 3,254.81 acres, more or less. (100.000% Working Interest; 80.333% Net
Revenue Interest) This lease is subject to the following document(s):

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

MI-526 - OIL AND GAS LEASE NO. OCS-G 24330 dated effective October 1, 2002, by
and between the United States of America, as Lessor, and F-W Oil Exploration
L.L.C., as Lessee, covering that portion of Block 526, Matagorda Island Area,
OCS Leasing Map, Texas Map No. 4, seaward of the 3 Marine League Line,
containing 1,328.89 acres, more or less insofar and

<PAGE>

only insofar as the lease covers and affects rights above the stratigraphic
equivalent of 12,200 feet measured depth in the ELF OCS-G 4137 #A-4 or 10,700
feet true vertical depth, whichever is the lesser. (100.000% Working Interest;
77.000% Net Revenue Interest) This lease is subject to the following
document(s):

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

ASSIGNMENT OF OVERRIDING ROYALTY INTEREST dated March 5, 2003 between F-W Oil
Exploration L.L.C. and Stanley Lindsey and Richard Smith

LIKE KIND EXCHANGE AGREEMENT dated August 1, 2003, between F-W Oil Exploration
L.L.C. and PetroCorp Incorporated

NON-OPERATED PROPERTIES

MI-721-L (S/2 OF NE/4) - AN UNDIVIDED 12.5% INTEREST IN OIL AND GAS LEASE NO.
M-102165 dated effective October 2, 2001, by and between The State of Texas, as
Lessor, in favor of Gryphon Exploration Company and F-W Oil Exploration L.L.C.,
as Lessees, covering 720 acres, being the South One-Half of the Northeast
Quarter (S/2 of NE/4) of Tract 721-L, Gulf of Mexico, Aransas County, Texas,
recorded under File #244820, of the Official Public Records of Aransas County,
Texas. (12.500% Working Interest; 9.000% Net Revenue Interest) This lease is
subject to the following document(s):

PARTICIPATION AGREEMENT dated October 1, 2001 and between Gryphon Exploration
and F-W Oil Exploration L.L.C.

JOINT OPERATING AGREEMENT dated October 2, 2001, between Gryphon Exploration and
F-W Oil Exploration L.L.C.

TRANSFERRING SHAREHOLDERS AGREEMENT dated October 9, 2002 between F-W Oil
Exploration L.L.C. and the Transferring Shareholders.

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

MI-721-L (S/2 OF NW/4) - AN UNDIVIDED 12.5% INTEREST OIL AND GAS LEASE NO.
M-102166 dated effective October 2, 2001, by and between The State of Texas, as
Lessor, in favor of Gryphon Exploration Company and F-W Oil Exploration L.L.C.,
as Lessees, covering 720 acres, being the South One-Half of the Northwest
Quarter (S/2 of NW/4) of Tract 721-L, Gulf of Mexico, Aransas County, Texas,
recorded under File #244821, of the Official Public Records of Aransas County,
Texas. (12.500% Working Interest; 9.000% Net Revenue Interest) This lease is
subject to the following document(s):

PARTICIPATION AGREEMENT dated October 1, 2001 and between Gryphon Exploration
and F-W Oil Exploration L.L.C.

JOINT OPERATING AGREEMENT dated October 2, 2001, between Gryphon Exploration and
F-W Oil Exploration L.L.C.

<PAGE>

TRANSFERRING SHAREHOLDERS AGREEMENT dated October 9, 2002 between F-W Oil
Exploration L.L.C. and the Transferring Shareholders.

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

BS-41 - AN UNDIVIDED 12.5% INTEREST IN OIL AND GAS LEASE NO. OCS-G 21142 dated
effective May 1, 1999, by and between the United States of America, as Lessor,
and Case-Pomeroy Oil Corporation, as Lessee, covering all of Block 41, Breton
Sound Area, OCS Leasing Map, Louisiana Map No. 10B, containing 4994.55 acres,
more or less, insofar and only insofar as the lease covers and affects rights
below 10,000 feet subsea true vertical depth. (12.500% Working Interest; 9.417%
Net Revenue Interest) This lease is subject to the following document(s):

PARTICIPATION AGREEMENT dated November 25, 2002 between NCX Company, L.L.C. and
F-W Oil Exploration L.L.C.

JOINT OPERATING AGREEMENT dated January 1, 2002 between NCX Company, L.L.C. and
F-W Oil Exploration L.L.C.

SUBSCRIPTION AGREEMENT dated August 27, 2003 between PrimeEnergy Corporation and
F-W Oil Exploration L.L.C.

TRANSFERRING SHAREHOLDERS AGREEMENT dated October 9, 2002 between F-W Oil
Exploration L.L.C. and the Transferring Shareholders.

<PAGE>

                                   EXHIBIT 2.1

                                 CLASS B ASSETS

PIPELINE SEGMENT NUMBER: 15073; One 12 3/4 -inch pipeline, approximately 47.46
miles in length, under construction to gather and transport natural gas and
condensate from South Padre Island Block 1166 "A" Platform through South Padre
Island Blocks 1151, 1152, 1145, 1132, 1124, 1112, 1103, 1092, 1083, 1072, 1061,
1052, 1040, 1031, and North Padre Blocks 1018, 1011 to a 6-inch subsea tie-in in
North Padre Island Block 996.

ASSIGNED RIGHT-OF-WAY NUMBER: 15073; A 200-foot wide right-of-way to install,
operate and maintain Pipeline Segment Number 15073.

PIPELINE SEGMENT NUMBER: 14516; One 6 -inch pipeline, approximately 13.14 miles
in length, to gather and transport natural gas and condensate from the SSTI
(subsea tie-in) assembly North Padre Island Block 996 to the 10-inch SSTI North
Padre Island Block 967.

ASSIGNED RIGHT-OF-WAY NUMBER: 25340; A 200-foot wide right-of-way to install,
operate and maintain Pipeline Segment Number 14516.

<PAGE>

                                EXHIBIT 2.1 - JOA

                                      JOINT

                               OPERATING AGREEMENT

                                     BETWEEN

                           F-W OIL EXPLORATION L.L.C.

                                   AS OPERATOR

                                   ----------

                                       AND

                                   ----------

                                AS NON-OPERATORS

                                    COVERING

                            BLOCKS [____] AND [____]

                   [__________________], [__________________]

                                 OFFSHORE TEXAS

                                      DATED

                                _______ ___, 2005

                                       1

<PAGE>

                            JOINT OPERATING AGREEMENT

     THIS AGREEMENT is made effective the _____ day of July, 2005 by the signers
hereof, herein referred to collectively as "Parties" and individually as
"Party".

                                   WITNESSETH:

     WHEREAS the PARTIES are owners of or have contracted for the right to earn
an interest in the oil and gas lease(s) identified in Exhibit "A", and the
Parties desire to explore, develop, produce and operate said lease(s).

     NOW THEREFORE, in consideration of the premises and of the mutual agreement
herein, it is agreed as follows:

                                    ARTICLE I

                                   APPLICATION

     1.1 APPLICATION TO EACH LEASE. This Agreement shall cover both leases
described in Exhibit "A" and shall apply collectively for all purposes set out
herein.

                                   ARTICLE II

                                   DEFINITIONS

     2.1 AFE. An Authorization for Expenditure prepared by a Party for the
purpose of estimating the costs to be incurred in conducting an operation
hereunder.

     2.2 CASING POINT. That point at which a well drilled hereunder, has reached
the proposed objective depth or zone, logged and logs distributed to the
PARTICIPATING PARTIES and any tests have been made which are necessary to reach
the decision whether to run casing.

     2.3 DEVELOPMENT OPERATIONS. Operations on the LEASE other than EXPLORATORY
OPERATIONS as defined in Section 2.5 below.

     2.4 DEVELOPMENT WELL. Any well proposed as a DEVELOPMENT OPERATION.

     2.5 EXPLORATORY OPERATIONS. Operations on the LEASE, which are scheduled
for an objective zone, horizon or formation:

          (1)  which has not been established as producible on the LEASE under
               2.18 below; or,

                                       2

<PAGE>

          (2)  which is already established as producible on the Lease under
               2.18 below, but such objective zone, horizon or formation will be
               penetrated at a location more than 2,000 feet from the nearest
               bottom hole location on the Lease at which such objective has
               been proved producible, or such objective is mutually agreed to
               be in a separate fault block.

     2.6 EXPLORATORY WELL. Any well proposed as an EXPLORATORY OPERATION.

     2.7 FACILITIES. All lease equipment beyond the wellhead connections
acquired pursuant to this Agreement including any platform(s) necessary to carry
out the operation.

     2.8 LEASE. The oil and gas lease identified in Exhibit "A" and the lands
affected thereby.

     2.9 NON-CONSENT OPERATIONS. DEVELOPMENT or EXPLORATORY OPERATIONS conducted
by fewer than all Parties.

     2.10 NON-CONSENT PLATFORM. A drilling or production platform owned by fewer
than all PARTIES.

     2.11 NON-CONSENT WELL. A DEVELOPMENT or EXPLORATORY WELL owned by fewer
than all PARTIES.

     2.12 NON-OPERATOR. Any PARTY to the Agreement other than the OPERATOR.

     2.13 NON-PARTICIPATING PARTY. Any PARTY other than a PARTICIPATING PARTY.

     2.14 NON-PARTICIPATING PARTY'S SHARE. The PARTICIPATING INTEREST a NON-
PARTICIPATING PARTY would have had if all PARTIES had participated in the
operation.

     2.15 OPERATOR. The PARTY designated under this Agreement to conduct all
operations.

     2.16 PARTICIPATING INTEREST. A PARTICIPATING PARTY'S percentage of
participation in an operation conducted pursuant to the Agreement.

     2.17 PARTICIPATING PARTY. A PARTY who joins in an operation conducted
pursuant to this agreement.

     2.18 PRODUCIBLE WELL. A well producing oil or gas, or if not producing oil
or gas, a well meeting the requirements of being declared capable of producing
in accordance with any applicable government authority or, by agreement of all
of the Parties.

     2.19 WORKING INTEREST. The ownership of each PARTY in and to the LEASE as
set forth in Exhibit "A".

                                       3

<PAGE>

                                   ARTICLE III

                                    EXHIBITS

     3.1 EXHIBITS. Attached hereto are the following exhibits, which are
incorporated herein by reference:

<TABLE>
<S>               <C>          <C>
          3.1.1   Exhibit A.   Description of Lease and Working Interest
          3.1.2   Exhibit B.   Insurance Provision
          3.1.3   Exhibit C.   Accounting Procedure [TO COME]
          3.1.4   Exhibit D.   Nondiscrimination Provision
          3.1.5   Exhibit E.   Gas Balancing Agreement
</TABLE>

                                   ARTICLE IV

                                    OPERATOR

     4.1 OPERATOR. F-W Oil Exploration L.L.C. is hereby designated as OPERATOR.
OPERATOR shall not have the right to assign or transfer any rights, duties or
obligations of OPERATOR to another PARTY, subject to the provisions herein.

     4.2 RESIGNATION. OPERATOR may resign at any time by giving notice to the
PARTIES. Such resignation shall become effective at 7:00 a.m. on the first day
of the month following a period of ninety (90) days after said notice, unless a
successor OPERATOR has assumed the duties of OPERATOR prior to that date.

     4.3 REMOVAL OF OPERATOR. OPERATOR may be removed if (1) OPERATOR becomes
insolvent or unable to pay its debts as they mature or makes an assignment for
the benefit of creditors or commits any act of bankruptcy or seeks relief under
laws providing for the relief of debtors; or (2) a receiver is appointed for
OPERATOR or for substantially all of its property and/or affairs; or (3)
OPERATOR or its designee no longer owns an interest in the property or divests
itself of more than fifty percent (50%) or more of the interest owned by it in
the Lease at the time it was designated OPERATOR; or (4) OPERATOR has committed
a material breach of any substantive provision hereof or fails to perform its
duties hereunder in a reasonable and prudent manner, or failed to rectify such
default within sixty (60) days after notice from another PARTY to do so. The
PARTY giving notice to the OPERATOR of a default shall also furnish a copy of
such notice to the other PARTIES. In such event, the OPERATOR may be removed by
an affirmative vote of two (2) or more PARTIES having a combined WORKING
INTEREST of fifty percent (50%) in the LEASE.

     4.4 SELECTION OF SUCCESSOR. Upon resignation or removal of OPERATOR, a
successor OPERATOR shall be selected by an affirmative vote of two (2) or more
PARTIES having a combined WORKING INTEREST of fifty-one percent (51%) or more;
however, if the removed or resigned OPERATOR fails to vote or votes

                                       4

<PAGE>

only to succeed itself, the successor OPERATOR shall be selected by an
affirmative vote of the PARTIES having a combined WORKING INTEREST of fifty-one
percent (51%) or more of the remaining WORKING INTEREST after excluding the
WORKING INTEREST of the removed or resigned OPERATOR.

     4.5 DELIVERY OF PROPERTY. Prior to the effective date of resignation or
removal, OPERATOR shall deliver promptly to successor OPERATOR the possession of
everything owned by the PARTIES pursuant to this Agreement.

                                    ARTICLE V

                        AUTHORITY AND DUTIES OF OPERATOR

     5.1 EXCLUSIVE RIGHT TO OPERATE. Unless provided, OPERATOR shall have the
exclusive right and duty to conduct all operations pursuant to the Agreement.

     5.2 WORKMANLIKE CONDUCT. OPERATOR shall conduct all operations in a good
and workmanlike manner, as would a prudent OPERATOR under the same or similar
circumstances. OPERATOR shall not be liable to the PARTIES for losses sustained
or liabilities incurred except such as may result from its gross negligence or
willful misconduct. Unless otherwise provided, OPERATOR shall consult with the
PARTIES and keep them informed of all important matters.

     5.3 LIENS AND ENCUMBRANCES. OPERATOR shall endeavor to keep the LEASE and
equipment free from all liens and encumbrances occasioned by operations
hereunder, except those provided for in Section 8.5.

     5.4 EMPLOYEES. OPERATOR shall select employees and determine their number,
hours of labor and compensation. Such employees shall be employees of OPERATOR.

     5.5 RECORDS. OPERATOR shall keep accurate books, accounts and records of
operations hereunder which, unless otherwise provided for in this Agreement,
shall be available to NON-OPERATOR pursuant to the provisions contained in
Exhibit "C".

     5.6 COMPLIANCE. OPERATOR shall comply with and require all agents and
contractors to comply with all applicable laws, rules, regulations and orders of
any governmental agency having jurisdiction.

     5.7 DRILLING. OPERATOR shall have all drilling operations conducted by
qualified and responsible independent contractors under competitive contracts.
However, OPERATOR may employ its equipment and personnel in the conduct of such
operations, but its charges therefor shall not exceed the then prevailing rates
in the area

                                       5

<PAGE>

and such work shall be performed pursuant to a written agreement among the
PARTICIPATING PARTIES.

     5.8 REPORTS. OPERATOR shall make reports to governmental authorities that
it has a duty to make as OPERATOR and shall furnish copies of such reports to
the PARTIES. OPERATOR shall give timely written notice to the PARTIES of all
litigation and hearings affecting the LEASE or operations hereunder.

     5.9 INFORMATION TO PARTICIPATING PARTIES. OPERATOR shall furnish all
PARTICIPATING PARTIES hereto the following information pertaining to each well
being drilled:

          (a)  copy of application for permit to drill and all amendments
               thereto;

          (b)  daily drilling reports by telephone followed by written reports
               (or by FACSIMILE);

          (c)  complete report of all core analyses;

          (d)  two (2) copies of any logs or surveys as run;

          (e)  two (2) copies of any well test results, bottom-hole pressure
               surveys, gas and condensate analyses or similar information;

          (f)  one (1) copy of reports made to regulatory agencies; and

          (g)  twenty-four (24) hour notice of logging, coring and testing
               operations;

          (h)  upon request prior to resumption of drilling operations, samples
               of cuttings and cores marked as to depth, to be packaged and
               shipped to the requesting PARTY at their expense.

          (i)  all other reasonable information, available to OPERATOR,
               pertaining to any well drilled pursuant to this Agreement.

                                   ARTICLE VI

                          VOTING AND VOTING PROCEDURES

     6.1 DESIGNATION OF REPRESENTATIVE. The name and address of the
representative and alternate authorized to represent and bind each PARTY for
operations provided in Article IX, shall be as shown on Exhibit "A". The
designated representative or alternate may be changed by written notice to the
other PARTIES.

     6.2 VOTING PROCEDURES. Unless otherwise provided, any matter requiring
approval of the PARTIES shall be determined as follows:

          6.2.1 VOTING INTEREST. Each PARTY shall have a voting interest equal
to its WORKING INTEREST or its PARTICIPATING INTEREST as applicable.

          6.2.2 VOTE REQUIRED. Except as may be specifically provided elsewhere
herein, if there are three

                                       6

<PAGE>

or more Parties to this agreement, any proposal requiring approval of the
PARTIES shall be decided by an affirmative vote of one (1) or more PARTIES
having a combined voting interest of fifty-one percent (51%) or more.

          6.2.3 VOTES. The PARTIES may vote at meetings, by telephone, confirmed
in writing to OPERATOR; or by letter, telegram, telex or telecopies. However,
any PARTY not attending a meeting must vote prior to the meeting in order to be
counted. Provided, however, no vote shall be taken in a meeting in which all
Parties are not present unless such vote was specifically set out in the formal
agenda. OPERATOR shall give prompt notice of the results of such voting to each
PARTY.

          6.2.4 MEETINGS. Meetings of the PARTIES may be called by OPERATOR upon
its own motion or at the request of one (1) or more PARTIES having a combined
voting interest of not less than ten percent (10%). Except in the case of
emergency or except when agreed by unanimous consent, no meeting shall be called
on less than five (5) days advance written notice, (including the agenda for
such meeting). The OPERATOR shall be chairman of each meeting.

                                   ARTICLE VII

                                     ACCESS

     7.1 ACCESS TO LEASE. Each PARTY shall have access to the LEASE as its sole
risk and expense at all reasonable times to inspect operations and records and
data pertaining thereto.

     7.2 REPORTS. OPERATOR shall furnish to a requesting PARTY any information
to which such PARTY is entitled hereunder. The costs of gathering and furnishing
information not otherwise furnished under Article V shall be charged to the
requesting PARTY.

     7.3 CONFIDENTIALITY. Except as provided in Section 7.4 and except for
necessary disclosures to governmental agencies, no PARTY shall release any
geological, geophysical or reservoir information or any logs, surveys or other
information pertaining to the progress, tests or results of any well or status
of the LEASE unless agreed to by the PARTICIPATING PARTIES. At such time as the
PARTIES mutually agree such information is non-confidential, it may be publicly
released. Unless otherwise provided, OPERATOR shall initially release the same
subsequent to approval of its content by the PARTIES. OPERATOR shall have the
exclusive right to designate certain wells as "tite" for the competitive
protection of the PARTIES and maintain all information in its offices.

     7.4 LIMITED DISCLOSURE. Any PARTY may make confidential data available to
affiliates, to

                                       7

<PAGE>

reputable engineering firms and gas transmission companies for hydrocarbon
reserve and other technical evaluations, to reputable financial institutions for
study prior to commitment of funds, to it's consultants and to bonafide
purchasers of all of a PARTY'S interest in the LEASE. Any third party permitted
such access shall first agree in writing neither to disclose such data to others
nor to use such data except for the purpose for which it is disclosed.

                                  ARTICLE VIII

                                  EXPENDITURES

     8.1 BASIS OF CHARGE TO THE PARTIES. Subject to other provisions of this
Agreement, OPERATOR shall pay all costs and each PARTY shall reimburse OPERATOR
in proportion to the PARTICIPATING INTEREST. All charges, credits and accounting
for expenditures shall be pursuant to the Accounting Procedure attached hereto
as Exhibit "C". The provisions of this Agreement shall prevail in the event of
conflict with Exhibit "C".

     8.2 AUTHORIZATION. OPERATOR shall neither make any single expenditure nor
undertake any project costing in excess of Seventy-five Thousand Dollars
($75,000.00) without prior approval of the PARTIES. OPERATOR shall furnish a
written AFE, for information purposes only, to the PARTIES on any expenditures
in excess of Twenty-five Thousand Dollars ($25,000.00) or if costs of an
operation exceed 120% of a previously approved AFE. Subject to any election
provided in Article X and XI, approval of a well operation shall include
approval of a all necessary expenditures through installation of the wellhead.
In the event of an emergency, OPERATOR may immediately make such expenditures as
in its opinion are required to deal with the emergency. OPERATOR shall report to
the PARTIES, as promptly as possible, the nature of the emergency and action
taken.

     8.3 ADVANCE BILLINGS. OPERATOR shall have the right to require each PARTY
to advance its respective share of estimated expenditures pursuant to Exhibit
"C". As to any party who fails to pay its share of said advance payment within
fifteen (15) days after receipt of such statement and invoice, Operator will
notify such affected party of its default by certified mail, return receipt
requested and if such party fails to cure the default within ten (10) days from
the date of receipt of Operator's Notice, by payment in full of the outstanding
invoices for advance payment, at Operator's election, the affected Party shall
be deemed non-consent as to the proposed well attributable thereto.

     8.4 COMMINGLING OF FUNDS. OPERATOR shall establish a separate account for
the benefit of the Parties and shall deposit into such account all Advance
Billings received from the Parties and attributable to any proposed operation
contemplated herein. Operator shall keep an accurate record of all funds
deposited and withdrawn

                                       8

<PAGE>

from the account, including the amounts received from the Parties, the Leases to
which such amounts are attributable, account funds expended on the Leases and
the Leases to which such expenditures are attributable.

     8.5 SECURITY RIGHTS. In addition to any other security rights and remedies
provided by law with respect to services rendered or materials and equipment
furnished under this Agreement, OPERATOR shall have a first lien upon each
PARTY'S PARTICIPATING and/or WORKING INTEREST, including the production and
equipment credited thereto, in order to secure payment of charges against such
PARTY, together with interest thereon at the rate set forth in Exhibit "C" or
the maximum rate allowed by law, whichever is less, plus attorneys' fees, court
costs and other related collection costs. If any PARTY does not pay such charges
when due, OPERATOR shall have the additional right to collect from the purchaser
the proceeds from the sale of such PARTY'S share of production until the amount
owed has been paid. Each purchaser shall be entitled to rely on OPERATOR'S
statement concerning the amount owed. Each NON-OPERATOR shall have comparable
security rights on OPERATOR'S PARTICIPATING and/or WORKING INTEREST.

