Document:

[Borrower]

                                POWER OF ATTORNEY

     This  Power  of  Attorney  is  executed  and  delivered  by CROCHET & BOREL
SERVICES,  INC.  ("Credit  Party"),  to  NEW  STREAM  COMMERCIAL  FINANCE,  LLC
(hereinafter  referred  to  as "Attorney"), as Lender, under a Loan and Security
Agreement  dated  as  even date herewith (the "Agreement"; capitalized terms are
used  herein as defined in the Agreement) between CROCHET & BOREL SERVICES, INC.
and  Attorney.  No  person  to  whom  this  Power  of  Attorney is presented, as
authority  for Attorney to take any action or actions contemplated hereby, shall
inquire  into  or  seek  confirmation  from  Credit Party as to the authority of
Attorney  to  take  any  action  described  below,  or as to the existence of or
fulfillment  of  any  condition  to this Power of Attorney, which is intended to
grant  to Attorney unconditionally the authority to take and perform the actions
contemplated  herein,  and Credit Party irrevocably waives any right to commence
any suit or action, in law or equity, against any person or entity which acts in
reliance  upon  or  acknowledges  the  authority  granted  under  this  Power of
Attorney.  The power of attorney granted hereby is coupled with an interest, and
may  not  be  revoked  or  canceled  by  Credit Party without Attorney's written
consent  upon  payment in full of all Obligations due to Attorney under the Loan
Documents.

     Credit  Party hereby irrevocably constitutes and appoints Attorney (and all
officers,  employees  or  agents  designated  by  Attorney),  with full power of
substitution,  as  Credit  Party's  true  and  lawful attorney-in-fact with full
irrevocable  power  and  authority in the place and stead of Credit Party and in
the  name  of  Credit  Party or in its own name, from time to time in Attorney's
discretion,  to  take, to the extent permitted under the Loan Documents, any and
all  appropriate  action  and  to  execute and deliver any and all documents and
instruments  which  may  be necessary or desirable to accomplish the purposes of
the Loan Documents and, without limiting the generality of the foregoing, Credit
Party  hereby grants to Attorney the power and right, on behalf of Credit Party,
without  notice  to  or  assent  by  Credit  Party,  and  at any time, to do the
following:  (a)  change  the  address for delivery of mail, open mail for Credit
Party,  and  ask,  demand,  collect,  give  acquittances  and receipts for, take
possession  of,  endorse  and  receive  payment  of,  any checks, drafts, notes,
acceptances,  or  other  instruments for the payment of moneys due, and sign and
endorse  any  invoices,  freight  or  express bills, bills of lading, storage or
warehouse  receipts,  drafts  against  debtors,  assignments, verifications, and
notices  in connection with any property of Credit Party; (b) continue or obtain
any  insurance  and  pay  all  or  any  part  of the premiums therefor and costs
thereof,  and  make,  settle  and  adjust  all  claims  under  such  policies of
insurance,  and  make  all  determinations  and  decisions  with respect to such
policies;  (c)  pay  or discharge any taxes, liens, security interests, or other
encumbrances  levied  or  placed  on  or  threatened against Credit Party or its
property; (d) defend any suit, action or proceeding brought against Credit Party
if  Credit  Party does not defend such suit, action or proceeding or if Attorney
believes  that  Credit Party is not diligently pursuing such defense in a manner
that  will  maximize  the recovery to Attorney, and settle, compromise or adjust
any  suit,  action,  or proceeding