     8.6 UNPAID CHARGES. If any PARTY fails to pay the charges due hereunder,
including billings under Section 8.3, within thirty (30) days after payment is
due, the PARTICIPATING PARTIES shall have the obligation, upon OPERATOR'S
request, to pay the unpaid amount in proportion to their interest. Each PARTY so
paying its share of the unpaid amount shall be subrogated to OPERATOR'S security
rights to the extent of such payment.

     8.7 DEFAULT. If any PARTY does not pay its share of the charges when due,
or prior to commencement of the approved operation for which it is billed,
whichever is the earlier, OPERATOR may give such PARTY notice that unless
payment is made within fifteen (15) DAYS, such PARTY shall be in default. Any
PARTY in default shall have no further access to the maps, cores, logs, surveys,
records, data, interpretations or other information obtained in connection with
said operation. A defaulting PARTY shall not be entitled to vote on any matter
until such time as PARTY'S payments are current. The voting interest of each
non-defaulting PARTY shall be in the proportion its PARTICIPATING INTEREST bears
to the total non-defaulting PARTICIPATING INTEREST. As to any operation approved
or commenced during the time a PARTY is in default, such PARTY shall be deemed
to be a NON-PARTICIPATING PARTY.

     8.8 CARVED-OUT INTERESTS. Any overriding royalty, production payment, net
proceeds interest, carried interest or any other interest carved-out of the
WORKING INTEREST in the LEASE after the effective date of this Agreement shall
be subject to the rights of the PARTIES to this Agreement, and any PARTY whose
WORKING

                                       9

<PAGE>

INTEREST is so encumbered shall be responsible therefor. If a PARTY does not pay
its share of expenses and the proceeds from the sale of production under Section
8.5 are insufficient for that purpose, the security rights provided for therein
may be applied against the carved-out interests with which such WORKING INTEREST
is burdened. In such event, the rights of the owner of such carved-out interest
shall be subordinated to the security rights granted by Section 8.5.

                                   ARTICLE IX

                                     NOTICES

     9.1 GIVING AND RECEIVING NOTICES. All notices shall be in writing and
delivered in person or by mail, telex, telegraph, TWX, telecopier or cable;
however, if a drilling rig is on location at time of proposal and standby
charges are accumulating, such notices shall be given by telephone and
immediately confirmed in writing. Notice shall be deemed given only when
received by the PARTY to whom such notice is directed, except that any notice by
certified mail or equivalent, telegraph or cable properly addressed, pursuant to
Section 6.1, and with all postage and charges prepaid shall be deemed given
seventy-two (72) hours after such notice is deposited in the mail or twenty-four
(24) hours after such notice is sent by facsimile (receipt confirmed), or when
filed with an operating, telegraph or cable company for immediate transmission.

     9.2 CONTENT OF NOTICE. Any notice which requires a response shall indicate
the maximum response time specified in Section 9.3 If a proposal involves a
Platform or Facility, the notice shall contain a description of same, including
location and the estimated costs of fabrication, transportation and
installation. If a proposal involves a well operation, the notice shall include
the estimated commencement date, the proposed depth, the objective zone or zones
to be tested, the surface and bottom-hole locations and the estimated costs of
the operation including all necessary expenditures through installation of the
wellhead.

     9.3 RESPONSE TO NOTICES. Each PARTY'S response to a proposal shall be in
writing to OPERATOR, with copies to the other PARTIES. Except for those notices
in Articles X, XI, XV and XVI, the maximum response time shall be as follows:

          9.3.1 PLATFORM CONSTRUCTION. When any proposal for operations involves
the construction of a platform, the maximum response time shall be forty-five
(45) days.

          9.3.2 PROPOSAL WITHOUT PLATFORM. When any proposal for operations does
not require

                                       10

<PAGE>

construction of a platform, maximum response time shall be thirty (30) days;
however, if a drilling rig is on location and standby charges are accumulating,
the maximum response time shall be forty-eight (48) hours.

          9.3.3 OTHER MATTERS. For all other matters requiring notice, the
maximum response time shall be thirty (30) days.

     9.4 FAILURE TO RESPOND. Failure of any PARTY to respond to a notice within
the required period shall be deemed to be a negative response.

     9.5 RESTRICTIONS ON MULTIPLE WELL PROPOSALS. Unless otherwise agreed by the
PARTIES, no more than one well shall be drilling or completing for the account
of the Parties on the Lease at the same time. Well proposals made under the
terms hereof shall be limited to one well each and except as provided below, no
PARTY shall be required to make an election under more than one well proposal at
the same time or while a well is drilling or completing. This paragraph shall
not limit the right of a PARTY to propose a well while another is drilling or
completing, however, the time to elect under such a proposal shall be deferred
until (a) thirty (30) days after the previous well has been completed or plugged
and abandoned or (b) twenty-four (24) hours from receipt of notification that
the drilling rig has been moved to the new location and standby charges are
being accumulated, whichever is earlier.

                                    ARTICLE X

                                EXPLORATORY WELLS

     10.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose an EXPLORATORY WELL
by notifying the other PARTIES. If all the PARTIES agree to participate in
drilling the proposed well, OPERATOR shall drill such well for the benefit of
all PARTIES.

     10.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect to
participate, OPERATOR shall inform all PARTIESof the elections made, whereupon
any PARTY originally electing not to participate may then elect to participate
by notifying the OPERATOR within forty-eight (48) hours after receipt of such
information.

     10.3 OPERATIONS BY FEWER THAN ALL PARTIES. If fewer than all but one (1) or
more PARTIES owning not less than fifty-one percent (51%) WORKING INTEREST elect
to participate in and agree to bear the cost and risk of drilling the proposed
well, OPERATOR, even if OPERATOR is a NON-PARTICIPATING PARTY, shall have the
option of drilling such well for the PARTICIPATING PARTIES under this Agreement.
OPERATOR,

                                       11

<PAGE>

immediately after expiration of the applicable notice period, shall advise the
PARTICIPATING PARTIES of (a) the total interest of the PARTIES approving such
operation, and (b) its recommendation as to whether the PARTICIPATING PARTIES
should proceed with the operation as proposed. Each PARTICIPATING PARTY, within
forty-eight (48) hours (inclusive of Saturday, Sunday or legal holidays) after
receipt of such notice, shall advise the proposing PARTY within ninety (90) days
after the date of the last applicable election date and is drilled as proposed
in accordance with this Agreement, any PARTY electing not to participate shall
be deemed to have relinquished its operating rights in such well as if it were a
NON-CONSENT WELL. However, in the situation in which a rig is on location and
standby charges are accumulating, thus precipitating a forty-eight (48) hour
response period, the well must be commenced within fifteen (15) days. If no
operations are begun within such time period, the effect shall be as if the
proposal had not been made. Operations shall be deemed to have commenced (a) on
the date the contract for a new platform is let, if the notice indicated the
need for such platform; or (b) the date rigging-up operations on the well are
commenced. Recoupment of costs shall be determined by Sections 12.2 and 12.5, if
applicable, and the drilling of such well shall be governed by Article XII as
applicable; however, percentages under Section 12.2 shall be as follows:

<TABLE>
<S>                  <C>
          12.2.1A)   Eight hundred percent (800%)
          12.2.1B)   Three hundred percent (300%)
          12.2.1C)   One hundred percent (100%)
          12.2.1D)   One hundred percent (100%)
</TABLE>

     10.4 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH

          10.4.1 CASING POINT ELECTION. After an Exploratory Well has been
drilled for all Parties to the objective depth, and all authorized logging and
testing has been completed, OPERATOR shall immediately notify the PARTIES of
OPERATOR'S proposal to either;

               (a)  further log or test the well,

               (b)  complete the well as originally planned,

               (c)  plug-back and complete the well in a shallower zone in
                    ascending order,

               (d)  deepen the well within a previously approved objective zone,
                    in descending order,

               (e)  deepen the well below the deepest approved objective zone or
                    zones,

               (f)  sidetrack the well to a new bottom hole location within the
                    approved objective zone,

               (g)  other operations in the well, or

               (h)  plug and abandon the well.

Within forty-eight (48) hours after receipt of OPERATOR'S proposal, the other
PARTIES shall respond thereto by either approving it or making a
counter-proposal. If a counter-proposal is made, the PARTIES shall have an
additional forty-eight (48) hours to respond thereto. If all PARTIES approve a
proposal or counter-proposal, OPERATOR shall conduct

                                       12

<PAGE>

the operation at the PARTICIPATING PARTIES cost and risk. A proposal to
complete, rework or recomplete a well at a particular depth will take precedence
over proposal to complete, rework or recomplete the well above such depth, with
a deeper proposal for such operations always taking precedence over a shallower
proposal. Proposals for such operations at any depth will take precedence over
proposals to deepen the well below its originally proposed total depth or to
sidetrack the well once it has reached such depth with a proposal to sidetrack
taking precedence over a proposal to deepen. Proposals of the same type shall be
given precedence in the order in which they are made. No action shall be
required on a proposal while there is pending a proposal, with precedence being
on the same well on which the parties have not acted or on which work has not
been

                                   ARTICLE XI

                           DEVELOPMENT WELL OPERATIONS

     11.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose a DEVELOPMENT
OPERATION, including any platform required by such operations, by notifying the
other PARTIES. If all PARTIES elect to participate in the proposed operation,
OPERATOR shall conduct such operation for the benefit of the PARTIES at their
cost and risk.

     11.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect to
participate, the OPERATOR shall inform the PARTIES of the elections made,
whereupon any PARTY originally electing not to participate may then elect to
participate by notifying the OPERATOR within forty-eight (48) hours after
receipt of such information. Thereafter, if fewer than all PARTIES elect to
participate, the PARTICIPATING PARTIES shall be afforded the alternatives as set
out under Article 10.3.

     11.3 OPERATIONS BY FEWER THAN ALL PARTIES. Except for a DEVELOPMENT WELL(S)
under Section 12.7, if fewer than all PARTIES, but one (1) or more PARTIES
having a combined WORKING INTEREST of fifty-one percent (51%) or more approve a
DEVELOPMENT OPERATION; OPERATOR shall conduct such operation pursuant to Article
XII. If such operations are to be conducted from an existing platform, the
operations participated in by all of the PARTIES shall have preference, unless
otherwise agreed to by the PARTIES hereto.

     11.4 TIMELY OPERATIONS. Operations shall be commenced within ninety (90)
days following the date upon which the last applicable election may be made. If
no operations are begun within such time period, the effect shall be as if the
proposal had not been made. Operations shall be deemed to have commenced (a) on
the date the

                                       13

<PAGE>

contract for a new platform is let, if the notice indicated the need for such
platform; or (b) on the date rigging-up operations are commenced on an existing
platform.

     11.5 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH. After any
DEVELOPMENT WELL has reached its objective depth, the identical procedures and
alternatives provided under Article 10.4 shall apply.

     11.6 DEEPER DRILLING. If a well is proposed to be drilled below the deepest
producible zone penetrated by a PRODUCIBLE WELL on the LEASE any PARTY may elect
to participate either in the well as proposed or to the base of the deepest
producible zone. A PARTY electing to participate in such well to the base of
said zone shall bear its proportionate part of the cost and risk of drilling to
said zone including completion or abandonment. All operations below the depth to
which such PARTY agreed to participate shall be governed by Article X.

                                   ARTICLE XII

                             NON-CONSENT OPERATIONS

     12.1 NON-CONSENT OPERATIONS. OPERATOR shall conduct NON-CONSENT OPERATIONS
at the sole risk and expense of the PARTICIPATING PARTIES, in accordance with
the following provisions;

          12.1.1 NON-INTERFERENCE. NON-CONSENT OPERATIONS shall not interfere
unreasonably with operations being conducted by all PARTIES.

          12.1.2 MULTIPLE COMPLETION LIMITATION. NON-CONSENT OPERATIONS shall
not be conducted in a well having multiple completions unless: (a) each
completion is owned by the same PARTIES in the same proportions; (b) the well is
incapable of producing from any of its current completions; or (c) all
PARTICIPATING PARTIES in the well consent to such operations.

          12.1.3 METERING. In NON-CONSENT OPERATIONS, production need not be
separately metered but may be determined on the basis of well test.

          12.1.4 LIENS. In the conduct of NON-CONSENT OPERATIONS, the
PARTICIPATING PARTIES shall keep the LEASE free and clear of liens and
encumbrances.

          12.1.5 NON-CONSENT WELL. Operations on a NON-CONSENT WELL shall not be
conducted in any producible zone penetrated by a PRODUCIBLE WELL without
approval of each NON-PARTICIPATING PARTY unless; (a) such zone shall have been
designated in the notice as a completion zone; (b) completion of such well in
said

                                       14

<PAGE>

zone will not increase the well density governmentally prescribed or approved
for such zone; and (c) the horizontal distance between the vertical projections
of the midpoint of the zone in such well and any existing well in the same zone
will be a least one thousand (1,000) feet if an oil-well completion or two
thousand (2,000) feet if a gas-well completion. Subject to the foregoing
provisions of this Article, until the PARTICIPATING PARTIES in a NON-CONSENT
WELL have recouped the amount to which they are entitled hereunder, they may
conduct any reworking operation on such well which they may desire, including
plugging back to a shallower zone but only if such shallower zone is subject to
NON-CONSENT elections in the original proposal. In this event, the cost of such
reworking operation shall be subject to the penalty provisions of Section
12.2.1.

          12.1.6 COST-INFORMATION. OPERATOR shall, within one hundred twenty
(120) days after completion of a NON-CONSENT WELL, furnish the PARTIES an
inventory and an itemized statement of the cost of such well and equipment
pertaining thereto. OPERATOR shall furnish to the PARTIES a monthly statement
showing operating expenses and the proceeds from the sale of production from the
well for the preceding month.

          12.1.7 COMPLETIONS. For the purposes of determinations hereunder, each
completion shall be considered a separate well.

     12.2 RELINQUISHMENT OF INTEREST. Upon commencement of NON-CONSENT
OPERATIONS, each NON-PARTICIPATING PARTY'S interest and leasehold operating
rights in the NON-CONSENT OPERATION and title to production there from shall be
owned by and vested in each PARTICIPATING PARTY in proportion to its
PARTICIPATING INTEREST for as long as the operations originally proposed are
being conducted or production is obtained, subject to Sections 12.2.1 and
12.2.2.

          12.2.1 PRODUCTION REVERSION PENALTIES. Except as to such operations
conducted pursuant to Section 12.7 or for the initial EXPLORATORY WELL referred
to in Section 10.3, such interest, rights and title shall revert to each
NON-PARTICIPATING PARTY when the PARTICIPATING PARTIES have recouped out of the
proceeds of production from such NON-CONSENT OPERATIONS an amount equal to the
sum of the following:

               (a)  Six hundred percent (600%) of the cost of drilling,
                    completing, recompleting, sidetracking, deepening, deviating
                    or plugging back each NON-CONSENT WELL and equipping it
                    through the wellhead connections, reduced by any
                    contribution received under Section 21.1; plus,

               (b)  Three hundred percent (300%) of the cost of FACILITIES
                    necessary to carry out the operation; plus,

               (c)  One hundred percent (100%) of the cost of using any
                    FACILITIES already installed

                                       15

<PAGE>

                    determined pursuant to Section 12.6 below; plus,

               (d)  One hundred percent (100%) of the cost of operating
                    expenses, royalties and severance, gathering, production and
                    windfall profit taxes.

Recoupment of costs shall be in the order listed above. Upon the recoupment of
such costs, a NON-PARTICIPATING PARTY shall become a PARTICIPATING PARTY in such
operations.

          12.2.2 NON-PRODUCTION REVERSION. If such NON-CONSENT OPERATIONS fail
to obtain production or such operations result in production which ceases prior
to recoupment by the PARTICIPATING PARTIES of the penalties provided for above,
such operating rights shall revert to each NON-PARTICIPATING PARTY except that
all NON-CONSENT wells, platforms and FACILITIES shall remain vested in the
PARTICIPATING PARTIES; however, any salvage in excess of the sum remaining under
Section 12.2.1 shall be credited to all PARTIES.

     12.3 DEEPENING OR SIDETRACKING OF NON-CONSENT WELL. If any PARTICIPATING
PARTY proposes to deepen or sidetrack a NON-CONSENT WELL, a NON-PARTICIPATING
PARTY may participate by notifying the OPERATOR within fifteen (15) days after
receiving the proposal (48 hours if a rig is on location) that it will join in
the (deepening or sidetracking) operations, and by paying to the PARTICIPATING
PARTIES an amount equal to such NON-PARTICIPATING PARTY'S share of the actual
costs of drilling and casing such well to the point at which such deepening or
sidetracking operation is commenced. The PARTICIPATING PARTIES shall continue to
be entitled to recoup the full sum specified in Section 12.2.1 applicable to the
NON-CONSENT WELL, less the amount paid under this section, out of the proceeds
of production from the NON-CONSENT portion of the well.

     12.4 OPERATIONS FROM NON-CONSENT PLATFORMS. Subject to the following, a
PARTY which did not originally participate in a platform proposed pursuant to
the terms herein, shall be a NON-PARTICIPATING PARTY as to ownership therein and
all operations thereon until the PARTICIPATING PARTIES as to such platform have
recouped the full sum specified in Section 12.2.1 applicable to such NON-CONSENT
PLATFORM and the NON-CONSENT OPERATIONS which resulted in the setting of such
PLATFORM and other NON-CONSENT OPERATIONS thereon or therefrom. However, an
original NON-PARTICIPATING PARTY may participate in additional operations from
such PLATFORM by notifying the OPERATOR within thirty (30) days after receiving
a proposal for operations from such PLATFORM (48 hours if a rig is on location
and standby rig charges are being incurred) that it will join in such proposed
operations by paying to the PARTICIPATING PARTIES in such PLATFORM an amount
equal to 300% of such NON-PARTICIPATING PARTY'S share of the actual cost of such

                                       16

<PAGE>

PLATFORM, less any recoupment therefor previously obtained. Thereafter, such
original NON-PARTICIPATING PARTY in the PLATFORM shall own its proportionate
share thereof. The PARTICIPATING PARTIES in such NON-CONSENT PLATFORM shall
continue to be entitled to recoup the full sum specified in Section 12.2.1
applicable to any other NON-CONSENT OPERATIONS thereon or therefrom.

     12.5 DISCOVERY OR EXTENSION FROM MOBILE DRILLING OPERATIONS. If a
NON-CONSENT WELL drilled from a mobile drilling rig or floating drilling vessel
results in the discovery or extension of productive formations and, if within
one (1) year from the date the drilling equipment is released, a platform or
other fixed structure is ordered and if its location is within one thousand
(1,000) feet from an oil well or three thousand (3,000) feet if gas, from the
vertical projection of the bottom-hole location of any such well (unless limited
by surface restrictions), the recoupment of amounts applicable to such well
under Section 12.2.1 shall be out of such original NON-PARTICIPATING PARTY'S
SHARE of all production from such NON-CONSENT WELL and one-half of its share of
production from all other wells on the platform or other fixed structure drilled
to develop reserves resulting from the discovery or extension of productive
formations in said NON-CONSENT WELL in which the NON-PARTICIPATING PARTY in such
NON-CONSENT WELL has a PARTICIPATING INTEREST.

     12.6 ALLOCATION OF PLATFORM COSTS TO NON-CONSENT OPERATIONS. NON-CONSENT
OPERATIONS shall be subject to further conditions as follows:

          12.6.1 CHARGES. If a NON-CONSENT WELL is drilled from a platform (and
is producible or the slot is otherwise rendered unusable), the PARTICIPATING
PARTIES in such well shall pay to the OPERATOR for credit to the owners of such
platform a charge (due upon completion of operations for such NON-CONSENT WELL)
for the right to use the platform and its FACILITIES as follows:

               (a)  Such PARTICIPATING PARTIES shall pay a sum equal to that
                    portion of the total cost of the platform (including, but
                    not by way of limitation, costs of design, materials,
                    fabrication, transportation, installation and other costs
                    associated therewith, plus any repairs and maintenance
                    expense resulting from the drilling of such well not
                    provided in Section 12.6.2), which one platform slot bears
                    to the total number of slots on the platform. If the
                    NON-CONSENT WELL is abandoned, the right of the
                    PARTICIPATING PARTIES to use that platform slot shall
                    terminate unless such PARTIES commence drilling a substitute
                    well from the same slot

                                       17

<PAGE>

                    within ninety (90) days after abandonment.

               (b)  If the NON-CONSENT WELL production is handled through
                    existing FACILITIES, the PARTICIPATING PARTIES shall pay the
                    owners of the facilities a sum equal to that portion of the
                    total cost of such FACILITIES which the number of
                    completions in said NON-CONSENT WELL bears to the total
                    number of completions utilizing the FACILITIES.

          12.6.2 OPERATING AND MAINTENANCE CHARGES. The PARTICIPATING PARTIES
shall pay all costs necessary to connect a NON-CONSENT WELL to the FACILITIES
and that proportionate part of the expense of operating and maintaining the
platform and other FACILITIES applicable to the NON-CONSENT WELL, including the
cost of insurance thereon or in connection therewith, whether by insurance
policy of self-insurance by each PARTY for its interest or by OPERATOR for the
joint account. Platform operating and maintenance expenses shall be allocated
equally to all completions served and operating and maintenance expenses for the
other FACILITIES shall be allocated equally to producing completions.

          12.6.3 PAYMENTS. A payment of sums pursuant to Section 12.6.1 is not a
purchase of an additional interest in the platform or other FACILITIES. Such
payments shall be included in the total amount, which the PARTICIPATING PARTIES
are entitled to recoup out of production from the NON-CONSENT WELL.

     12.7 NON-CONSENT DRILLING TO MAINTAIN LEASE. A lease maintenance operation
is defined for the purposes of this paragraph as one required to maintain the
joint LEASE or a portion thereof, at its expiration date or otherwise. This
shall include, but not be limited to, a well proposed to be and actually
commenced and drilled during the last year of the primary term of the LEASE, or
subsequent thereto, when: (a) the LEASE, or affected portion thereof, is not
otherwise being held by operations or production; (b) a PRODUCIBLE WELL(S)
thereon has not established sufficient reserves, as determined by one (1) or
more PARTICIPATING PARTIES owning fifty percent (50%) working interest in the
well, to justify a platform; or (c) any governmental agency having jurisdiction
requires the same to avoid loss or forfeiture of all or any portion of the
LEASE. Any PARTY may propose and carry out a lease maintenance operation and any
PARTY(S) electing not to participate in such an operation will assign to the
PARTICIPATING PARTIES in the proportions in which they participate therein, all
of its rights, titles and interest in such LEASE block, or the affected portion
thereof, free and clear of any burdens thereon occurring since the effective
date of this Agreement as provided herein, retaining, however, its interest in
previously completed wells which are

                                       18

<PAGE>

producing, shut-in or temporarily abandoned. Such assignment, effective upon
commencement of lease maintenance operations, will be promptly signed before
witnesses, acknowledged and delivered to the PARTICIPATING PARTIES. If only a
portion of the LEASE is involved, the PARTICIPATING PARTIES at their election
may require an assignment of operating rights in lieu of the assignment of all
interest. Upon acceptance by assignees, the assigning PARTY will thereupon cease
to be a PARTY hereto as to the assigned interest, subject to final accounting
between the PARTIES. If such assignment is not accepted by the Assignees, they
shall promptly prepare a release of such affected LEASE or portion thereof,
which shall be executed by all PARTIES. However, nothing herein contained will
be construed to permit any PARTY to refuse to pay in cash its share of the cost
and expense of any operation required on the joint LEASE block by final order of
any governmental authority or court having jurisdiction.

          12.7.1 RETENTION OF LEASE BY NON-CONSENT WELL. If a NON-CONSENT WELL
is the only well on the LEASE(S) and is serving to perpetuate the LEASE(S),
within thirty (30) days after expiration of the LEASE(S) primary term, each
NON-PARTICIPATING PARTY shall elect one of the following;

               (a)  Immediately assign its entire interest in the LEASE(S) to
                    the PARTICIPATING PARTIES in the proportions in which the
                    NON-CONSENT OPERATION was conducted; or

               (b)  Immediately pay to the PARTICIPATING PARTIES its share of
                    all costs associated with such well, less any recoupment
                    therefore previously obtained, such payment to be credited
                    against the total amount to be recovered out of its share of
                    production by the PARTICIPATING PARTIES pursuant to Article
                    X or XII, whichever is applicable.

     12.8 ALLOCATION OF COSTS (SINGLE COMPLETION). For the purpose of allocating
costs on any well in which the ownership is not the same for the entire depth,
the cost of drilling, completing or equipping such well shall be allocated on
the following basis:

          (a)  Intangible drilling, completion and material costs (including
               casing and tubing costs) from the surface to a depth one hundred
               (100) feet below the base of the completed zone shall be charged
               to the owners or the PARTIES participating in that zone.

          (b)  Intangible drilling, completion, casing string and material
               costs, other than tubing costs, from a depth one hundred (100)
               feet below the base of the completed zone to total depth shall be

                                       19

<PAGE>

               charged to the owners or the PARTIES participating in the costs
               to total depth.

     12.9 ALLOCATION OF COSTS (MULTIPLE COMPLETIONS). For the purpose of
allocating costs on any well completed in dual or multiple zones in which the
ownership is not the same for the entire depth or the completions thereof, the
cost of drilling, completing and equipping such well shall be allocated on the
following basis:

          (a)  Intangible drilling, completion (including wellhead equipment),
               casing string and material costs, other than tubing costs, from
               the surface to a depth one hundred (100) feet below the base of
               the upper completed zone shall be divided equally between the
               completed zones and charged to the owners thereof or the PARTIES
               participating in such zone.

          (b)  Intangible drilling, completion, casing string and material
               costs, other than tubing costs, from a depth one hundred (100)
               feet below the base of the upper completed zone to a depth one
               hundred (100) feet below the base of the second completed zone
               shall be divided equally between the second and any other zone
               completed below such depth and charged to the owners thereof or
               to the PARTIES participating in each zone. If the well is
               completed in additional zones, the costs applicable to each such
               zone shall be determined and charged to the owners thereof in the
               same manner as prescribed by the dual zones completion.

          (c)  Intangible drilling, completion, casing string and material
               costs, other than tubing costs, from a depth one hundred (100)
               feet below the base of the lower completed zone to total depth
               shall be charged to the owners or the PARTIES participating in
               the costs to total depth.

          (d)  Costs of tubing strings serving each separate zone shall be
               charged to the owners or the PARTIES participating in each zone.

          (e)  For the purposes of allocating tangible and intangible costs
               between zones that occur at less than one hundred (100) foot
               intervals, the costs for the distance between the base of the
               upper zone to the top of the next lower zone shall be allocated
               equally between zones.

     12.10 ALLOCATION OF COSTS (DRY HOLE). For the purpose of allocating costs
on any well determined to be a dry hole, in which the ownership is not the same
for the entire depth or the completion thereof, the cost of drilling, plugging
and abandoning such well shall be allocated on the following basis:

          (a)  Costs to drill, plug and abandon a well proposed for completion
               in single, dual, or multiple zones shall be charged to the
               PARTICIPATING PARTIES in the same manner as if the well

                                       20

<PAGE>

               were completed as a producing well in all zones as proposed.

          (b)  Plugging and abandoning of any well following any deepening,
               completion attempt or other operation shall be at the sole risk
               and expense of the PARTICIPATING PARTIES in such operation,
               subject however to the provisions of Section 10.4.

     12.11 INTANGIBLE DRILLING AND COMPLETION ALLOCATIONS. For the purpose of
calculations hereunder, intangible drilling and completion costs, including
non-controllable material costs, shall be allocated between zones, including the
interval from the lower completed zones to total depth, on a drilling day ratio
basis beginning on the day the rig arrives on location and terminating when the
rig is released.

     12.12 OPERATED WELLS. The designated OPERATOR hereunder shall operate all
wells drilled pursuant to the NON-CONSENT provision of this Agreement. However,
notwithstanding anything herein to the contrary, if the NON-CONSENT WELL is
drilled from a mobile drilling rig and if the designated OPERATOR is a
NON-PARTICIPATING PARTY therein, the PARTICIPATING PARTY owning the largest
PARTICIPATING INTEREST shall serve as Operator for the drilling and completion
of such well, unless the PARTICIPATING PARTIES agree otherwise. Upon completion
of any such well as a productive well (completion through the wellhead), the
well shall be turned over to the designated OPERATOR for further operations.

                                  ARTICLE XIII

                                   FACILITIES

     13.1 APPROVAL. Any PARTY may propose the installation of FACILITIES by
notice to the other PARTIES with information adequate to describe the proposed
FACILITIES and the estimated costs. The affirmative vote of one (1) or more
PARTIES having a combined PARTICIPATING INTEREST of fifty-one percent (51%) or
more in the wells to be served shall be required before such FACILITIES may be
installed. If such required approval is obtained, the PARTICIPATING PARTIES
therein shall proceed with the installation of such FACILITIES at their sole
cost, risk and expense and the NON-PARTICIPATING PARTIES in such FACILITIES
shall have no rights with respect thereto, subject to recoupment of amounts set
forth under Article 12.2.1 from the completions served thereby. Each PARTIES'
share shall be calculated by multiplying the total cost of the FACILITIES by a
fraction, the numerator of which is that PARTY'S number of PRODUCIBLE WELL
completions served by the FACILITIES and the denominator of which is the total
number of PRODUCIBLE WELL completions served by the FACILITIES. Nothing
hereunder shall

                                       21

<PAGE>

limit a PARTY'S rights under Section 22.1; however, a PARTY acting thereunder
shall not be required to pay for joint account FACILITIES that duplicate its
FACILITIES constructed pursuant to Section 22.1

                                   ARTICLE XIV

                             ABANDONMENT AND SALVAGE

     14.1 PLATFORM SALVAGE AND REMOVAL COSTS. When the PARTIES owning FACILITIES
consisting of a platform, mutually agree to dispose of such platform it shall be
disposed of by the OPERATOR as approved by such PARTIES. The costs, risks and
net proceeds, if any, resulting from such disposition shall be shared by such
PARTIES in proportion to their PARTICIPATING INTEREST. To secure the
availability and sufficiency of funds for the dismantling, abandonment and
removal of such platform, the PARTICIPATING PARTIES, prior to the construction,
shall assign to a trustee of a bank (the "Assignee") an overriding royalty
interest equal to one-half percent (1/2%) of the whole of the oil, gas and other
minerals produced, saved and marketed from the LEASE. The assignee shall be
selected by an affirmative vote of two or more parties having a combined
PARTICIPATING INTEREST of fifty percent (50%) or more. The assigned overriding
royalty interest shall burden the interest of the PARTIES in proportion to their
participation in the platform. The Assignee, who shall have no interest in the
overriding royalty interest, shall receive the proceeds and place same in an
interest bearing account or in insured certificates of deposit (the "Abandonment
Fund"). If a platform is not constructed within one year of the date of
overriding royalty interest is assigned, the overriding royalty shall terminate
and the Assignee shall reassign the interest and properly disburse the
Abandonment Fund to the appropriate Parties. Any proposal to construct a
platform shall include estimated costs of dismantling, abandonment and removal
of such platform. At such time as the Abandonment Fund equals these estimated
costs, the overriding royalty shall be assigned to the PARTICIPATING PARTIES by
the Assignee. Similarly, any excess Abandonment Funds after complete
dismantling, abandonment and removal costs are paid shall be disbursed to the
PARTICIPATING PARTIES in proportion to their interest. A PARTICIPATING PARTY's
interest in the Abandonment Fund may only be assigned or transferred in
conjunction with an assignment or transfer of the subject Lease(s). In lieu of
an assignment of overriding royalty interest, any PARTICIPATING PARTY may elect
to furnish an irrevocable letter of credit in favor of the Assignee, or proof of
coverage under adequate plugging and abandonment bonds, subrogated in favor of
the OPERATOR, to provide for that PARTY's estimated proportionate share of
platform dismantling, removal and abandonment costs. The letter of credit or
plugging and abandonment bonds shall provide that

                                       22

<PAGE>

either instrument shall remain in force in the event of a transfer or assignment
of the PARTY's interest until such time as the transferee or assignee provides a
similar irrevocable letter of credit or plugging and abandonment bonds.

     14.2 PURCHASE OF SALVAGE MATERIALS. OPERATOR shall give all PARTIES written
notice when it is determined under Section 14.1 that FACILITIES or other
materials are not needed for further operations and may be moved from the LEASE.
Within fifteen (15) days after receipt of such notice any PARTY desiring to
acquire such materials shall give OPERATOR written notice of such fact. If more
than one PARTY desires to acquire such materials, OPERATOR shall designate a
time and place at which each PARTY may submit written bids for such materials.
If only one PARTY desires to acquire such materials, it may do so on the basis
of the value thereof as determined in accordance with the provisions of Exhibit
"C", with prefabricated materials being valued on the basis of cost including
but not limited to cost of fabrication. All materials removed from the LEASE
shall be removed at the expense of the PARTIES unless purchased hereunder, then
at the expense of the acquiring PARTY. In the event no PARTY desires to purchase
said materials, the materials shall be disposed of in accordance with the
provisions of Exhibit "C".

     14.3 ABANDONMENT OF PRODUCING WELL. Any PARTY may propose the abandonment
of a well by notifying the other PARTIES, who shall have the time period set
forth in Section 9.3.2 from receipt thereof within which to respond. No well
shall be abandoned without the mutual consent of the PARTICIPATING PARTIES. The
PARTICIPATING PARTIES not consenting to the abandonment shall pay to each
PARTICIPATING PARTY desiring to abandon its share of the current value of the
well's salvageable material and equipment as determined pursuant to Exhibit "C",
less the estimated current costs of salvaging same and of plugging and
abandoning the well as determined by the PARTICIPATING PARTIES. Provided,
however, if such salvage value is less than such estimated current costs, then
each PARTICIPATING PARTY desiring to abandon shall pay to OPERATOR for the
benefit of the PARTICIPATING PARTIES not consenting to abandonment a sum equal
to its share of such deficiency.

     14.4 ASSIGNMENT OF INTEREST. Each PARTICIPATING PARTY desiring to abandon a
well pursuant to Section 14.3 shall assign effective as of the last applicable
election date, to the non-abandoning PARTIES, in proportion to their
PARTICIPATING INTERESTS, its interest in such well and the equipment therein and
its ownership in the production of such well. Any PARTY so assigning shall be
relieved from any further liability with respect to said well except as to any
accrued liability.

                                       23

<PAGE>

     14.5 ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY. Any well
abandonment or platform removal required by a governmental authority shall be
accomplished by OPERATOR with the costs, risks and net proceeds, if any, to be
shared by the PARTIES owning such well or platform in proportion to their
PARTICIPATING INTEREST.

                                   ARTICLE XV

                                   WITHDRAWAL

     15.1 WITHDRAWAL. Any PARTY may withdraw from this Agreement and thereby be
relieved of all responsibilities with respect to the LEASE by giving notice to
the other PARTIES of such desire together with an offer to convey at no cost by
a recordable instrument, without warranty, express or implied, except for its
own acts, all of its interest in and to the LEASE, the oil and gas, and the
property and equipment owned hereunder. Any such conveyance or assignment shall
be free and clear of any overriding royalties, production payments or other
burdens on production created after the effective date of this Agreement and
shall be subject to the LEASE provisions and to the rules and regulations of the
lessor. If any PARTY(S) desires to acquire such interest and to assume the
obligations of the assigning PARTY under this Agreement and the LEASE, the
withdrawing PARTY shall deliver such conveyance or assignment ratably to the
acquiring PARTIES, unless the acquiring PARTIES agree otherwise. If no PARTY
desires to acquire such interest, the PARTY desiring to withdraw may do so only
by paying to those PARTIES not desiring to withdraw its pro-rata share of the
estimated costs of plugging and abandoning all wells and removal of all
platforms, structures and other equipment on the LEASE, less any salvage value
approved under the voting procedure hereof, and such withdrawing PARTY shall
remain liable for any costs, expenses or damages theretofore accrued or arising
out of any event occurring prior to such PARTY'S withdrawal. Thereafter, the
withdrawing PARTY shall assign its entire interest ratably to the remaining
PARTIES. If the remaining PARTIES do not wish to continue operations on the
LEASE, all PARTIES shall proceed with abandoning and surrendering the same.

     15.2 LIMITATIONS ON WITHDRAWAL. No PARTY shall be relieved of its
obligations hereunder during a well or platform fire, blowout or other emergency
thereon, but may withdraw from this Agreement and be relieved of such
obligations after termination of such emergency, provided such PARTY shall be
and remain liable for its full share of all costs arising out of said emergency,
including without limitation, the drilling of a relief well, containment and
cleanup of oil spill and pollution and all costs of platform debris removal made
necessary by the emergency.

                                       24

<PAGE>

                                   ARTICLE XVI

                      RENTALS, ROYALTIES AND OTHER PAYMENTS

     16.1 CREATION OF OVERRIDING ROYALTY. If after the effective date of this
Agreement, any PARTY creates any overriding royalty, production payment or other
burden payable out of production attributable to such PARTY'S WORKING INTEREST
in the LEASE owned and if any other PARTY(S) becomes entitled to an assignment
pursuant to the provisions of this Agreement (except for Paragraph 26.2) or as a
result of NON-CONSENT OPERATIONS hereunder becomes entitled to receive the
WORKING INTEREST otherwise belonging to a NON-PARTICIPATING PARTY in such
operations, the PARTY entitled to receive the assignment from or the WORKING
INTEREST production of such NON-PARTICIPATING PARTY shall receive same free and
clear of such burdens, and the NON-PARTICIPATING PARTY creating such burdens
shall save the PARTICIPATING PARTIES harmless with respect to the receipt of
such assigned interest or such WORKING INTEREST production.

     16.2 PAYMENT OF RENTALS AND MINIMUM ROYALTIES. OPERATOR shall pay all
rentals, minimum royalties, or similar payments accruing under the terms of the
LEASE and submit evidence of such payment to the PARTIES. As to any production
delivered in kind by OPERATOR to any NON-OPERATOR or to another for the account
of such NON-OPERATOR, said NON-OPERATOR shall provide OPERATOR with information
as to the proceeds or value of such production in order that the OPERATOR may
make payment of any minimum royalty due. The amount of such payment for which
each PARTY is responsible shall be charged by the OPERATOR to such PARTIES.
OPERATOR shall diligently attempt to make proper payment, but shall not be held
liable to the PARTIES in damages for the loss of any LEASE or interest therein
of through mistake or oversight any rental or minimum royalty payment is not
paid for or is erroneously paid. The loss of any LEASE or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of interest.

     16.3 NON-CONCURRENCE IN PAYMENTS. Should any PARTY(S) not concur in the
payment of any rental, minimum royalty or similar payment, such PARTY(S) shall
notify OPERATOR and all other owners in writing at least sixty (60) days prior
to the date on which such payment is due or accrues; and, in this event OPERATOR
shall make such payment for the benefit of all concurring PARTIES. In such event
the non-concurring PARTY(s) shall, upon request of any concurring PARTIES,
assign to the concurring PARTIES in the ratio that each concurring PARTY'S
interest at the time bears to the total interest of all concurring PARTIES,
without warranty, except for its own acts, such

                                       25

<PAGE>

portions of its interest in and to the LEASE or portion thereof involved as
would be maintained by such payment. That assignment shall be free and clear of
any overriding royalties, production payments or other burdens on production
created after the effective date hereof. Thereafter, the LEASE, or portion
thereof, involved shall no longer be subject to this Agreement. The PARTIES then
owning such LEASE or portion thereof agree to operate said LEASE or portion
thereof under a separate agreement in the same form as this Agreement.

     16.4 ROYALTY PAYMENTS. Each PARTY shall pay, deliver or cause to be paid or
delivered its pro-rata share of LEASE royalties, overriding royalties, payments
out of production or other amounts or charges which may be or become payable out
of its share of production and shall hold the other PARTIES free from any
liability therefore. Each Party, electing to pay his share of royalties pursuant
to the terms of the Lease, shall promptly notify Operator of said election and
shall thereafter provide to Operator a detailed accounting of revenue received
and value paid to the Lessor for such Party's share of production produced,
marketed and sold. Monthly reports shall be submitted to Operator within
forty-five days of actual receipt of the previous month's production revenue.
During any time in which PARTICIPATING PARTIES in a NON-CONSENT OPERATION are
entitled to receive a NON-PARTICIPATING PARTY'S share of production, the
PARTICIPATING PARTIES shall bear the LEASE royalty due with respect to such
share of production and shall hold the NON-PARTICIPATING PARTIES harmless from
liability in connection therewith. Any PARTY acting under the provisions of the
Article shall never be liable for a standard of performance in making such
payments or deliveries in excess of a good faith effort to pay or deliver same
prior to the due date and no liability (other than the liability to correct such
payment) shall be incurred for failure through error or omissions of the
employees of any such PARTY to make payment or delivery within the time, in the
manner and for the amounts due

     16.5 FEDERAL OFFSHORE OIL POLLUTION COMPENSATION FUND FEE. Each PARTY
agrees to pay and bear the Federal Offshore Oil Pollution Compensation Fund Fee
payable on its share of oil produced, such fee being required by Section 302 of
the Outer Continental Shelf Lands Act Amendment of 1978 and any regulation
lawfully promulgated pursuant thereto; provided, however, should the oil owned
by a PARTY be reported by another PARTY, it shall be the obligation of such
reporting PARTY and such reporting PARTY is specifically authorized to an agrees
to pay the Federal Offshore Oil Pollution Compensation Fund Fee on those volumes
which it reports for the benefit of the non-reporting PARTY, and such reporting
PARTY may charge such non-reporting PARTY for the payments so made.

                                       26

<PAGE>

                                  ARTICLE XVII

                                      TAXES

     17.1 PROPERTY TAXES. OPERATOR shall render property covered by this
Agreement as may be subject to ad valorem taxation and shall pay such property
taxes for the benefit of each PARTY. OPERATOR shall charge each PARTY its share
of such tax payments. If the OPERATOR is required hereunder to pay ad valorem
taxes based in whole or in part upon separate valuation of each PARTY'S WORKING
INTEREST, then notwithstanding anything to the contrary herein, charges to the
Joint Account shall be made and paid by the PARTIES hereto in accordance with
the percentage of tax value generated by each PARTY'S WORKING INTEREST.

     17.2 CONTEST OF PROPERTY TAX VALUATION. OPERATOR shall timely and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination, OPERATOR may elect to pay under protest. Upon final
determination, OPERATOR shall pay the taxes and any interest, penalty or cost
accrued as a result of such protest. In either event, OPERATOR shall charge each
PARTY its share.

     17.3 PRODUCTION AND SEVERANCE TAXES. Each PARTY shall pay, or cause to be
paid, all production, severance and other taxes due on any production, which it
received pursuant to the terms of this Agreement.

     17.4 OTHER TAXES AND ASSESSMENTS. OPERATOR shall pay other applicable taxes
or assessments and charge each PARTY its share.

                                  ARTICLE XVIII

                                    INSURANCE

     18.1 INSURANCE. OPERATOR shall obtain the insurance provided in Exhibit "B"
and charge each PARTICIPATING PARTY its proportionate share of the cost of such
coverage.

                                   ARTICLE XIX

                         LIABILITY, CLAIMS AND LAWSUITS

     19.1 INDIVIDUAL OBLIGATIONS. The obligations, duties and liabilities of the
PARTIES shall be several and not joint or collective; and nothing contained
herein shall ever be construed as creating a partnership of any kind, joint
venture, association or other character of business entity recognizable in law
for any purpose. Each PARTY shall hold all the other PARTIES harmless from liens
and encumbrances on the LEASE arising as a result of its acts.

                                       27

<PAGE>

     19.2 NOTICE OF CLAIM OR LAWSUIT. If a claim is made against any PARTY or if
any PARTY is sued on account of any matter arising from operations hereunder,
such PARTY shall give prompt written notice to the other PARTIES.

     19.3 SETTLEMENTS. OPERATOR may settle any single damage claim or suit
involving operations hereunder if the expenditure does not exceed Twenty-five
thousand Dollars ($25,000.00), if the claim is not covered by Exhibit "B" and if
the payment is in complete settlement of such claim or suit.

     19.4 LEGAL EXPENSE. Legal Expenses shall be handled pursuant to the
provisions of Exhibit "C".

     19.5 LIABILITY FOR LOSSES, DAMAGES, INJURY OR DEATH. Liability for losses,
damages, injury or death arising from operations under this Agreement shall be
borne by the PARTIES in proportion to their PARTICIPATING INTERESTS in the
operations out of which such liability arises, except when such liability
results from the gross negligence or willful misconduct of any party, in which
case such PARTY shall be liable.

     19.6 INDEMNIFICATION. The PARTICIPATING PARTIES agree to hold the
NON-PARTICIPATING PARTIES harmless and to indemnify and protect them against all
claims, demands, liabilities and liens for property damage or personal injury,
including death, caused by or otherwise arising out of NON-CONSENT OPERATIONS,
and any loss and costs suffered by any NON-PARTICIPATING PARTY as an incident
thereof.

                                   ARTICLE XX

                           INTERNAL REVENUE PROVISION

     20.1 INTERNAL REVENUE PROVISION. Notwithstanding any provisions herein that
the rights and liabilities hereunder are several and not joint or collective or
that this Agreement and the operations hereunder shall not constitute a
partnership, if for Federal Income Tax purposes this Agreement and the
operations hereunder are regarded as a partnership, then for Federal Income Tax
purposes each PARTY elects to be excluded from the application of all the
provisions of Subchapter K, Chapter 1, Subtitle A, Internal Revenue Code of
1954, as permitted and authorized by Section 761 of said Code and the
regulations promulgated thereunder. OPERATOR is hereby authorized and directed
to execute on behalf of each PARTY such evidence of this election as may be
required by the Federal Internal Revenue Service including specifically, but not
by way of limitation, all of the returns, statements and data required by
Federal Regulations 1.761.2. Should there be any requirement that each PARTY
further evidence this election, each PARTY agrees to execute such documents and
furnish such other evidence as may be required by the Federal Internal Revenue
Service. Each PARTY further agrees not to give any notices or take any other
action inconsistent with the election made

                                       28

<PAGE>

hereby. If any present or future income tax law of the United States of America
or any state contains provisions similar to those contained in Subchapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1986, under which an
election similar to that provided by Section 761 of said Subchapter K is
permitted, each PARTY makes such election or agrees to make such election as may
be permitted by such laws. In making this election, each PARTY states that the
income derived by it from the operations under this Agreement can be adequately
determined without the computation of partnership taxable income.

                                   ARTICLE XXI

                                  CONTRIBUTIONS

     21.1 NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION.
Each PARTY shall promptly notify the other PARTIES of all contributions, which
it may obtain, or is attempting to obtain, concerning the drilling of any well
on the LEASE. Payments received as consideration for entering into a contract
for sale of production from the LEASE, loans and other financing arrangements
shall not be considered contributions for the purposes of the Article. No PARTY
shall release or obligate itself or release information in return for a
contribution from an outside party toward the drilling of a well without prior
written consent of the other PARTICIPATING PARTIES therein.

     21.2 CASH CONTRIBUTIONS. In the event a PARTY receives a cash contribution
toward the drilling of a well, said cash contribution shall be paid to OPERATOR
and OPERATOR shall credit the amount thereof to the PARTIES in proportion to
their PARTICIPATING INTEREST.

     21.3 ACREAGE CONTRIBUTIONS. In the event a PARTY receives an acreage
contribution toward the drilling of a well, said acreage contribution shall be
shared by each PARTICIPATING PARTY who accepts in proportion to its
PARTICIPATING INTEREST in the well.

                                  ARTICLE XXII

                            DISPOSITION OF PRODUCTION

     22.1 FACILITIES TO TAKE IN KIND. Any PARTY shall have the right, at its
sole risk and expense, to construct FACILITIES for taking its share of
production in kind, provided that such FACILITIES at the time of installation do
not interfere with continuing operations on the LEASE and adequate space is
available therefore.

     22.2 DUTY TO TAKE IN KIND. Each PARTY shall have the right and duty to take
in kind or separately

                                       29

<PAGE>

dispose of its share of the oil and gas produced and saved from the LEASE.

     22.3 FAILURE TO TAKE IN KIND. If any PARTY fails to take in kind or dispose
of its share of the oil and condensate, OPERATOR may either (a) purchase oil or
condensate at OPERATOR'S posted price or, in the absence of a posted price, in
no event less than the price prevailing in the area for oil of the same kind,
gravity and quality, or (b) sell such oil or condensate to others at the best
price obtainable by OPERATOR, subject to revocation by the non-taking PARTY upon
thirty (30) days advance notice. All contracts of sale by OPERATOR of any
PARTY'S share of oil or condensate shall be only for such reasonable periods of
time as are consistent with the minimum needs of the industry under the
circumstances, but in no event shall any contract be for a period in excess of
one (1) year. Proceeds of all sales made by OPERATOR pursuant to this Section
shall be paid to the PARTIES entitled thereto. Unless required by governmental
authority or judicial process, no PARTY shall be forced to share an available
market with any non-taking PARTY.

     22.4 EXPENSES OF DELIVERY IN KIND. Any cost incurred by OPERATOR in making
delivery of any PARTY'S share of oil and condensate, or disposing of same
pursuant to Section 22.3, shall be borne by such PARTY.

     22.5 GAS BALANCING PROVISIONS. Attached hereto is Exhibit "E" entitled "Gas
Balancing Agreement", containing an agreement of the PARTIES, which is
incorporated into this Agreement as if copied at length herein.

                                  ARTICLE XXIII

                                 APPLICABLE LAW

     23.1 APPLICABLE LAW. This Agreement shall be interpreted according to the
laws of the State of Texas.

                                  ARTICLE XXIV

                    LAWS, REGULATIONS AND NON-DISCRIMINATION

     24.1 LAWS AND REGULATIONS. This Agreement and operations hereunder are
subject to all applicable laws, rules, regulations and orders, and any provision
of the Agreement found to be contrary to or inconsistent with any such law,
rule, regulation or order shall be deemed modified accordingly.

     24.2 NON-DISCRIMINATION. In the performance of work under the Agreement,
the PARTIES agree

                                       30

<PAGE>

to comply, and OPERATOR shall require each independent contractor to comply,
with the governmental requirements set forth in Exhibit "D" and with all of the
provisions of Section 202(1) to (7), inclusive, of Executive Order No. 11246, as
amended.

                                   ARTICLE XXV

                                  FORCE MAJEURE

     25.1 NOTICE. If any PARTY is rendered unable, wholly or in part, by force
majeure to carry out its obligations under this Agreement, other than the
obligation to make money payments, that PARTY shall give to all other PARTIES
prompt written notice of the force majeure with reasonably full particulars
concerning it; thereupon, the obligations of the PARTY giving the notice, so far
as they are affected by the force majeure, shall be suspended during, but no
longer than, the continuance of the force majeure. The affected PARTY shall use
reasonable diligence to remove the force majeure as quickly as possible.

     25.2 STRIKES. The requirement that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of strikes.

     25.3 FORCE MAJEURE. The term "force majeure" as herein employed shall mean
an act of God, strike, lockout, or other industrial disturbance, act of the
public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion, governmental restraint, unavailability of equipment and any other
cause, whether of the kind specifically enumerated above or otherwise, which is
not reasonably within the control of the PARTY claiming suspension.

                                  ARTICLE XXVI

                      SUCCESSORS, ASSIGNS AND PREFERENTIAL
                                RIGHT TO PURCHASE

     26.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the PARTIES and their respective heirs, successors,
representatives and assigns and shall constitute a covenant running with the
LEASE. Each PARTY shall incorporate in any assignment of an interest in the
LEASE a provision that such assignment is subject to this Agreement.

     26.2 PREFERENTIAL RIGHT TO PURCHASE. Should any PARTY desire to sell,
farmout or otherwise dispose of all or any part of its interests under this
Agreement, or its Working Interest in the Lease, it shall promptly give written
notice to the other PARTIES giving complete information relative to the proposed
disposition,

                                       31

<PAGE>

which shall included the name and address of the proposed purchaser (who must be
ready, willing and able to purchase), the purchase price and all other terms of
the offer. The other PARTIES shall have an optional prior right, for a period of
ten (10) days after receipt of the notice, to purchase the interest which the
other PARTY proposes to sell on the same terms and conditions as the proposed
purchaser. If this optional right is exercised by the other PARITES, the
purchasing PARTIES shall share the purchased interest in the proportions that
the interest of each bears to the total interests of all purchasing PARTIES.

          26.2.1 The Provisions of this Article shall not apply to and it shall
not be necessary to obtain the consent of any PARTY in connection with;

               (a)  Any mortgage or other pledge, including without limitation
                    the granting of any lien or security interest and any
                    assignment of production executed as further security for
                    the debt secured by any such mortgage or pledge, by a PARTY
                    hereto of its interest or any portion thereof in the joint
                    leases, or the Agreement, or any judicial, trustee's or
                    other sales to foreclose the same;

               (b)  Any transfer or disposition of the interest of a PARTY
                    hereto by corporate merger, reorganization or consolidation
                    or by any sale or sales of all or substantially all of its
                    oil and gas properties; or

               (c)  Any sale, merger, reorganization, consolidation or other
                    transfer by a PARTY hereto of any part of its interest to or
                    with any "affiliate" (as such term is defined in Regulation
                    C, issued under the Securities Act of 1933).

               (d)  Any mortgage, pledge, transfer, sale, merger or any other
                    disposition enumerated in subparagraphs (a), (b) or (c) of
                    this Paragraph shall be made expressly subject to this
                    Agreement. Any assignment under this provision shall be
                    effective upon approval of the lessor or at such earlier
                    date as agreed to by the lessor.

     26.3 ASSIGNMENTS. Any assignment, vesting or relinquishment of interest
between the PARTIES shall be without warranty of title, except as to overrides,
production payments, liens, encumbrances or similar burdens on the interest
assigned. Any assignment to a Third Party or a Working Interest herein shall not
be effective until approved by the Minerals Management Service.

                                       32

<PAGE>

                                  ARTICLE XXVII

                                      TERM

     27.1 TERM. This Agreement may be amended only in writing and only by mutual
consent of all PARTIES. This Agreement shall remain in effect so long as the
LEASE shall remain in effect and thereafter until all claims, liabilities and
obligations incurred in operations hereunder have been settled; however, all
property belonging to the PARTIES shall be disposed of and final settlement
shall be made under this Agreement.

                                 ARTICLE XXVII

                             HEADINGS AND EXECUTION

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

     28.2 COUNTERPART EXECUTIONS. This Agreement may be signed in counterparts,
and shall be binding upon the PARTIES and upon their successors, representatives
and assigns.

                                        F-W OIL EXPLORATION L.L.C.

                                        BY:
                                            ------------------------------------
                                        NAME:
                                              ----------------------------------
                                        TITLE:
                                               ---------------------------------

                                        BY:
                                            ------------------------------------
                                        NAME:
                                              ----------------------------------
                                        TITLE:
                                               ---------------------------------

                                        [           ]
                                         -----------

                                        BY:
                                            ------------------------------------
                                        NAME:
                                              ----------------------------------
                                        TITLE:
                                               ---------------------------------

                                       33

<PAGE>

STATE OF TEXAS

COUNTY OF HARRIS

ON THIS _____ day of _________, 2002, before me appeared ________________, to
me personally known, who, being by me duly sworn, did say that he is the
________________ for F-W Oil Exploration L.L.C., and that the foregoing
instrument was signed in behalf of said limited liability company by authority
of its Board of Directors, and acknowledges said instrument to be a free act and
deed of said company.

                                        ----------------------------------------
                                        Notary Public

STATE OF TEXAS

COUNTY OF HARRIS

ON THIS ____ day of _________, 2002, before me appeared ____________, to me
personally known, who, being by me duly sworn, did say that he is the ________
for _______________, and that the foregoing instrument was signed in behalf of
said corporation by authority of its Board of Directors, and said
_______________ acknowledges said instrument to be a free act and deed of said
corporation.

                                        ----------------------------------------
                                        Notary Public in and for

STATE OF TEXAS

COUNTY OF __________

ON THIS ____ day of ________, 2002, before me appeared _____________, to me
personally known, who, being by me duly sworn, did say that he is the __________
for __________________, and that the foregoing instrument was signed in behalf
of said limited liability company by authority of its Board of Directors, and
acknowledges said instrument to be a free act and deed of said company.

                                        ----------------------------------------
                                        Notary Public in and for

JOA-North Padres Island 995/996

                                       34

<PAGE>

                                   EXHIBIT "A"

     Attached to and made a part of that certain Joint Operating Agreement dated
     effective June 20, 2002, by and between F-W OIL EXPLORATION L.L.C., as
     Operator, and [_____________] and [_______], as non-operators.

OIL AND GAS LEASES AND AREA:

     1. [_________________________]

     2. [_________________________]

PARTICIPANTS AND ADDRESSES:

[_______________________]                             [_______________________].

[_______________________]                             [_______________________]

[_______________________]                             [_______________________]

[_______________________]                             [_______________________]

[_______________________]                             [_______________________]

[_______________________]                             [_______________________]

[_______________________]

[_______________________]

[_______________________]

[_______________________]

[_______________________]

WORKING INTEREST

     [_______________________]   [__].0%

     [_______________________]   [__].5%

     [_______________________]   [__].5%

THE LEASES AND INTERESTS ABOVE ARE BURDENED BY A 2% OF 8/8THS OVERRIDING ROYALTY
INTEREST RESERVED UNTO F-W OIL EXPLORATION L.L.C.

                                       35

<PAGE>

                                   EXHIBIT "B"
                                    INSURANCE

     Attached to and made a part of that certain Joint Operating Agreement dated
     effective June 20, 2002, by and between F-W OIL EXPLORATION L.L.C., as
     Operator, and [_______] and [_______], as non-operators.

Operator shall, at all times while conducting operations on the Contract Area
and/or Assigned Premises, carry or cause to be carried insurance for the
following coverage's and in at least the minimum amounts noted.

     1.   Workers' Compensation and Occupational Disease insurance in accordance
          with the statutory requirements of the state in which work is to be
          performed, the state in which the Operator, herein "Contractor", or
          any of Operator's contractor(s) or sub-contractor(s), employees reside
          and the state in which the Contractor is domiciled; Employer's
          Liability insurance with limits of not less than $1,000,000. These
          coverage's shall include:

          a.   Protection for liabilities under the Federal Longshoremen's and
               Harbor Worker's Compensation Act and the Outer Continental Shelf
               Lands Act.

          b.   Coverage for liability under the Merchant Marine Act of 1920,
               commonly known as the Jones Act; the Admiralty Act; and the Death
               on the High Seas Act with limits of not less than $1,000,000 per
               accident.

          c.   Protection against liability of employer to provide
               transportation, wages, maintenance and cure to maritime employees
               and a Voluntary Compensation Endorsement.

          d.   Coverage amended to provide that a claim In Rem shall be treated
               as a claim against the employer.

          e.   Territorial extension shall cover all work areas.

          f.   Waiver of subrogation in favor of Operator and it's associated
               and/or affiliated entity(s).

     2.   Comprehensive General Liability insurance, written on any occurrence
          reported basis with limits of $1,000,000 per occurrence Bodily Injury
          and Property Damage, combined single limits, an annual aggregate of no
          less than $2,000,000 (if applicable), including the following
          coverage's:

          a.   Premises and Operations coverage's.

          b.   Independent Contractor's Contingent coverage.

          c.   Contractual Liability covering liabilities assumed under this
               Contract and the payment of expenses in connection with the
               defense of Operator's legal firm.

          d.   Products and Completed Operations coverage.

          e.   Coverage for explosion, collapse and underground resources and
               property damage under both Premises/Operations and Contractual
               Liability coverage parts, where applicable.

          f.   Broad Form Property Damage Liability endorsement.

          g.   Personal Injury Liability.

          h.   In Rem endorsement.

                                       36

<PAGE>

          i.   Territorial extension shall cover all work areas.

          j.   Where applicable, coverage for liability resulting from the
               consumption of food prepared or served by contractor or
               subcontractor.

          k.   Watercraft exclusion deleted.

          l.   Coverage is provided for "Action Over" suits.

          m.   Coverage is silent as respects Punitive Damages.

          n.   Contractors will name Operator or it's affiliate as additional
               insured with waiver of subrogation in favor of Operator.

     3.   Automobile Liability insurance covering owned, hired and non-owned
          vehicles with limits of $1,000,000 per occurrence Bodily Injury and
          Property Damage combined single limits. Contractors will name Operator
          or it's affiliate as additional insured with waiver of subrogation in
          favor of Operator.

     4.   Where the work described by this Contract involves the use of marine
          equipment. Operator will require the contractor to provide the
          following insurance:

          a.   Full Form Hull and Machinery insurance, with coverage equal to
               that provided by the American Institute Hull Clauses including
               collision liability, with the sister ship clause unamended, with
               limits of liability at least equal to the full value of the
               vessel and with navigational limitations adequate for Contractor
               to perform the contracted work. Where the vessels engage in
               towing operations, said insurance shall include full tower's
               liability with the sister ship clause unamended.

          b.   Protection and indemnity insurance coverage in an amount at least
               equal to the full value of each vessel employed under the
               Contract. Protection and indemnity insurance shall include full
               coverage for all crew liabilities if coverage for maritime
               employees is not provided under Coverage B, Employers Liability
               for Admiralty Jurisdiction.

          c.   Excess Protection and Indemnity insurance, including Collision
               and Tower's (where applicable) Liability in an amount at least
               equal to the value of each vessel covered or the difference
               between the full value of each vessel and $1,000,000 per
               occurrence.

          d.   Voluntary Removal of Wreck and/or Debris insurance covering
               Contractor's operations in an amount of not less than $1,000,000
               per occurrence.

     All of the marine coverage's cited above shall name Operator and all its
subsidiary and affiliated companies as additional insured's as their interests
may appear, to the extent of contractor's obligations to defend and indemnify
the Parties, with waivers of subrogation in favor of the Operator and any of
it's associated and/or affiliated entities. Any clause purporting to limit
insurance in respect of "other assureds" is to be deleted in respect to Operator
or it's affiliates.

     5.   Aircraft Liability insurance (for contracts involving use of aircraft
          or helicopters) with combined single limit coverage for public
          liability, passenger liability and property damage liability of not
          less than $5,000,000 covering all owned and non-owned aircraft used by
          Contractor in connection with work to be performed.

     6.   Umbrella Liability insurance written on an occurrence basis with no
          claims made features with a minimum combined single limit of
          $5,000,000 each occurrence/aggregate where applicable, to be excess of
          the coverage's and limits required in 1, 2, 3, 4 and 5 above.

                                       37

<PAGE>

     7.   Excess Umbrella Liability with a minimum combined single limit of
          $10,000,000.

     8.   OPERATOR shall carry or cause to be carried the following coverage's
          for the benefit of and at the expense of the Joint Account, however,
          proportionate coverage may be carried individually by each
          NON-OPERATOR, subject to proper evidence of such proportionate
          coverage being provided to Operator in advance of commencement of
          operations.

          a.   Operator's Extra Expense Insurance, including control of well and
               redrilling of the well (full restoration redrill), including, but
               not limited to, Pollution and Containment and Evacuation Expense
               with a limit of liability of $20,000,000.

          b.   Physical Damage and Removal of Wreck Coverage for facilities
               hereunder, with limits not less than the replacement value
               thereof. Notwithstanding the foregoing, this coverage is to be
               provided fifteen (15) days prior to placement of such facilities.

                                       38

<PAGE>

                                   EXHIBIT "D"

     Attached to and made a part of that certain Joint Operating Agreement dated
     effective June 20, 2002, by and between F-W OIL EXPLORATION L.L.C., as
     Operator, and [__________]. and [__________]., as non-operators.

                    CERTIFICATION OF NONSEGREGATED FACILITIES

Contractor certifies that it does not maintain or provide for its employees any
segregated facilities at any of its establishments and that it does not permit
its employees to perform their services at any location, under its control,
where segregated facilities are maintained. Contractor certifies further that it
will not maintain or provide for its employees any segregated facilities at any
of its establishments and that it will not permit its employees to perform their
services at any location, under its control, where segregated facilities are
maintained. Contractor agrees that a breach of this certification is a violation
of the Equal Opportunity Clause in any Government contract between Contractor
and Corporation. As used in this certification, the term "segregated facilities"
means any waiting rooms, work areas, rest rooms and wash rooms, restaurants and
other eating areas, time clocks, locker rooms and other storage or dressing
areas, parking lots, drinking fountains, recreation or entertainment areas,
transportation, and housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of race,
color, religion, or national origin, because of habit, local customs or
otherwise. Contractor further agrees that (except where it has obtain identical
certifications from proposed subcontractors for specific time periods) it will
obtain identical certifications from proposed subcontractors prior to the award
of subcontracts exceeding $10,000 which are not exempt from the provisions of
the Equal Opportunity Clause; that it will retain such certifications in its
files; and that it will forward the following notice to such proposed
subcontractors (except where the proposed subcontractors have submitted
identical certifications for specific time periods):

NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES. A Certification of Non-segregated Facilities, as
required by the May 9, 1967, order on Elimination of Segregated Facilities, by
the Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967), must be submitted
prior to the award of a subcontract exceeding $10,000, which is not exempt from
the provisions of the Equal Opportunity Clause. The certification may be
submitted either for each subcontract or for all subcontracts during a period
(i.e., quarterly, semi-annually or annually). (1968 MAR.) (Note: The penalty for
making false statements in offers is prescribed in 18 U.S.C. 1001.)

Whenever used in the foregoing Section, the term "contractor" refers to each
party to this agreement.

                                       39

<PAGE>

                                   EXHIBIT "E"

                             GAS BALANCING AGREEMENT

     Attached to and made a part of that certain Joint Operating Agreement dated
     effective June 20, 2002, by and between F-W OIL EXPLORATION L.L.C., as
     Operator, and [____________]. and [____________]., as non-operators.

I.   DEFINITIONS

     A.   "Agreement" shall mean this Gas Balancing Agreement.

     B.   "Balanced" is that condition which occurs when a party hereto has
          taken the same percentage of the cumulative volume of Gas production
          it is entitled to take pursuant to the terms of the Operating
          Agreement.

     C.   "Gas" includes natural gas produced from a Well that produces Gas Well
          Gas, including all constituent parts of such natural gas except liquid
          hydrocarbons and condensate recovered by primary separation equipment.

     D.   "Gas Well Gas" is gas produced from a Well classified as a gas well by
          the regulatory body having jurisdiction.

     E.   "Overproduced" is the status of a party when the percentage of the
          cumulative volume of Gas taken by that party exceeds that party's
          percentage interest of the volume of cumulative Gas production of all
          parties to the Operating Agreement under and pursuant to the terms of
          the Operating Agreement.

     F.   "Underproduced" is the status of a party when the percentage of
          cumulative volume of Gas taken by that party is less than that party's
          percentage interest of the volume of cumulative Gas production of all
          parties to the Operating Agreement under and pursuant to the terms of
          said Operating Agreement.

     G.   "Well" is defined as each well subject to the Operating Agreement that
          produces Gas Well Gas. If a single Well is completed in two or more
          reservoirs, such Well shall be considered a separate Well with respect
          to, but only with respect to, each reservoir from which the Gas
          produced is not commingled in the well bore.

II.  APPLICATION OF THIS AGREEMENT

     The parties to the Operating Agreement own the working or operating
     interests in the Gas underlying the Contract Area covered by the Operating
     Agreement and are entitled to share in the percentages therein stated in
     the Operating Agreement.

     In accordance with the terms of the Operating Agreement, each party is
     responsible for marketing it's share and shall take its full share of Gas
     produced from the Contract Area and market or otherwise dispose of same. In
     the event a party hereto elects in writing not to take in kind or market
     its full share of Gas or has contracted to sell its share of Gas produced
     from the Contract Area to a purchaser which, at any time while this
     Agreement is in effect, fails to take the share of Gas attributable to the
     interest of such party, the terms of this Agreement shall automatically
     become effective.

     The Operator is responsible for administering the provisions of this Gas
     Balancing Agreement and as such shall have the sole option of administering
     all reporting of the same for the Parties or retaining the services of
     third party professionals for this specific purpose. The costs of such
     third party services by Operator shall be considered as included in the
     overhead rates. The Operator shall cause deliveries to be made to the Gas
     purchasers at such rates as may be required to give effect to the extent
     practicable, to be or become Balanced.

                                       40

<PAGE>

III. STORING AND MAKING UP GAS PRODUCTION

     A.   Right to Take and Market Gas

          During any periods or periods when any party hereto does not take, has
          no market for, or the market of a party is not sufficient to take,
          that party's full share of the Gas produced from any Well located on
          the Contract Area, or such party's purchaser otherwise fails to take
          such party's share of Gas produced from any such Well located on the
          Contract Area, resulting in such party becoming Underproduced (such
          party being herein referred to as an "Underproduced Party"), the other
          party or parties shall be entitled, but not required, to produce from
          said Well on the Contract Area (and take or deliver to their
          respective purchaser(s)), each month all or a part of that portion of
          the allowable Gas production assigned to such Well by the regulatory
          body having jurisdiction. Any party so taking or delivering Gas which
          results in such party becoming Overproduced is herein referred to as
          an "Overproduced Party".

          Those parties which are capable of taking and/or marketing quantities
          of Gas allocable to an Underproduced Party, in the absence of any
          other agreement between them, shall each take a share of the Gas
          attributed to the Underproduced Party or Parties in the direct
          proportion that their respective interests bear to the total interest
          of all parties taking Gas which are also considered Overproduced.

          All parties hereto shall share in and own the liquid hydrocarbons
          recovered from such Gas by primary separation equipment in accordance
          with their respective interests and subject to the terms of the
          above-described Operating Agreement, whether or not such parties are
          actually taking and/or marketing Gas at such time.

     B.   Making Up Underproduction

          Any Underproduced Party shall endeavor to bring its taking of Gas into
          a Balanced condition. Upon thirty (30) days prior written notice to
          the Operator, any Underproduced Party may thereafter begin taking or
          delivering to its purchaser its full share of the Gas produced from a
          Well (less any used in operations, vented or lost). To allow for the
          recovery of Gas in storage and to balance the Gas account of the
          parties in accordance with their respective interests, Underproduced
          Party shall be entitled to take or deliver to a purchaser its full
          share of Gas produced from such Well (less any used in operations,
          vented or lost) plus, (i) for the months of March, April, May, June,
          July, August, September and October only of any calendar year during
          which this agreement may be in place, an amount up to an additional
          fifty percent (50%) of the monthly quantity of Gas attributable to the
          Overproduced Party or Parties, or (ii) for the months of November,
          December, January and February only of any calendar year or years
          during which this agreement may be in place, an amount up to an
          additional twenty-five percent (25%) of the monthly quantity of Gas
          attributable to the Overproduced Party or Parties. If more than one
          Underproduced Party is entitled to take additional Gas, they shall
          divide the additional Gas in proportion to their respective
          Underproduced accounts. The first Gas made up shall be assumed to be
          the first Gas Underproduced.

     C.   Gas Balance Reporting

          Each party taking will promptly provide to the Operator any data
          required by the Operator for preparation of the statements required
          hereunder. Operator shall not be required to adjust its Gas accounting
          statements reflecting a different Gas purchaser until the first day of
          the month following the month in which such notice is received by the
          Operator. The Operator will maintain appropriate accounting on a
          monthly and cumulative basis of the quantities of Gas each party is
          entitled to take and/or market and the quantities of Gas taken and/or
          marketed by each of the parties to their respective Gas purchasers.
          Within ninety (90) days after the end of each producing calendar
          month, the Operator shall furnish each party a statement showing the
          status of the Overproduced and Underproduced accounts of all parties.

                                       41

<PAGE>

          To determine respective volumes of Gas taken by separate gas pipelines
          connected to the Well, measurement of Gas for overproduction and
          underproduction shall be accomplished by use of sales meters and lease
          measurement equipment, which shall be in accordance with AGA
          requirements.

          Each party to this Agreement agrees that it will not utilize any
          information obtained hereunder for any purpose other than implementing
          or administering the terms of this Agreement.

     D.   Royalty and Production Tax

          At all times while Gas is produced from the Contract Area, unless
          otherwise required by any State or Federal law or regulations, each
          party shall pay or cause to be paid all royalty due and payable on the
          actual volumes of gas taken for its account. Each party agrees to hold
          each other party harmless from any and all claims for royalty payments
          asserted by its royalty owners. The term "royalty owner" shall include
          owners of royalty, overriding royalties, production payments and
          similar interests payable out of production.

          Each party producing or taking or delivering Gas to its Gas purchaser
          shall pay, or cause to be paid, all production and severance taxes due
          on all volumes of Gas actually taken or sold by such party.

IV.  CASH SETTLEMENT

     A.   Volume/Value

          If, at the permanent termination of production of Gas from a Well
          located on the Contract Area, an imbalance exists between the parties,
          a cash settlement of the imbalance between the parties relative to
          such Well shall be made. The amount of the cash settlement will be
          limited to the proceeds actually received by the Overproduced Party or
          Parties at the time of overproduction, less transportation and
          applicable treating charges and production and severance taxes paid on
          such overproduction. Royalty shall only be deducted from such proceeds
          attributable to the overproduction if actually paid to royalty owners
          by the Overproduced Party or Parties. No interest shall be added to
          any cash settlement hereunder. If there is more than one Overproduced
          Party, the cash settlement shall be based on a weighted average of the
          proceeds actually received as above described by all Overproduced
          Parties.

     B.   Collection and Distribution

          Operator shall provide to all parties hereto within sixty (60) days of
          permanent determination of Gas production a final accounting of the
          Gas balance. Overproduced Parties, within thirty (30) days of receipt
          of the final accounting of the Gas balance, shall pay their respective
          shares of the above described cash settlement to the Underproduced
          Parties in that proportion that each such Underproduced Party's volume
          of gas in storage bears to the total of all Underproduced Parties'
          volumes of gas in storage.

V.   MISCELLANEOUS

     A.   Term

          This Agreement shall remain in force and effect as long as the
          Operating Agreement to which it is attached remains in force and
          effect, and thereafter until the Gas balance accounts between the
          parties are settled in full, and shall inure to the benefit of and be
          binding upon the parties hereto, their heirs, successors, legal
          representatives and assigns.

     B.   Expenses

                                       42

<PAGE>

          Nothing herein shall change or affect each party's obligations to pay
          its proportionate share of all costs and liabilities incurred in
          operations on the Contract Area as its share thereof is set forth in
          the Operating Agreement to which this Agreement is attached.

     C.   Well Tests

          Nothing herein shall be construed to deny any party the right, from
          time to time, to produce and take or deliver to its Gas purchaser up
          to one hundred percent (100%) of the entire Well stream to meet the
          deliverability test required by its Gas purchaser, provided that such
          tests are reasonable in light of overall industry standards.

     D.   Monitoring of Takes of Production

          Each party shall, at all times, use its best efforts to regulate its
          takes and deliveries from each Well on said Contract Area so that no
          Well will be shut-in for overproducing the allowable assigned thereto
          by the regulatory body having jurisdiction. Additionally, each party
          shall communicate, as necessary, the contents of this agreement to its
          respective Gas purchaser(s) or transporter(s) and shall monitor its
          deliveries to its respective Gas purchaser(s) or transporter(s) so as
          to ensure to the greatest extent practicable that its Gas purchaser(s)
          or transporter(s) does not take Gas in excess of the quantities
          provided for herein.

     E.   Liquefiable Hydrocarbons Not Covered Under Agreement

          The parties shall share proportionately in and own all liquid
          hydrocarbons recovered with the gas by lease equipment in accordance
          with their respective interests.

                                       43

<PAGE>

                    EXHIBIT 2.1 - CASH DISCOUNT FACTOR TABLE

PAYOUT NO. 1
DISCOUNT FACTOR 12.0%

<TABLE>
<CAPTION>
Period   Factor
------   -------
<S>      <C>
0        1.00000
1        0.99010
2        0.98030
3        0.97059
4        0.96098
5        0.95147
6        0.94205
7        0.93272
8        0.92348
9        0.91434
10       0.90529
11       0.89632
12       0.88745
13       0.87866
14       0.86996
15       0.86135
16       0.85282
17       0.84438
18       0.83602
19       0.82774
20       0.81954
21       0.81143
22       0.80340
23       0.79544
24       0.78757
25       0.77977
26       0.77205
27       0.76440
28       0.75684
29       0.74934
30       0.74192
31       0.73458
32       0.72730
33       0.72010
34       0.71297
35       0.70591
36       0.69892
37       0.69200
38       0.68515
39       0.67837
40       0.67165
41       0.66500
42       0.65842
43       0.65190
44       0.64545
45       0.63905
46       0.63273
47       0.62646
48       0.62026
49       0.61412
50       0.60804
51       0.60202
52       0.59606
53       0.59016
54       0.58431
55       0.57853
56       0.57280
57       0.56713
58       0.56151
59       0.55595
60       0.55045
61       0.54500
62       0.53960
63       0.53426
64       0.52897
65       0.52373
66       0.51855
67       0.51341
68       0.50833
69       0.50330
70       0.49831
71       0.49338
72       0.48850
73       0.48366
74       0.47887
75       0.47413
76       0.46944
77       0.46479
78       0.46019
79       0.45563
80       0.45112
81       0.44665
82       0.44223
83       0.43785
84       0.43352
85       0.42922
86       0.42497
87       0.42077
88       0.41660
89       0.41248
90       0.40839
91       0.40435
92       0.40034
93       0.39638
94       0.39246
95       0.38857
96       0.38472
97       0.38091
98       0.37714
99       0.37341
100      0.36971
101      0.36605
102      0.36243
103      0.35884
104      0.35529
105      0.35177
106      0.34828
107      0.34484
108      0.34142
109      0.33804
110      0.33469
111      0.33138
112      0.32810
113      0.32485
114      0.32164
115      0.31845
116      0.31530
117      0.31218
118      0.30908
119      0.30602
120      0.30299
121      0.29999
122      0.29702
123      0.29408
124      0.29117
125      0.28829
126      0.28543
127      0.28261
128      0.27981
129      0.27704
130      0.27430
131      0.27158
132      0.26889
133      0.26623
134      0.26359
135      0.26098
136      0.25840
137      0.25584
138      0.25331
139      0.25080
140      0.24832
141      0.24586
142      0.24342
143      0.24101
144      0.23863
145      0.23627
146      0.23393
147      0.23161
148      0.22932
149      0.22705
150      0.22480
151      0.22257
152      0.22037
153      0.21819
154      0.21603
155      0.21389
156      0.21177
157      0.20967
158      0.20760
159      0.20554
160      0.20351
161      0.20149
162      0.19950
163      0.19752
164      0.19557
165      0.19363
166      0.19171
167      0.18982
168      0.18794
169      0.18607
170      0.18423
171      0.18241
172      0.18060
173      0.17881
174      0.17704
175      0.17529
176      0.17356
177      0.17184
178      0.17014
179      0.16845
180      0.16678
181      0.16513
182      0.16350
183      0.16188
184      0.16028
185      0.15869
186      0.15712
187      0.15556
188      0.15402
189      0.15250
190      0.15099
191      0.14949
192      0.14801
193      0.14655
194      0.14510
195      0.14366
196      0.14224
197      0.14083
198      0.13943
199      0.13805
200      0.13669
201      0.13533
202      0.13399
203      0.13267
204      0.13135
205      0.13005
206      0.12876
207      0.12749
208      0.12623
209      0.12498
210      0.12374
211      0.12252
212      0.12130
213      0.12010
214      0.11891
215      0.11773
216      0.11657
217      0.11541
218      0.11427
219      0.11314
220      0.11202
221      0.11091
222      0.10981
223      0.10873
224      0.10765
225      0.10658
226      0.10553
227      0.10448
228      0.10345
229      0.10242
230      0.10141
231      0.10041
232      0.09941
233      0.09843
234      0.09745
235      0.09649
236      0.09553
237      0.09459
238      0.09365
239      0.09272
</TABLE>

                                                                          1 of 2

<PAGE>

                    EXHIBIT 2.1 - CASH DISCOUNT FACTOR TABLE

PAYOUT NO. 2
DISCOUNT RATE 16.0%

<TABLE>
<CAPTION>
Period   Factor
------   -------
<S>      <C>
0        1.00000
1        0.98684
2        0.97386
3        0.96104
4        0.94840
5        0.93592
6        0.92360
7        0.91145
8        0.89946
9        0.88762
10       0.87594
11       0.86442
12       0.85305
13       0.84182
14       0.83074
15       0.81981
16       0.80903
17       0.79838
18       0.78788
19       0.77751
20       0.76728
21       0.75718
22       0.74722
23       0.73739
24       0.72769
25       0.71811
26       0.70866
27       0.69934
28       0.69014
29       0.68106
30       0.67209
31       0.66325
32       0.65452
33       0.64591
34       0.63741
35       0.62903
36       0.62075
37       0.61258
38       0.60452
39       0.59657
40       0.58872
41       0.58097
42       0.57333
43       0.56578
44       0.55834
45       0.55099
46       0.54374
47       0.53659
48       0.52953
49       0.52256
50       0.51568
51       0.50890
52       0.50220
53       0.49559
54       0.48907
55       0.48264
56       0.47629
57       0.47002
58       0.46384
59       0.45773
60       0.45171
61       0.44577
62       0.43990
63       0.43411
64       0.42840
65       0.42276
66       0.41720
67       0.41171
68       0.40630
69       0.40095
70       0.39567
71       0.39047
72       0.38533
73       0.38026
74       0.37526
75       0.37032
76       0.36545
77       0.36064
78       0.35589
79       0.35121
80       0.34659
81       0.34203
82       0.33753
83       0.33309
84       0.32870
85       0.32438
86       0.32011
87       0.31590
88       0.31174
89       0.30764
90       0.30359
91       0.29960
92       0.29566
93       0.29177
94       0.28793
95       0.28414
96       0.28040
97       0.27671
98       0.27307
99       0.26948
100      0.26593
101      0.26243
102      0.25898
103      0.25557
104      0.25221
105      0.24889
106      0.24561
107      0.24238
108      0.23919
109      0.23605
110      0.23294
111      0.22987
112      0.22685
113      0.22387
114      0.22092
115      0.21801
116      0.21514
117      0.21231
118      0.20952
119      0.20676
120      0.20404
121      0.20136
122      0.19871
123      0.19609
124      0.19351
125      0.19097
126      0.18845
127      0.18597
128      0.18353
129      0.18111
130      0.17873
131      0.17638
132      0.17406
133      0.17177
134      0.16951
135      0.16728
136      0.16508
137      0.16290
138      0.16076
139      0.15864
140      0.15656
141      0.15450
142      0.15246
143      0.15046
144      0.14848
145      0.14653
146      0.14460
147      0.14269
148      0.14082
149      0.13896
150      0.13714
151      0.13533
152      0.13355
153      0.13179
154      0.13006
155      0.12835
156      0.12666
157      0.12499
158      0.12335
159      0.12172
160      0.12012
161      0.11854
162      0.11698
163      0.11544
164      0.11392
165      0.11243
166      0.11095
167      0.10949
168      0.10805
169      0.10662
170      0.10522
171      0.10384
172      0.10247
173      0.10112
174      0.09979
175      0.09848
176      0.09718
177      0.09590
178      0.09464
179      0.09340
180      0.09217
181      0.09096
182      0.08976
183      0.08858
184      0.08741
185      0.08626
186      0.08513
187      0.08401
188      0.08290
189      0.08181
190      0.08073
191      0.07967
192      0.07862
193      0.07759
194      0.07657
195      0.07556
196      0.07457
197      0.07359
198      0.07262
199      0.07166
200      0.07072
201      0.06979
202      0.06887
203      0.06796
204      0.06707
205      0.06619
206      0.06532
207      0.06446
208      0.06361
209      0.06277
210      0.06195
211      0.06113
212      0.06033
213      0.05953
214      0.05875
215      0.05798
216      0.05721
217      0.05646
218      0.05572
219      0.05498
220      0.05426
221      0.05355
222      0.05284
223      0.05215
224      0.05146
225      0.05078
226      0.05012
227      0.04946
228      0.04881
229      0.04816
230      0.04753
231      0.04690
232      0.04629
233      0.04568
234      0.04508
235      0.04448
236      0.04390
237      0.04332
238      0.04275
239      0.04219
</TABLE>

                                                                          2 of 2

<PAGE>

                               FWOE PARTNERS L.P.
                        Agreement of Limited Partnership
                Exhibit 2.1 - Pre-Approved Development Operations

SPI BLOCK 1166/1145 FIELD AREA

     -    AFE # P-SPI 51705 DATED 5/17/05, NET AMOUNT $29,669,733 (GROSS
          $29,669,733)

          Installation of South Padre Island 12 and 6" pipelines

     -    AFE # F-SPI 51705 DATED 5/17/05, NET AMOUNT $8,643,682 (GROSS
          $8,643,682)

          Construction and installation of Block 1166 4-Pile platform and
          facilities

     -    AFE # F-SPI 1145-51705 DATED 5/17/05, NET AMOUNT $1,814,472 (GROSS
          $1,814,472)

          Construction and installation of Block 1145 Braced Caisson platform
          and facilities

<PAGE>

                                                                     EXHIBIT 5.6

                       ATTACHED TO AND MADE A PART OF THE
                        AGREEMENT OF LIMITED PARTNERSHIP
                              OF FWOE PARTNERS L.P.

                              ACCOUNTING PROCEDURE

                             I. GENERAL PROVISIONS

1.   Definitions

     "Agreement" shall mean the Agreement of Limited Partnership dated as of
August [__] 2005, governing FWOE Partners L.P. Terms defined in the Agreement
shall have the same meanings whenever used herein.

     "Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently recommended by
the Council of Petroleum Accountants Societies of North America.

     "First Level Supervisors" shall mean those employees of Operator whose
primary function in Joint Operations is the direct supervision of other
employees and/or contract labor directly employed on the Joint Property in a
field operating capacity.

     "Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations and which are to be shared by
the Parties.

     "Joint Operations" shall mean all operations necessary or proper for the
exploration, development, operation, protection and maintenance of the Joint
Property.

     "Joint Property" shall mean the real and personal property subject to the
Agreement to which this Accounting Procedure is attached.

     "Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.

     "Non-Operator" shall mean the Partnership.

     "Offshore Facilities" shall mean platforms and support systems such as oil
and gas handling, facilities, living quarters, offices, shops, cranes,
electrical supply equipment and systems, fuel and water storage and piping,
heliport, marine docking installations, communication facilities, navigations
aids, and other similar facilities necessary in the conduct of offshore
operations.

     "Operator" shall mean the General Partner or Affiliate.

     "Parties" shall mean Operator and Non-Operator.

     "Personal Expenses" shall mean reasonable travel and other reasonable
reimbursable expenses of Operator's employees or professional consultants.

<PAGE>

     "Shore Based Facilities" shall mean onshore support facilities that during
drilling, development, maintenance and producing operations provide such
services to the Joint Property as receiving and transshipment point for
supplies, materials and equipment; debarkation point for drilling and production
personnel and services; communication, scheduling and dispatching center; and
other associated functions benefiting the Joint Property.

     "Technical Employees" shall mean those employees, professional consultants
or contract personnel of Operator having special and specific engineering,
geological or other professional skills, and whose primary function in Joint
Operations is the handling of specific operating conditions and problems for the
benefit of the Joint Property.

2.   Statements

     Operator shall bill Non-Operator on or before the last day of each month
for its proportionate share of the Joint Account for the preceding month. Such
bills will be accompanied by statements which identify the authority for
expenditures, lease or facility, and all charges and credits, summarized by
appropriate classifications of investments and expense except that items of
Controllable Material and unusual charges and credits shall be separately
identified and fully described in detail.

3.   Conflict with Agreement

     In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement, the provisions of the Agreement
shall control.

4.   Advances and Payments by Non-Operator

     A.   Unless otherwise provided for in the Agreement, the Operator may
          require the Non-Operator to advance its share of estimated costs to be
          incurred for the succeeding month's operation within fifteen (15) days
          after receipt of the billing or by the first day of the month for
          which the advance is required, whichever is later. Operator shall
          adjust each monthly billing to reflect advances received from the
          Non-Operator.

     B.   Non-Operator shall pay its proportion of all bills within thirty (30)
          days after receipt. If payment is not made within such time, the
          unpaid balance shall bear interest monthly at the prime rate in effect
          at Bank One Texas, Houston, Texas on the first day of the month in
          which delinquency occurs plus 1% or the maximum contract rate
          permitted by the applicable usury laws of the jurisdiction in which
          the Joint Property is located, whichever is the lesser, plus
          attorney's fees, court costs, and other costs in connection with the
          collection of unpaid amounts.

5.   Adjustments

     Payment of any such bills shall not prejudice the right of Non-Operator to
protest or question the correctness thereof; provided, however, all bills and
statements rendered to Non-Operator by Operator during any calendar year shall
conclusively be presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said twenty-four
(24) month period Non-Operator takes written exception thereto and makes

<PAGE>

claim on Operator for adjustment. No adjustment favorable to Operator shall be
made unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory of
Controllable Material as provided in Section V.

                               II. DIRECT CHARGES

     Operator shall charge the Joint Account with the following items:

1.   Rentals and Royalties

     Lease rentals and royalties paid by Operator for the Joint Operations.

2.   Labor

     A.   (1)  Salaries and wages of Operator's field employees and contract
               personnel directly employed on the Joint Property in the conduct
               of Joint Operations.

          (2)  Salaries of First Level Supervisors in the field.

          (3)  Fees of contract personnel directly employed on Shore Base
               Facilities or other Offshore Facilities serving the Joint
               Property if such costs are not charged under Paragraph 6 of this
               Section II.

          (4)  Fees of Technical Employees or professional consultants directly
               employed on the Joint Property.

     B.   Operator's costs of holiday, vacation, sickness and disability
          benefits and other customary allowances paid to employees whose
          salaries and wages are chargeable to the Joint Account under Paragraph
          2A of this Section II. Such costs under this Paragraph 2B may be
          charged on a "when and as paid basis" or by "percentage assessment" on
          the amount of salaries and wages chargeable to the Joint Account under
          Paragraph 2A of this Section II. If percentage assessment is used, the
          rate shall be based on the Operator's cost experience.

     C.   Expenditures or contributions made pursuant to assessments imposed by
          governmental authority which are applicable to Operator's costs
          chargeable to the Joint Account under Paragraphs 2A and 2B of this
          Section II.

     D.   Personal Expenses of those employees whose salaries and wages are
          chargeable to the Joint Account under Paragraph 2A of this Section II.

3.   Employee Benefits

     Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus,
and other benefit plans of a like nature, applicable to Operator's labor cost
chargeable to the Joint Account under Paragraphs 2A and 2B of this Section II
shall be Operator's actual cost not to exceed the rate most recently recommended
by the Council of Petroleum Accountants Societies of North America.

<PAGE>

4.   Material

     Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for or
transferred to the Joint Property as may be required for use and is reasonably
practical and consistent with efficient and economical operations. The
accumulation of surplus stocks shall be avoided.

5.   Transportation

     The costs of transportation of employees and Material necessary for the
Joint Operations but subject to the following limitations:

     A.   If Material is moved to the Joint Property from the Operator's
          warehouse or other properties, no charge shall be made to the Joint
          Account for a distance greater than the distance from the nearest
          reliable supply store, recognized barge terminal, or railway receiving
          point where like material is normally available.

     B.   If surplus Material is moved to Operator's warehouse or other storage
          point, no charge shall be made to the Joint Account for a distance
          greater than the distance to the nearest reliable supply store,
          recognized barge terminal, or railway receiving point. No charge shall
          be made to the Joint Account for moving Material to other properties
          belonging to Operator.

     C.   In the application of Subparagraphs A and B above, the option to
          equalize or charge actual trucking costs is available when the actual
          charge is $400 or less excluding accessorial charges. The $400 will be
          adjusted to the amount most recently recommended by the Council of
          Petroleum Accountants Societies.

6.   Services

     The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 9 of this Section II. The cost of
professional consultants' services and contract services of technical personnel
directly engaged in the operations of the Joint Property.

7.   Equipment and Facilities Furnished by Operator

     A.   Operator shall charge the Joint Account for use of Operator-owned
          equipment and facilities, including Shore Base and Offshore
          Facilities, at rates commensurate with costs of ownership and
          operation. Such rates shall include costs of labor, maintenance,
          repairs, other operating expense, insurance, taxes, depreciation and
          interest on gross investment less accumulated depreciation not to
          exceed ten percent (10%) per annum. In addition, for platforms only,
          the rate may include an element of the estimated cost of platform
          dismantlement.. Such rates shall not exceed average commercial rates
          currently prevailing in the immediate area of the Joint Property.

     B.   In lieu of charges in Paragraph 7A above, Operator may elect to use
          average commercial rates prevailing in the immediate area of the Joint
          Property. For

<PAGE>

          automotive equipment, Operator may elect to use rates published by the
          Petroleum Motor Transport Association.

8.   Damages and Losses to Joint Property

     Except as otherwise provided in the Agreement, all costs or expenses
necessary for the repair or replacement of Joint Property made necessary because
of damages or losses incurred by fire, flood, storm, theft, accident, or other
cause, except those resulting from Operator's gross negligence or willful
misconduct.

9.   Legal, Accounting and Engineering Expense

     Except as otherwise provided in the Agreement, expense of handling,
investigating and settling litigation or claims, handling, filing and
prosecuting matters pertaining to governmental and regulatory applications and
compliances and discharging of liens, payment of judgments and amounts paid for
settlement of claims incurred in or resulting from operations under the
Agreement or necessary to protect or recover the Joint Property shall be
chargeable to the Joint Account, except that no charge for services of
Operator's legal staff shall be made. All other legal expense is considered to
be covered by the overhead provisions of Section III, except as provided in
Paragraph 4 of Section I.

     Services which are covered by the overhead charges described in Section III
and therefore not chargeable based on the provisions of this Section II.9,
include, but are not limited to (i) services related to the recording and
billing of costs chargeable to the Joint Account and (ii) services related to
the collection and disbursement of Joint Property revenues.

10.  Taxes

     All taxes of every kind and nature assessed or levied upon or in connection
with the Joint Property, the operation thereof, or the production therefrom, and
which taxes have been paid by the Operator for the benefit of the Parties.

11.  Insurance Program

     Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint Operations are
conducted in a state in which Operator may act as self-insurer for Workmen's
Compensation and/or Employers Liability under the respective state's laws,
Operator may, at its election, include the risk under its self-insurance program
and in that event, Operator shall include a charge at Operator's cost not to
exceed manual rates.

12.  Ecological and Environmental.

     Costs incurred for the benefit of the Joint Property as a result of
governmental or regulatory requirements to satisfy environmental considerations
applicable to Joint Operations. Such costs may include surveys of an ecological
or archaeological nature and pollution control procedures, costs to comply with
statutory regulations for archaelogical and geophysical surveys relative to
identification and protection of cultural resources and/or other environmental,
or ecological surveys as may be required by the Bureau Land Management or other
regulatory

<PAGE>

authority. Also, costs to provide or have available pollution containment and
removal equipment plus costs of actual control and cleanup and resulting
responsibilities of oil spills as required by applicable laws and regulations.

13.  Abandonment and Reclamation.

     Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.

14.  Communications.

     Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave facilities
between the Joint Property and the Operator's nearest Shore Base Facility.. In
the event communication facilities systems serving the Joint Property are
Operator-owned, charges to the Joint Account shall be made as provided in
Paragraph 7 of this Section II.

15.  Other Expenditures

     Any other expenditure not covered or dealt with in the foregoing provisions
of this Section II, or in Section III, and which is of direct benefit to the
Joint Property and is incurred by the Operator in the necessary and proper
conduct of the Joint Operations.

16.  Governmental Affairs

     Costs and fees associated with representation on matters before or
involving governmental affairs shall be a direct charge to the Joint Account.

                                 III. OVERHEAD

1.   Overhead Charges

     The Operator shall charge the amounts provided for below in this Section
III as compensation for administrative, supervision, office services, overhead
and warehousing costs, including overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets and other projects
required for the development and operation of the Joint Property. Such charges
shall be in lieu of costs and expenses of all offices and salaries or wages plus
applicable burdens and expenses of all personnel, except those directly
chargeable under Section II. The cost and expense of services from outside
sources in connection with matters of taxation, traffic, accounting or matters
before or involving governmental agencies and the salaries, wages and Personal
Expenses of Technical Employees and/or the cost of professional consultant
services and contract services of technical personnel shall be considered as
included in such charges except those directly chargeable under Section II.

     A.   The Operator shall charge the Joint Account for each drilling well
          which is operated by the Operator on behalf of Non-Operator a rate per
          month generally charged by qualified third party operators in the area
          where a well is located (pro rated for less than a full month), except
          that if a drilling well is owned less than 100% by Non-Operator, such
          rate shall be a proportionate amount thereof (such

<PAGE>

          proportionate amount to be based on the net working interest of
          Non-Operator in such well). Drilling well charges shall be determined
          on the following basis:

          (1)  Charges for drilling wells shall begin on the date when drilling
               or completion equipment arrives on location and terminate on the
               date the drilling or completion equipment moves off location or
               rig is released, whichever occurs first, except that no charge
               shall be made during suspension of drilling operations for
               fifteen (15) or more consecutive calendar days.

          (2)  Charges for wells undergoing any type of workover or recompletion
               for a period of four (4) consecutive work days or more shall be
               made at the drilling well rate and a proportionate amount of such
               rate for a well which is owned less than 100% by Non-Operator,
               such proportionate amount to be based on the net working interest
               of Non-Operator in such well. Such charges shall be applied for
               the period from date workover operations, with rig or other units
               used in workover, commence through date of rig or other unit
               release, except that no charge shall be made during suspension of
               operations for fifteen (15) or more consecutive calendar days.

     B.   The Operator shall not be entitled to charge the Joint Account any
          amount under this Section III with respect to the producing wells
          operated by Operator on behalf of Non-Operator, it being agreed that
          the Management Fee payable under the Agreement shall constitute full
          and complete reimbursement for any overhead charges of the Operator in
          respect of such producing wells.

     C.   The Operator shall charge the Joint Account a rate or rates (reduced
          proportionately for the interest of Non-Operator therein) generally
          charged by qualified unrelated third parties in connection with the
          construction and installation of fixed assets, the expansion of fixed
          assets, and any other project clearly discernible as a fixed asset
          required for the development and operation of the Joint Property.

                      IV. PRICING OF JOINT ACCOUNT MATERIAL
                      PURCHASES, TRANSFERS AND DISPOSITIONS

     Operator is responsible for Joint Account Material and shall make proper
and timely charges and credits for all material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property.
Operator shall make timely disposition of idle and/or surplus Material.

1.   Purchases

     Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be defective
or returned to vendor for any other reason, credit shall be passed to the Joint
Account when adjustment has been received by the Operator.

<PAGE>

2.   Transfers and Dispositions

     Material furnished to the Joint Property and Material transferred from the
Joint Property or disposed of by the Operator shall be priced on the following
bases exclusive of cash discounts:

     A.   New Material (Condition A)

          (1)  Tubular goods other than line pipe:

               (a)  Tubular goods, sized 2 3/8 inches OD and larger, except line
                    pipe, shall be priced at current new prices effective as of
                    date of movement plus transportation cost using the 80,000
                    pound carload weight basis to the railway receiving point or
                    Shore Based Facilities nearest the Joint Property for which
                    published rail rates for tubular goods exist. If the 80,000
                    pound rail rate is not offered, the 70,000 pound or 90,000
                    pound rail rate may be used.

               (b)  For grades which are special to one mill only, prices shall
                    be computed at the mill base of that mill plus
                    transportation cost from that mill to the railway receiving
                    point or Share Based Facilities nearest the Joint Property
                    as provided above in Paragraph 2.A.(1)(a).

               (c)  Special end finish tubular goods shall be priced at the
                    lowest published out-of-stock price, f.o.b. Houston, Texas,
                    plus transportation cost, using Oil Field Haulers
                    Association interstate 30,000 pound truck rate, to the
                    railway receiving point or Shore Base Facilities nearest the
                    Joint Property.

               (d)  Macaroni tubing (size less than 2 3/8 inch OD) shall be
                    priced at the lowest published out-of-stock prices f.o.b.
                    the supplier plus transportation costs, using the Oil Field
                    Haulers interstate truck rate per weight of tubing
                    transferred, to the railway receiving point or Shore Base
                    Facilities nearest the Joint Property.

          (2)  Line Pipe

               (a)  Line pipe movements (except size 24 inch OD and larger with
                    walls 3/4 inch and over) of less than 30,000 pounds shall be
                    priced at the current new price, in effect at date of
                    shipment, plus 20 percent, plus transportation costs based
                    on freight rates as set forth under provisions of tubular
                    goods pricing in Paragraph 2A(1)(a) of this Section IV.

               (b)  Line pipe movements (except size 24 inch OD and larger with
                    walls 3/4 inch and over) of 30,000 pounds or more shall be
                    priced under provisions of tubular goods pricing in
                    Paragraph 2A(1)(a) of this Section IV.

<PAGE>

               (c)  Line pipe 24 inch OD and over and 3/4 inch wall and larger
                    shall be priced f.o.b. the point of manufacture at current
                    CEPS prices plus transportation cost to the railway
                    receiving point nearest the Joint Property.

               (d)  Line pipe, including fabricated line pipe, drive pipe and
                    conduit not listed on published price lists shall be priced
                    at quoted prices plus freight to the railway receiving point
                    or Shore Based Facilities nearest the Joint Property or at
                    prices agreed to by the Parties.

          (3)  Other Material shall be priced at the current new price, in
               effect at date of movement, as listed by a reliable supply store
               nearest the Joint Property or point of manufacture, plus
               transportation costs, if applicable, to the railway receiving
               point or Shore Based Facilities nearest the Joint Property.

          (4)  Unused new Material, except tubular goods, moved from the Joint
               Property shall be priced at the current new price, in effect on
               date of movement, as listed by a reliable supply store nearest
               the Joint Property or point of manufacture, plus transportation
               costs, if applicable, to the railway receiving point or Shore
               Based Facilities nearest the Joint Property. Unused new tubulars
               will be priced as provided above in Paragraph 2A(1) and (2).

     B.   Good Used Material (Condition B)

          Material in sound and serviceable condition and suitable for reuse
          without reconditioning:

          (1)  Material moved to the Joint Property

               (a)  At 75% of current new price, as determined by Paragraph 2A
                    of this Section IV.

          (2)  Material moved from the Joint Property

               (a)  At 75% of current new price, as determined by Paragraph 2A
                    of this Section IV, if Material was originally charged to
                    the Joint Account as new Material, or

               (b)  At 65% of current new price, as determined by Paragraph 2A
                    of this Section IV, if Material was originally charged to
                    the Joint Account as good used Material at 75% of current
                    new price.

          (3)  Material not used on and moved from the Joint Property

               (a)  At 75% of current new price as determined by Paragraph A.

          The cost of reconditioning, if any, shall be absorbed by the
          transferring property.

<PAGE>

     C.   Other Used Material (Condition C, D and E)

          (1)  Condition C

               Material which is not in sound and serviceable condition and not
               suitable for its original function until after reconditioning
               shall be priced at 50% of current new price as determined by
               Paragraph 2A of this Section IV. The cost of reconditioning shall
               be charged to the receiving property, provided Condition C value
               plus cost of reconditioning does not exceed Condition B value.

          (2)  Condition D

               All other Material, including junk, shall be priced at a value
               commensurate with its use or at prevailing prices. Operator may
               dispose of Condition D Material under procedures normally
               utilized by the Operator without prior approval of Non-Operator.

               (a)  Casing, tubing, or drill pipe used as line pipe shall be
                    priced as Grade A and B seamless line pipe of comparable
                    size and weight. Used casing, tubing or drill pipe utilized
                    as line pipe shall be priced at used line pipe prices.

               (b)  Casing, tubing, or drill pipe used as higher pressure
                    service lines than standard line pipe, e.g. power oil lines,
                    shall be priced under normal pricing procedures for casing,
                    tubing or drill pipe. Upset tubular goods shall be priced on
                    a non-upset basis.

          (3)  Condition E

               Junk shall be priced at prevailing prices. Operator may dispose
               of Condition E Material under procedures normally utilized by
               Operator without prior approval of Non-Operator.

     D.   Obsolete Material

          Material which is serviceable and usable for its original function but
          condition and/or value of such Material is not equivalent to that
          which would justify a price as provided above may be priced on a basis
          commensurate with its use or at prevailing prices. Such price should
          result in the Joint Account being charged with the value of the
          service rendered by such Material.

     E.   Pricing Conditions

          (1)  Loading or unloading costs may be charged to the Joint Account at
               the rate of $.25 per hundred weight on all tubular goods
               movements, in lieu of loading or unloading costs sustained at the
               stocking point.

<PAGE>

          (2)  Material involving erection costs shall be charged at applicable
               percentage of the current knocked-down price of new Material.

3.   Premium Prices

     Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unusual causes over which the
Operator has no control, the Operator may charge the Joint Account for the
required Material at the Operator's actual cost incurred in providing such
Material, in making it suitable for use, and in moving it to the Joint Property.

4.   Warranty of Material Furnished by Operator

     Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment has
been received by Operator from the manufacturers or their agents.

                                 V. INVENTORIES

     Inventory adjustments shall be made by Operator with the Joint Account for
overages and shortages, but Operator shall be held accountable only for
shortages due to lack of reasonable diligence.

<PAGE>

                               FWOE PARTNERS, L.P.
                        AGREEMENT OF LIMITED PARTNERSHIP
             EXHIBIT 5.7(A) - HEDGING TRANSACTIONS ON DELIVERY DATE

Amounts to be Swapped into using a Gas Daily Henry Hub Swap by year.

<TABLE>
<CAPTION>
 VOLUMES   Volumes to Hedge
  Year          (MMBtu)
 -------   ----------------
<S>        <C>
Cal 2005        340,763     Sept - Dec '05
Cal 2006        601,655
Cal 2007        328,893
Cal 2008        254,111
</TABLE>

Purchase of a put swaption that enables the partnership to enter into a NYMEX
Gas Hedge with an exercise date at year end 2005, by year.

<TABLE>
<CAPTION>
 VOLUMES   Volumes to Hedge
  Year          (MMBtu)
 -------   ----------------
<S>        <C>
Cal 2005              --
Cal 2006       5,458,726
Cal 2007       3,579,896
Cal 2008       1,538,094
</TABLE>

<PAGE>

                               FWOE PARTNERS, L.P.
                        AGREEMENT OF LIMITED PARTNERSHIP
                EXHIBIT 5.10 - PLUGGING & ABANDONMENT LIABILITIES

<TABLE>
<CAPTION>
                                                          2005       2006       2007       2008      2009
                                                        --------   --------   --------   --------   ------
<S>                                           <C>       <C>        <C>        <C>        <C>        <C>
P&A RESERVE CALCULATION
P&A Expenditures
   (current dollars)                          $ 3,656                     0          0          0    2,923
PV of Future P&A              Discount Rate       3.7%         0          0          0          0    2,437
Cumulative PV of Future P&A                   $     0          0          0          0          0    2,437
Remaining PV of Future P&A                    $ 2,946      2,946      2,946      2,946      2,946    2,946
Interest Accretion on P&A                     $   710        109        113        117        122      126
                                              -------
                                              $ 3,656
                                              =======

BOOK BASIS
Reserve Account                                          ($2,946)   ($2,577)   ($1,263)     ($411)    ($87)
P&A Expense Realized                            2,945        369      1314         853        324       19
Additional Reserves
                                                        --------   --------   --------   --------   ------
Ending Balance                                             (2577)     (1263)      (411)       (87)     (67)
                                                        ========   ========   ========   ========   ======

CASH BASIS
Reserve Account Beginning
   Balance                                                     0        478      1,904      2,874    3,320
Amounts Added                                   3,655        478      1,427        970        446      145
Amounts Spent                                  -3,656          0          0          0          0   (2,923)
                                                        --------   --------   --------   --------   ------
Ending Balance                                               478      1,904      2,874      3,320      542
                                                        ========   ========   ========   ========   ======
YEAR                                                           1          2          3          4        5
Scheduled Future Production
   (MMCFE)                                              2,086.68   7,432.40   4,824.13   1,834.25   108.00

<CAPTION>
                                                         2010     2011     2012    2013    2014    2015
                                                        ------   ------   -----   -----   -----   -----
<S>                                           <C>       <C>      <C>      <C>     <C>     <C>     <C>
P&A RESERVE CALCULATION
P&A Expenditures
   (current dollars)                          $ 3,656       14                0             612     107
PV of Future P&A              Discount Rate       3.7%      11        0       0       0     426      72
Cumulative PV of Future P&A                   $     0    2,448    2,448   2,448   2,448   2,874   2,946
Remaining PV of Future P&A                    $ 2,946      509      497     497     497     497      72
Interest Accretion on P&A                     $   710       23       23      24      25      26       4
                                              -------
                                              $ 3,656
                                              =======

BOOK BASIS
Reserve Account                                           ($67)    ($42)   ($24)   ($12)    ($4)    ($0)
P&A Expense Realized                            2,945       26       18      12       8       3
Additional Reserves
                                                        ------   ------   -----   -----   -----   -----
Ending Balance                                             (42)     (24)    (12)     (4)     (0)     (0)
                                                        ======   ======   =====   =====   =====   =====

CASH BASIS
Reserve Account Beginning
   Balance                                                 542      577     618     654     686     103
Amounts Added                                   3,655       48       41      36      33      29       4
Amounts Spent                                  -3,656      (14)       0       0       0    (612)   (107)
                                                        ------   ------   -----   -----   -----   -----
Ending Balance                                             577      618     654     686     103      (0)
                                                        ======   ======   =====   =====   =====   =====
YEAR                                                         6        7       8       9      10      11
Scheduled Future Production
   (MMCFE)                                              146.52   100.89   68.04   46.06   19.35    0.68
</TABLE>

<PAGE>

                               EXHIBIT 5.11(A)(I)

                               FWOE PARTNERS L.P.
                                9821 KATY FREEWAY
                                   SUITE 1050
                              HOUSTON, TEXAS 77024

                                     [Date]

TIFD III-X LLC
c/o GE Commercial Finance--EFS
120 Long Ridge Road, 3rd Floor
Stamford, Connecticut 06927-1550

RE: Distribution of Class B Assets

Ladies and Gentlemen:

Reference is herein made to that certain Amended and Restated Agreement of
Limited Partnership dated as of August __, 2005, governing FWOE Partners L.P.
(such agreement, as heretofore amended, the "PARTNERSHIP AGREEMENT").
Capitalized terms used herein but not otherwise defined herein shall have the
respective meanings assigned to them in the Partnership Agreement.

In connection with the distribution of the Class B Assets to be effected on even
date herewith pursuant to Section 5.11 of the Partnership Agreement, the parties
hereto hereby agree as follows:

1. The Partnership hereby agrees to pay to the Limited Partner, for the Limited
Partner's own account separate and apart from the Partnership and its interest
therein, an amount equal to twenty percent (20%) of all gross revenues hereafter
received by the Partnership as owner of the Class B Assets from the
transportation of natural gas and other gaseous substances through the Class B
Assets (or net proceeds realized by the Partnership from the purchase and sale
thereof) for the accounts of all parties other than a Related Party.

2. To secure the obligations of the Partnership under Section 1 above, the
Partnership agrees that, contemporaneously with the distribution of the Class B
Assets, the Partnership will grant to the Limited Partner a first lien mortgage
and security interest in the Partnership's interest in the Class B Assets or
such other collateral as shall be offered by the Partnership and reasonably
acceptable to the Limited Partner. The form and content of the mortgage and
related documentation shall be reasonably satisfactory to the Limited Partner in
all respects.

<PAGE>

TIFD III-X LLC
[Date]
Page 2

3. The Partnership hereby agrees to establish and maintain reasonable and
customary books and records with respect to the calculation of the amounts, if
any, owed by the Partnership to the Limited Partner under Section 1 above. The
Limited Partner shall have access to, and the right to copy and audit (at the
Limited Partner's expense) such books and records at all reasonable times.

4. This letter agreement, and the rights of the parties hereto, shall inure to
the benefit of such parties' respective successors and assigns; provided, that
the Partnership (and any of its successors and assigns) (i) may assign its
rights, duties and obligations only in connection with a sale or transfer of the
Class B Assets to a third party and (ii) may not sell or transfer the Class B
Assets to a third party without (x) also transferring its rights, duties and
obligations hereunder and (y) obtaining the written agreement of such assignee,
in form and content reasonably acceptable to the Limited Partner (or its
successors and assigns), to the effect that such assignee assumes its assignor's
rights, duties and obligations hereunder and agrees to be bound by the terms
hereof. For purposes hereof, all references herein to (A) the Partnership, shall
be deemed to include any successor of the General Partner and permitted
assignee, and (B) the Limited Partner, shall be deemed to include any successor
of the Limited Partner and permitted assignee. This letter agreement is the
letter agreement referred to in the Conveyance, and the parties hereto fully
intend that the rights, privileges, duties and obligations recited herein shall
run with the lands. The Partnership agrees that the Limited Partner may, if is
so elects, file a copy of a signed counterpart hereof of record in such land
recording offices or other locations as it so determines for the purpose of
evidencing to third parties its rights and privileges hereunder. Notwithstanding
anything herein to the contrary, any third party that engages in transactions
with the Partnership in respect of the Class B Assets shall be entitled to pay
the Partnership directly for amounts owed by such third party arising from such
transactions and shall have no duty or obligation to make any payments to the
Limited Partner with respect to amounts owed by the Partnership hereunder.

5. The Partnership acknowledges and affirms that (i) the Capital Contributions
of the Limited Partner pursuant to Section 3.2(d) of the Partnership Agreement
were used in substantial part on the Class B Assets and (ii) as a result
thereof, the interest to be received by the Limited Partner was agreed upon by
the Partnership as a material inducement to the Limited Partner to become a
limited partner in the Partnership and to agree in Section 5.11 of the
Partnership Agreement to the distribution contemplated thereby and hereby.

6. At the request of either party hereto and without further consideration, the
other party hereto shall execute and deliver to such requesting party such
instruments and documents and take such other action (but without incurring any
material financial obligation) as such requesting party may reasonably request
in order to consummate or perfect more fully and effectively the transactions
contemplated hereby.

<PAGE>

TIFD III-X LLC
[Date]
Page 3

7. If any provision of this letter agreement is held to be unenforceable, this
letter agreement shall be considered divisible and such provision shall be
deemed inoperative to the extent it is deemed unenforceable, and in all other
respects this letter agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.

8. This letter agreement may be executed in any number of identical
counterparts, each of which for all purposes shall be deemed an original, and
all of which shall constitute collectively, one instrument. It is not necessary
that each party hereto execute the same counterpart so long as identical
counterparts are executed by each such party hereto. This instrument may be
validly executed and delivered by facsimile or other electronic transmission.

9. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS.

      [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK--SIGNATURE PAGE FOLLOWS]

<PAGE>

TIFD III-X LLC
[Date]
Page 4

     To evidence your agreement to the terms and provisions of this letter
agreement, please execute one or more counterparts of this letter agreement in
the designated space below.

                                        Yours very truly,

                                        FWOE PARTNERS L.P.

                                        BY: F-W OIL EXPLORATION L.L.C.,
                                            its General Partner

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

ACCEPTED AND AGREED TO
AS OF THE DATE SET FORTH
ABOVE:

TIFD III-X LLC

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

<PAGE>

                               EXHIBIT 5.11(A)(II)

                     CONVEYANCE, ASSIGNMENT AND BILL OF SALE

     FWOE PARTNERS L.P. (herein called "GRANTOR") does hereby GRANT, BARGAIN,
SELL, CONVEY, ASSIGN, TRANSFER, SET OVER, and DELIVER unto F-W OIL EXPLORATION
L.L.C. (herein called "GRANTEE"), whose address is 9821 Katy Freeway, Suite
1050, Houston, Texas 77024, all right, title and interest of the Grantor in the
Subject Properties (hereinafter defined).

     The "SUBJECT PROPERTIES" means, collectively, all of the following
described properties, rights and interests.

          (a) The pipeline and appurtenant, equipment, facilities and fixtures
     which are described on EXHIBIT 1.1 (A), attached hereto and made part
     hereof (the "PIPELINE");

          (b) To the extent assignable, any and all permits, licenses and
     governmental authorizations that are necessary or appropriate for the
     construction, installation, operation, maintenance, repair, replacement and
     ownership of the Pipeline (the "PERMITS");

          (c) The easements, right-of-way agreements, surface site leases or
     other interests described on EXHIBIT 1.1(C) attached hereto and made part
     hereof and any other easements, or right-of-way agreements that are used
     for the ownership, operation, maintenance, repair or replacement of the
     Pipeline (the "EASEMENTS");

          (d) All unexpired warranties, claims, rights, or causes of action
     against third parties that relate to the Pipeline, Easements, and Permits
     to the extent assignable;

          (e) All presently existing and valid agreements and contracts which
     are listed on EXHIBIT 1.1(E); and

          (f) All files, abstracts and title opinions, accounting records (but
     not including general financial accounting records), surveys, and other
     files, documents and records of every kind and description which relate to
     the properties described.

     TO HAVE AND TO HOLD all right, title and interest of the Grantor in the
Subject Properties unto Grantee, its successors and assigns, forever, subject to
the terms, conditions and covenants contained herein.

     GRANTOR HEREBY EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS OR
WARRANTIES WITH RESPECT TO THE SUBJECT PROPERTIES OR THE TRANSACTION
CONTEMPLATED HEREBY, AND GRANTEE AGREES THAT ALL RIGHT, TITLE AND INTEREST OF
THE GRANTOR IN THE SUBJECT PROPERTIES IS BEING SOLD BY GRANTOR "WHERE IS" AND
"AS IS", WITH ALL FAULTS. SPECIFICALLY AS A PART OF (BUT NOT IN LIMITATION OF)
THE FOREGOING, GRANTEE ACKNOWLEDGES THAT GRANTOR HAS NOT MADE, AND GRANTOR
HEREBY EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY (EXPRESS, IMPLIED,
UNDER COMMON LAW, BY STATUTE OR OTHERWISE) AS TO THE TITLE OR CONDITION OF THE
SUBJECT PROPERTIES (INCLUDING WITHOUT LIMITATION, GRANTOR DISCLAIMS ANY IMPLIED
OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS).

<PAGE>

     Grantor agrees to execute and deliver to Grantee, from time to time, such
other and additional instruments, notices, and other documents, and to do all
such other and further acts and things as may be necessary to more fully and
effectively grant, convey and assign to Grantee the Subject Properties. Without
limitation of the foregoing, separate assignments of all right, title and
interest of the Grantor in the Subject Properties or portions thereof may be
executed on separate forms by Grantor to Grantee in order to satisfy applicable
statutory and/or governmental regulatory requirements (including, but not
limited to, requirements of the Minerals Management Service, U.S. Department of
the Interior). Such assignments shall be deemed to contain all of the rights,
titles, interests, estates, warranties, powers and privileges set forth herein
as fully as though the same were set forth in each such assignment. In the event
that any direct conflict exists between the provisions of this Conveyance and
the provisions of any such assignment filed in accordance with statutory and/or
governmental regulatory requirements, the terms and provisions of the latter
such assignment(s) shall govern and control. The properties, rights, titles
interests and estates conveyed by any such assignment are included among, and
not in addition to, the Subject Properties conveyed herein.

     This Conveyance, Assignment and Bill of Sale ("CONVEYANCE") is being
executed in several original counterparts, all of which are identical except
that, to facilitate filing and recording, counterparts to be filed and recorded
in the appropriate records of each county or parish have included in the
Exhibits only the parts thereof containing the specific descriptions of the
property located in said county or parish. Every counterpart of this Conveyance
shall be deemed to be an original for all purposes, and all of the counterparts
together shall constitute one and the same instrument. Notwithstanding the
foregoing, a counterpart of this Conveyance with the complete Exhibits thereto
will be recorded in the appropriate records of Aransas County, Texas. Each
counterpart of this Conveyance containing less than all of the specific
descriptions in the Exhibits include the omitted descriptions by reference to
counterparts of the Conveyance containing all of the specific descriptions in
the Exhibits.

     The validity of this Conveyance with respect to title to real (immovable)
property shall be governed by and construed in accordance with the laws of the
jurisdiction in which such property is located. All other matters with respect
to this Conveyance shall be governed by and construed in accordance with the
laws of the State of Texas, excluding any conflicts-of-law rule or principle
which might refer same to another jurisdiction.

     This Conveyance is made subject to that certain Letter Agreement dated
_______, 2005 between Grantor and TIFD III-X, a Delaware limited liability
company (TIFD III-X LLC and its successors and assigns being called the "LIMITED
PARTNER"). The covenants of Grantor in the above described Letter Agreement
shall burden the rights, titles and interests conveyed herein as covenants
running with the rights, titles and interests assigned, conveyed and transferred
herein and be binding on the successors and assigns of Grantor. By its execution
and delivery of this Conveyance, Grantee assumes and covenants, for the express
benefit of Grantor and the Limited Partner, to be bound by and to perform the
obligations of Grantor in the Letter Agreement and agrees that the Limited
Partner shall be a third party beneficiary of this Conveyance and entitled to
enforce any of Grantor's rights and obligations hereunder as if it was a party.
If Grantee hereafter conveys or otherwise transfers any right, title or interest
in the Subject Properties, Grantee shall require that in the conveyance or other
instrument transferring such right, title or interest, the transferee assume and
covenant, for the express benefit of Grantor, Grantee, the Limited Partner and
the Limited Partner's successors and assigns, to be bound by and to perform the
obligations in the Letter Agreement of Grantor (and the foregoing assumption
covenant shall be applicable to the parties to any transfer of the Subject
Properties thereafter made). Any conveyance or other transfer that is made
without the foregoing assumption and covenant shall be void and of no force and
effect.

                                        2

<PAGE>

     IN WITNESS WHEREOF this Conveyance has been executed by Grantor and Grantee
on the date of each acknowledgment effective for all other purposes, as of 9:00
a.m. Central Daylight Time on _______.

                                        "GRANTOR"

                                        FWOE PARTNERS, L.P.

                                        By F-W OIL EXPLORATION L.L.C.,
                                           its General Partner

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

                                        "GRANTEE"

                                        F-W OIL EXPLORATION L.L.C.

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

                                        3

<PAGE>

                                ACKNOWLEDGEMENTS

STATE OF TEXAS          Section
                        Section
COUNTY OF ___________   Section

     This instrument was acknowledged before me on _____________, 2005 by
_____________, the ____________ of F-W Oil Exploration L.L.C., a Delaware
limited liability company, on behalf of said limited liability company in its
capacity as general partner of FWOE Partners L.P., a Texas limited partnership,
and on behalf of such limited partnership.

                                        Notary Public State of Texas

                                        ----------------------------------------
                                        Printed Name:
                                                      --------------------------

My Commission Expires:_____
           [SEAL]

STATE OF TEXAS          Section
                        Section
COUNTY OF ___________   Section

     This instrument was acknowledged before me on _______, 2005 by
___________________, the _____________ of F-W Oil Exploration L.L.C., a Delaware
limited liability company, on behalf of limited liability company.

                                        Notary Public State of Texas

                                        ----------------------------------------
                                        Printed Name:
                                                      --------------------------

My Commission Expires: _____
           [SEAL]

                                        4

<PAGE>

                                 EXHIBIT 5.11(B)

                             GAS GATHERING AGREEMENT

     This GAS GATHERING AGREEMENT ("AGREEMENT") is made and entered into this
_____ day of __________, 200_, to be effective as of the _____ day of
__________, 200_, ("EFFECTIVE DATE") by and between _________________________, a
___________ ("SHIPPER"), and ___________________________, a ________________,
("GATHERER").

                                   WITNESSETH:

     WHEREAS, Gatherer owns and operates a natural gas pipeline (the "PIPELINE")
in the Outer Continental Shelf of the Gulf of Mexico between South Padre Island
Block ___ and North Padre Island Block ___; and

     WHEREAS, Shipper owns or controls gas produced from oil and gas leases
covering _______________, ____________________, _________________ and
_________________ Blocks (the "PROPERTIES"); and

     WHEREAS, Shipper desires to use the Pipeline to gather quantities of
natural gas produced from the Properties; and

     WHEREAS, Gatherer, subject to the terms and conditions, limitations, and
provisions hereof, is willing to accept and gather such natural gas for Shipper.

     NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained, the parties do covenant and agree as follows:

                                   ARTICLE I.
                                GATHERING OF GAS

     Section 1.1 Gas Quantities. Commencing on the date hereof, Gatherer shall
receive at the Delivery Point all natural gas ("SHIPPER'S GAS") produced from
the Properties that is owned or controlled by Shipper up to a quantity of gas
equal to 30 million MMBtu's per day and redeliver at the Redelivery Point a
quantity ("EQUIVALENT QUANTITIES") of gas that contains the same heating value
as the natural gas received by Gatherer from Shipper, less a proportionate
share, based on Btu's delivered, of the actual fuel, shrinkage and line loss on
the Pipeline, provided that the total reduction for fuel, shrinkage and line
loss ("LINE LOSS") shall not exceed normal industry Line Loss on gathering
systems similar to the Pipeline and operated under similar operating conditions.
It is understood and agreed that Shipper is contracting for and that Gatherer is
agreeing to provide "firm" gathering services. Therefore, Gatherer shall not
interrupt or curtail the gathering of such natural gas, except to the extent
that interruption or curtailment is caused by (a) force majeure or (b)
compliance with applicable laws, rules, regulations and orders of governmental
bodies having jurisdiction, including, without limitation, Section 1334 of Title
43 of the U.S.C.A. and the applicable rules, regulations and orders of the
Minerals Management Service as they exist from time to time.

<PAGE>

     Section 1.2 Balancing. It is recognized that the parties will be unable to
control exactly the quantities of gas delivered and redelivered hereunder on any
day, and that deliveries by Shipper to Gatherer and deliveries by Gatherer to
the Redelivery Point may differ on any day. Such variations shall be kept to the
minimum permitted by operating conditions of the parties and shall be balanced
as soon as practicable. Shipper shall cause any subsequent transporter of
Shipper's gas to be promptly informed as to any deliveries and any change in
deliveries consistent with such transporter's imbalance procedures or contract
with Shipper. Unless agreed otherwise, the parties agree to use their
commercially reasonable efforts to correct, within sixty (60) days, any
cumulative net variations. Any imbalance remaining following the termination of
this agreement shall be eliminated during the month following the month in which
termination occurs or as soon as practical thereafter.

                                   ARTICLE II.
                                      TERM

     This Agreement shall be in effect commencing on the Effective Date and
continue in effect as long as any well on the Properties producing Shipper's Gas
is capable of producing gas in commercial quantities.

                                  ARTICLE III.
                     QUALITY SPECIFICATIONS AND MEASUREMENT

     Section 3.1 Measurement. The volume, quality, and heating value of all gas
received, gathered and delivered hereunder, shall be measured and determined in
accordance with the specifications and standards set forth in the Williams
Measurement, Reimbursement, Construction and Operating Agreement dated June 16,
2005 between Transcontinental Gas Pipe Line Corporation and F-W Oil Exploration
L.L.C. ("WILLIAMS AGREEMENT").

     Section 3.2 Quality of Gas Delivered and Redelivered. The Gas delivered by
Shipper shall meet the quality specifications in the Williams Agreement. In the
event tests should disclose that the gas being delivered by Shipper hereunder
does not meet the quality specification as set forth in the Williams Agreement,
then Gatherer shall have the right to discontinue receiving the gas tendered
hereunder until such time as such gas complies with such specifications.
Gatherer shall redeliver for Shipper's account Equivalent Quantities that
conform to the quality specifications in the Williams Agreement, provided that
Gatherer shall not be obligated to install any new treating or other facilities
in order to meet such quality specifications.

     Section 3.3 Measurement Equipment. To the extent not already in place,
Gatherer will install, or cause to be installed, at each Delivery Point, at
Shipper's expense, a measuring station equipped with meters and other measuring
equipment by which the volumes of gas received hereunder shall be determined.
Said measuring station shall be maintained, including chart changes and
integrations, by Gatherer at the cost of Shipper. Such facilities and
measurement data shall be at all reasonable times subject to joint inspection by
the parties.

                                        2

<PAGE>

                                   ARTICLE IV.
                         DELIVERY AND REDELIVERY POINTS

     Section 4.1 Delivery Points. The Delivery Point(s) shall be at the outlet
flange of the measurement facilities described on Exhibit A hereto. Shipper
shall install, maintain and operate facilities at the Delivery Point(s) that are
necessary in order for it to make gas deliveries hereunder. Shipper shall
deliver, or cause to be delivered at the Delivery Point(s) all natural gas that
it desires Gatherer to gather hereunder.

     Section 4.2 Redelivery Point. Gatherer shall redeliver Equivalent
Quantities for Shipper's account to the Redelivery Point, defined as the
interconnect with the _________ system at _____ Block.

     Section 4.3 Nominations. Shipper shall provide Gatherer on or before the
___________________ of each month with a good faith estimate of the gas
quantities that Shipper shall tender hereunder in the immediately succeeding
month. If the Shipper becomes aware at any time that the gas quantities being
delivered hereunder will be materially different from the last estimate
furnished by Shipper, Shipper shall furnish a new good faith estimate as soon
thereafter as is reasonably practical. It is expressly understood that Shipper's
right to tender gas hereunder is not limited to the amount estimated from time
to time by Shipper but Shipper shall be responsible for any imbalance penalties
imposed by third parties as a result of Shipper's actions or inactions.

     Section 4.4 Possession of Gas. Shipper shall be in exclusive control and
possession of the gas prior to delivery of the gas to Gatherer at the Delivery
Point and after redelivery by to or for the account of Shipper by Gatherer at
the Redelivery Point. After delivery of the gas by Shipper to Gatherer at the
Delivery Point and until redelivery by Gatherer to or for the account of Shipper
at the Redelivery Point, Gatherer shall be in exclusive control and possession
of the gas. Subject to the indemnity provisions of Section 7.2, the party having
possession and control of the gas at any time shall be responsible for any
related damage or injury. Title to the gas shall at all times remain in Shipper.

     Section 4.5 Delivery Pressure. Shipper shall deliver the gas to Gatherer at
pressures sufficient to permit accurate measurement of the gas to enter
Gatherer's system at the Delivery Point against such pressures as may be
prevailing from time to time but not at a pressure in excess of ___________.
Shipper shall not deliver the gas at the Delivery Point at pressures in excess
of Gatherer's maximum allowable operating pressure of ___________.

     Section 4.6 Redelivery Pressure. Gatherer shall redeliver the Equivalent
Quantity to or for the account of Shipper at pressures sufficient to enter
Shipper's or Shipper's designee's pipeline system at the Redelivery Point
against the working pressures maintained therein from time to time.

                                        3

<PAGE>

                                   ARTICLE V.
                                 GATHERING FEE

     Section 5.1 Rate. Shipper agrees to pay Gatherer for the gathering services
provided hereunder a fee of $0.____ for each MMBtu ("GATHERING FEE") of gas
redelivered at the Redelivery Point. Commencing January 1, 200___, Gathering Fee
will be escalated on January 1st of each year by ________________. The Gathering
Fee shall be exclusive of all fuel, shrinkage and line loss charges.

     Section 5.2 Statements. Gatherer shall render to Shipper, on or before the
twenty-fifth (25th) day of each month, a statement setting forth, for the
immediately preceding month, the total quantity and Btu content of gas delivered
at the Delivery Point and the total quantity of gas redelivered at the
Redelivery Point, and the Gathering Fees owed for gathering services.

     Section 5.3 Payments. Shipper shall pay all Gathering Fees owed hereunder
for a month within 15 days of receipt of the statement for such month. Past due
payments shall bear interest from the date such payments are due at the annual
rate of interest published as the "Prime Rate" in the "Money Rates" section of
The Wall Street Journal on the Closing Date (or if not published on such date,
such rate as was then last published) until the amount is paid. Shipper shall
pay any collection costs and/or attorneys fees incurred by Gatherer in
connection with collection of any past due amounts.

                                   ARTICLE VI.
                                     NOTICES

     Section 6.1 Notices. All notices or demands required or provided for herein
shall be in writing and shall be considered as duly delivered when mailed by
prepaid registered or certified mail, addressed to the party to whom such notice
is given, as follows:

     SHIPPER:
              ----------------------------

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

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

              ----------------------------
              Attention:
                         -----------------

     GATHERER:

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

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

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

              ----------------------------
              Attention:
                         -----------------

or to such other address as either party shall designate by like written notice
to the other party. Routine communications, including statements, computations,
and allocations, may be transmitted by ordinary mail.

                                        4

<PAGE>

                                  ARTICLE VII.
                                  MISCELLANEOUS

     Section 7.1 Force Majeure. Except for obligations to make payments
hereunder, neither party hereto shall be liable, for any failure to perform this
agreement to the extent such failure results from any of the following ("FORCE
MAJEURE"): acts of God; strikes, lockouts or industrial disputes or
disturbances; civil disturbances; arrests and restraint from rulers of people;
interruptions by government or court orders; present and future orders of any
governmental or court orders; present and future orders of any governmental
authority having jurisdiction; acts of the public enemy; wars; riots; blockades;
insurrections; inability to secure labor or inability to secure materials,
including inability to secure materials by reason of allocations promulgated by
governmental authorities; epidemics; landslides; lightning; earthquakes; fire;
storm; floods; washouts; explosions; breakage, accident, repairs, or maintenance
of the pipelines or other equipment; freezing of Wells or pipelines; or any
other cause, whether of the kind herein enumerated or otherwise, not reasonably
within the control of the party claiming force majeure; provided, that any such
cause shall, so far as possible, be remedied with all reasonable dispatch. The
settlement of strikes, lockouts or industrial disputes or disturbances shall be
entirely within the discretion of the party having the difficulty, and the
requirement that any force majeure cause shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts or industrial
disputes or disturbances by acceding to any demands when such course is
inadvisable in the discretion of the party having the difficulty.

     Section 7.2 Indemnifications. Shipper shall indemnify and hold harmless
Gatherer, its officers, employees and agents against any and all liabilities,
damages, claims or demands for personal injury, including death, to any person,
or for damages or loss to any property arising out of operations conducted
hereunder by Shipper and not caused by the negligence or willful misconduct of
Gatherer. Gatherer shall indemnify and hold harmless Shipper, its officers,
employees and agents against any and all liabilities, damages, claims or demands
for personal injury, including death, to any person, or for damages or loss to
any property arising out of operations conducted hereunder by Gatherer, and not
caused by the negligence or willful misconduct of Shipper.

     Section 7.3 Inspection of Records. Each party hereto shall have the right
at all reasonable times during normal business hours to examine the records,
charts, meters, measuring equipment and other pertinent matter or data of the
other party to the extent necessary to verify the accuracy of any statement,
charge, computation or demand made under or pursuant to any of the provisions
hereof. Shipper shall have the right upon request to temporarily obtain custody
of meter charts for a period not to exceed fifteen (15) days to audit flows
after initial chart integration has been accomplished by Gatherer. If any such
examination shall reveal, or if either party shall otherwise discover, any error
or inaccuracy in its own or the other party's statements, payments, calculations
or determinations, then proper adjustments and corrections thereof shall be made
as promptly as practicable thereafter; provided that, no adjustment of any
statement, billing or payment shall be made after the lapse of two (2) years
from the end of the calendar year to which such statement, billing or payment
pertains.

                                        5

<PAGE>

     Section 7.4 Governmental Regulations. This Agreement is subject to all
applicable state and federal laws, rules and regulations of any governmental
body having jurisdiction.

     Section 7.5 Non-Waiver. No waiver by either party of any one or more
defaults by the other party in the performance of any provision of this
Agreement shall operate or be construed as a waiver of any future default or
defaults of whatever character.

     Section 7.6 Assignment. Any company which shall succeed by purchase, merger
or consolidation to the properties of either party hereto shall be entitled to
the rights and shall be subject to the obligations of its predecessors in title
under this Agreement. Except as provided in the preceding sentence, either party
hereto may not assign any of its rights hereunder.

     Section 7.7 Successors and Assigns Bound. Subject to Section 7.6, this
Agreement shall extend to and be binding upon the parties hereto, and their
respective legal representatives, successors and assigns.

     Section 7.8 Applicable Law. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted, construed and
enforced in accordance with the laws of the State of Texas.

     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
by its duly authorized officers as of the date first hereinabove written.

SHIPPER:

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

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

GATHERER:

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

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

                                        6

<PAGE>

                                    EXHIBIT A

                                 DELIVERY POINTS

<PAGE>

                                 EXHIBIT 6.3(A)

                    Time Line for Class B Asset Construction

             SOUTH PADRE ISLAND BLOCK 1166 / 1145 FIELD DEVELOPMENT

                 12" EXPORT PIPELINE FROM SPI 1166 TO NPI 996 &
                      6" FLOWLINE FROM SPI 1145 TO SPI 1166

<TABLE>
<CAPTION>
                                                                 2005
                                         ---------------------------------------------------
                                           1ST QUARTER       2ND QUARTER       3RD QUARTER
                                         ---------------   ---------------   ---------------
ID   TASK NAME                     DEC   JAN   FEB   MAR   APR   MAY   JUN   JUL   AUG   SEP
--   ---------                     ---   ---   ---   ---   ---   ---   ---   ---   ---   ---
<S>  <C>                           <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>
1    PIPELINES
2       12" PIPELINE
3          PERMIT 12"
4          BID PIPE/AWARD
5          AWARD BID
6          DELIVERY
7          COATING/CURE
8          PIPELINE INSTALLATION
9       6" PIPELINE
10         PERMIT 12"
11         BID PIPE/AWARD
12         DELIVERY
13         COATING
14         PIPELINE INSTALLATION
</TABLE>

<PAGE>

                                   EXHIBIT 6.8

Insurance Coverage: Without limiting any of the other obligations or liabilities
of the General Partner under this Agreement of Limited Partnership, the General
Partner shall procure and maintain the following minimum insurance coverages for
the benefit of the Partnership provided by insurers of recognized responsibility
satisfactory to the Limited Partner. Such policies shall be written on such
forms and with terms, conditions and deductibles as are acceptable to the
Limited Partner.

I. Upon execution of this Partnership Agreement the following coverages shall be
in place specifically for the Partnerships on a stand-alone basis:

          a.   Commercial General Liability insurance written on an occurrence
               form in an amount not less than $1,000,000 per occurrence and
               $2,000,000 general aggregate. Such policy shall include without
               limitation: premises/operations, underground resources liability,
               broad form contractual, independent contractors, products and
               completed operations, broad form property damage, personal injury
               and sudden and accidental pollution coverage. Such policy shall
               not exclude punitive and/or exemplary damages, nor shall it
               exclude bodily injury to your employees when you have assumed
               this liability under a written contract. The definition of
               "Insured" under the policy must clearly extend to non-operating
               working interests and the policy must provide coverage for
               liabilities that pass contractually through a Joint Operating
               Agreement or similar agreement. The policy should also include
               the following endorsements for offshore operations: deletion of
               the watercraft exclusion (if available) for non-owned and
               chartered vessels including pollution liability and contractual
               liability, In Rem endorsement, and the territory definition
               extended to include the Gulf of Mexico.

          b.   Commercial Automobile Liability insurance written in an amount
               not less than $1,000,000 per accident covering owned, non-owned,
               leased and hired vehicles. This coverage shall apply only if the
               Partnership owns or leases vehicles. If the Partnership does not
               own or lease vehicles then coverage for hired and non-owned
               vehicles can be included under #1 above, Commercial General
               Liability.

          c.   Umbrella/Excess Liability insurance written on an occurrence form
               in an amount not less than $10,000,000 per occurrence and general
               aggregate. Such coverage shall apply excess of liability limits
               provided for the joint account by the General Partner or Operator
               which limits will in turn be excess of Commercial General
               Liability including Third Party Liability under Builder's Risk
               (if applicable), Automobile Liability, Employer's Liability
               including Maritime Employer's Liability, Watercraft Liability
               including Charterer's Liability, Protection and Indemnity if
               applicable, and Aircraft Liability, and shall contain a drop down
               provision in the event of exhaustion of underlying limits or
               aggregates and shall apply on a

<PAGE>

               following form basis (where available). Such policy shall not
               exclude punitive and/or exemplary damages.

II. Upon execution of this Partnership Agreement, the General Partner shall also
cause the Partnership to be added as a Named Insured or Additional Insured, as
appropriate and as agreed to by the Limited Partner, for the Partnership's
interest, under the following coverages which will be carried by the General
Partner:

          d.   Commercial General Liability insurance written on an occurrence
               form in an amount not less than $1,000,000 per occurrence and
               $1,000,000 aggregate (separately for the Partnership). Such
               policy shall include without limitation: premises/operations,
               underground resources liability, broad form contractual,
               independent contractors, products and completed operations, broad
               form property damage, personal injury and sudden and accidental
               pollution coverage. Such policy shall not exclude punitive and/or
               exemplary damages, nor shall it exclude bodily injury to your
               employees when you have assumed this liability under a written
               contract. The definition of "Insured" under the policy must
               clearly extend to non-operating working interests and the policy
               must provide coverage for liabilities that pass contractually
               through a Joint Operating Agreement or similar agreement. The
               policy should also include the following endorsements for
               offshore operations: deletion of the watercraft exclusion (if
               available) for non-owned and chartered vessels including
               pollution liability and contractual liability, In Rem
               endorsement, and the territory definition extended to include the
               Gulf of Mexico.

          e.   Commercial Automobile Liability insurance written in an amount
               not less than $1,000,000 per accident covering owned, non-owned,
               leased and hired vehicles. This coverage shall apply only if the
               General Partner owns or leases vehicles. If the General Partner
               does not own or lease vehicles then coverage for hired and
               non-owned vehicles can be included under #1 above, Commercial
               General Liability.

          f.   Workers' Compensation insurance as required by law, including
               Longshoremen's and Harbor Workers' Compensation Act and the Outer
               Continental Shelf Lands Act if applicable; Employer's Liability
               in an amount not less than $1,000,000 including Maritime
               Employer's Liability covering the Jones Act, Death on the High
               Seas Act, and other general maritime law, with a Gulf of Mexico
               extension. This coverage shall be carried by the General Partner
               if it has employees.

          g.   Umbrella/Excess Liability insurance written on an occurrence form
               in an amount not less than $25,000,000 per occurrence and
               aggregate (separately for the Partnership). Such coverage shall
               apply above the primary limits of the Commercial General
               Liability including Third Party Liability under Builder's Risk
               (if applicable), Automobile Liability, Employer's Liability
               including Maritime Employer's Liability, Watercraft

                                       -2-

<PAGE>

               Liability including Protection and Indemnity if applicable, and
               Aircraft Liability (both owned and non-owned as applicable) and
               shall contain a drop down provision in the event of exhaustion of
               underlying limits or aggregates and shall apply on a following
               form basis (where available). Such policy shall not exclude
               punitive and/or exemplary damages.

          h.   Operator's Extra Expense (Control of Well) coverage written in an
               amount not less than Combined Single Limits of $5,000,000 (100%)
               for Area I wells and $10,000,000 (100%) for Area II wells, and
               Care, Custody or Control Limits of $500,000 (100%) for Area I
               wells and $1,000,000 (100%) for Area II wells. Wells in Area II
               Wet and Area III shall carry a combined single limit of at least
               $35 Million (100%), and a Care, Custody & Control limit of at
               least $1 Million (100%) including physical damage to rigs due to
               unsound location. These limits are subject to change at the
               option of the Limited Partner depending upon the scope of
               operations. Coverage shall extend through all operations. Such
               insurance shall cover, without limitation: expense of regaining
               control of well, expense of re-drill (depth and condition, not
               limited), expense of clean-up for seepage, pollution and
               contamination, loss of "in-hole" equipment, underground control
               of well and evacuation expense. If available, pollution under
               this policy shall be primary for wells that get out of control,
               but subject to a Priority of Payments clause.

          i.   Builder's Risk - covering offshore construction projects
               including platforms, facilities and pipelines, including
               procurement, construction, fabrication, load out, loading and
               unloading, transit, towage, installation, burying, connection and
               tie-in, testing and commissioning, and covering initial
               operations and maintenance, including third party liability (if
               available as a separate coverage; otherwise under the Commercial
               General Liability policy). The limit shall be sufficient to cover
               the estimated final contract value of the entire project,
               including all applicable engineering and project management fees,
               and additional amounts for Removal of Wreckage and Debris, Sue
               and Labor, and Additional Work for repositioning or stabilizing
               the property if damaged due to a covered peril.

          j.   Delay in Start-up - At the option of the Limited Partner, direct
               and contingent Loss of Production Income insurance, covering the
               Partnership's working interests and allocated 100% to the
               Partnership, as a result of physical loss or damage during course
               of construction of offshore platforms and pipelines, including
               loss at fabricating yards. The Period of Indemnity shall be
               agreed to by the Limited Partner, but shall be no less than 180
               days following the wait period which shall not exceed 45 days,
               except 60 days for Named Windstorm. A shorter Wait Period should
               considered if available in the market.

                                       -3-

<PAGE>

          k.   "All Risk" Property insurance on the onshore assets of the
               Partnership including, without limitation, fire and extended
               coverage, comprehensive boiler and machinery coverage, and flood
               and earthquake coverage. For offshore platform and pipeline
               physical loss or damage, all risks of physical loss or damage to
               platforms, including facilities, and pipelines including Removal
               of Wreckage and Debris and Sue and Labor, for the replacement
               cost value. Such insurance shall be written in an amount not less
               than the replacement cost of the Partnership's assets with an
               agreed amount endorsement waiving any penalty for coinsurance.

          l.   Loss of Production Income (Loss of Earnings) - At the option of
               the Limited Partner, direct and contingent Loss of Production
               Income insurance, covering the Partnership's working interests,
               100% of the cost and benefit to be allocated to the Limited
               Partner, as a result of physical loss or damage to platforms,
               facilities and/or pipelines and wells that get out of control.
               The Period of Indemnity shall be adequate for production to be
               brought back to pre-loss levels, and no less than 180 days
               following the wait period. All dependency platforms, facilities
               and pipelines shall be scheduled as required by underwriters to
               ensure full contingency coverage. Wait Period shall not exceed 45
               days, except 60 days for Named Windstorm. A shorter Wait Period
               can be considered if available in the market.

          m.   Business Interruption Insurance - At the option of the Limited
               Partner, Business Interruption insurance on the onshore assets of
               the Partnership and Contingent Business Interruption insurance on
               the assets of the buyers, storers, collectors, compressors, etc.
               of the Partnership's production written in an amount acceptable
               to the Limited Partner. Such insurance shall be written with an
               agreed amount endorsement waiving any penalty for coinsurance.
               Such insurance shall cover loss of net profits, continuing
               expenses and Section 29 Tax Credits (if any).

          n.   Watercraft Liability - If watercraft is owned or charterered, or
               if contractors or subcontractors utilize vessels in carrying out
               operations hereunder, the General Partner and/or contractors and
               subcontractors, as appropriate, shall be required to carry the
               following coverage:

               i.   Charterer's Liability, including pollution liability, for
                    chartered vessels and barges with limits of not less than
                    $5,000,000.

               ii.  Hull and Machinery insurance, including coverage for
                    bare-boat charters, in an amount not less than replacement
                    cost value of the vessel or barge;

                                       -4-

<PAGE>

               iii. Protection and Indemnity insurance, including pollution
                    liability and removal of wreckage and debris, in an amount
                    of not less than $1,000,000;

               iv.  Towers Liability insurance if vessels engage in towing
                    operations.

               Such policies shall cover owned, non-owned, and hired watercraft,
               and all clauses purporting to limit coverage to liabilities
               incurred "as owner of vessel" shall be deleted. Additionally, the
               "other than owner" clause shall be deleted and the policy shall
               be affirmatively endorsed to provide full coverage without regard
               to liability being incurred as owner of a vessel. Any provision
               allowing an insurer to limit coverage to an Additional Insured in
               the event of the application of the Limitation of Liability
               Statute shall be deleted.

          o.   Aircraft Liability - If aircraft, including helicopters, are
               owned or charterered, or if contractors or subcontractors utilize
               aircraft in carrying out operations hereunder, the General
               Partner and/or contractors and subcontractors shall be required
               to carry Aircraft Liability insurance, including Passenger
               Liability, with a combined single limit of not less than
               $40,000,000, which can include a combination of primary Aircraft
               Liability and Umbrella/Excess Liability.

     Total Umbrella/Excess Liability Limits:

     It is understood at the time of closing that the General Partner does not
     have significant ongoing operations outside of the Partnership. At such
     time in the future that the General Partner increases its operations
     outside of the Partnership, the Limited Partner will agree to allow the
     General Partner to reduce the Umbrella/Excess Liability limits provided by
     it that are specifically designated for the partnership properties, and to
     increase the Umbrella/Excess Liability limits which are held by the
     Partnership in section I. The limits and timing of this change in the
     insurance program shall be agreed to by the Limited Partner.

     It is the intent to have total Umbrella/Excess Liability Limits of at least
     $35 Million per occurrence and aggregate (separately) always available for
     the Partnership. If X is the coverage held by the General Partner that is
     specifically and solely designated in the policy for partnership properties
     and Y is the coverage held by the Partnership, subject to Section I. c.,
     then X + Y > or = $35 Million per occurrence and aggregate (separately)
     shall always be maintained. In the event the General Partner is unable to
     obtain a separate aggregate limit for the Partnership under its Commercial
     General Liability and Umbrella/Excess Liability policies, therefore
     recognizing that the aggregates under its liability program will be shared
     aggregates, the general partner will cause the Partnership to have in force
     no less than $35 Million of a clean and an unimpaired aggregate, so in the
     event the General Partners' shared aggregate becomes impaired, the

                                       -5-

<PAGE>

     Limited Partner shall be notified immediately and the General Partner shall
     cause the Partnership to increase the clean and unimpaired X + Y aggregate
     to $35 Million, upon final approval by of the Limited Partner.. This
     coverage shall be in place at the time of closing.

     Endorsements: As respects insurance policies placed on behalf of the
     Partnership and its working interest:

     All insurance policies carried in accordance with Section I of this Exhibit
     6.8 shall name the Partnership as the first Named Insured and the Limited
     Partner and General Partner as Additional Insureds with the understanding
     that any obligation imposed upon the Partnership (including, and without
     limitation, the obligation to pay premiums) shall be the sole obligation of
     the Partnership and not that of either Partner.

     All insurance policies carried in accordance with Section II of this
     Exhibit 6.8 shall name the Partnership as either a Named Insured or an
     Additional Insured as appropriate and for the Partnership's interest, and
     shall name the Limited Partner as an Additional Insured where appropriate
     with the understanding that any obligation imposed upon the Partnership for
     its interest (including, and without limitation, the obligation to pay
     premiums) shall be the sole obligation of the Partnership and not that of
     either Partner. The General Partner is responsible for ensuring that
     Outside Operators provide Additional Insured status for the Partnership
     under any Joint Operating Agreements to which the Partnership is a party.

     Special Provisions:

     The following special provisions shall apply:

     (i) with respect to all liability insurance, in as much as the policies are
     written to cover more than one insured, all terms, conditions, insuring
     agreements and endorsements, with the exception of limits of liability,
     shall operate in the same manner as if there were a separate policy
     covering each insured; and,

     (ii) the insurers shall waive all rights of subrogation against each
     Partner on those policies where appropriate, and any right of set-off or
     counterclaim and any right to deduction by attachment or other otherwise;
     and,

     (iii) insurance carried by the General Partner or Operator for the benefit
     of the joint account shall be primary and without right of contribution of
     any insurance carried by the Partnership or the Limited Partner, and
     insurance carried by the Partnership shall be excess of any insurance
     carried for the joint account by the General Partner or Operator; and,

     (iv) if such insurance is canceled for any reason whatsoever, including
     non-payment of premium, or any material change is made which affects the
     Partnership, such cancellation or change shall not be effective as to the
     Limited

                                       -6-

<PAGE>

     Partner until sixty (60) days, but ten (10) days in the event of
     cancellation due to non-payment of premium, after receipt by the Limited
     Partner of written notice sent by registered mail.

     Certificates of Insurance: At the Closing Date and at each policy renewal,
     but not less than annually, the General Partner shall provide certification
     from each insurer or by an authorized representative of each insurer when
     it is not practical for such insurer to execute the certificate itself.
     Such certification shall identify the insurers, the types of insurance, the
     insurance limits, the policy terms, and deductibles for each such policy
     and shall specifically list the special provisions for each policy required
     by this Exhibit 6.8. Upon request, the General Partner shall furnish the
     Limited Partner with copies of all insurance policies, binders, cover notes
     or other evidence of such insurance.

     (iii) Report: Concurrently with the furnishing of the certification
     referred to in this Exhibit 6.8, the General Partner shall provide a report
     of an independent insurance broker stating that all premiums have been paid
     and that, in the opinion of such broker, the insurance then carried and
     maintained is in accordance with the terms of this Exhibit 6.8. Further,
     the General Partner shall cause such broker to advise the Limited Partner
     promptly in writing of any default in the payment of premium or any other
     act or omission of the Partnership or the General Partner or any other
     person of which the broker is aware, which may invalidate or render
     unenforceable, in whole or in part, any Partnership insurance. The Limited
     Partner, at its sole option, may obtain such insurance if not provided by
     the General Partner, and, in such event, the General Partner shall
     reimburse the Limited Partner upon demand for the cost thereof.

                                       -7-

<PAGE>

                               FWOE PARTNERS L.P.
                         VARIANCE REPORT - EXHIBIT 8.2 D

(TOTAL RESERVES, ACCOUNTING PERIOD XX/XX/XXXX)  Report Date: xx/xx/xxxx

<TABLE>
<CAPTION>
ACTUAL (PRODUCTION MONTH)               JAN  FEB  MAR  APR  MAY  JUN  JUL  AUG  SEP  OCT  NOV  DEC  YTD  TOTAL FOR RANGE
-------------------------               ---  ---  ---  ---  ---  ---  ---  ---  ---  ---  ---  ---  ---  ---------------
<S>                                     <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>
NET PRODUCTION
   Net Oil (BBLS)
   Net Gas (MCF)
   Net Products (BBLS)
   Other Production
   Net Total Production (BOE)

WELLHEAD PRICING CALCULATED ($)
   Oil ($/BBL)
   Gas ($/MCF)
   Products ($/BBL)
   Other Pricing
   BOE/MCFE (Including Hedge)

REVENUE ($)
   Oil Sales
   Gas Sales
   Product Sales
   Other Production Sales
   Other Sales #1
   Other Sales #2
   Other Sales #3
   Hedge Income
   TOTAL PROPERTY OPERATING INCOME

TAXES ($)
   Production Tax
   Ad Valorem Tax
   TOTAL TAXES

LOE EXPENSES ($)
   LOE Category #1
   LOE Category #2
   LOE Category #3
   LOE Category #4
   LOE Category #5
   LOE Category #6
   LOE Category #7
   LOE Category #8
   Workover Expenses - Non Capitalized
   Plugging Expenses - Non Capitalized
   Other LOE
   TOTAL LOE EXPENSES

OPERATING EXPENSES ($)
   3rd Party COPAS
   Other Operating Expenses #1
   Other Operating Expenses #2
   Other Operating Expenses #3
   TOTAL OPERATING EXPENSES

TOTAL OPERATING EXPENSES + TAXES ($)

LIFTING COST

GROSS OPERATING PROFIT

OTHER EXPENSES ($)
   Management Fee
   Insurance
   General & Administrative
   Other Expense #1
   Other Expense #2
   Other Expense #3
   TOTAL OTHER OPERATING EXPENSES

OPERATING CASH FLOW

DD&A AND IMPAIRMENT
   Depletion
   Depreciation and Amortization
   Producing Property Impairment
   Lease Abandonment and Impairment
   Other DD&A / Impairment
   TOTAL DD&A AND IMPAIRMENT

NET INCOME BEFORE TAXES ($)

CAPEX ($)
   Drilling
   Recompletion
   Workover
   Plugging
   Other CAPEX
   TOTAL CAPEX

OPERATING CASH FLOW AFTER CAPEX ($)
</TABLE>

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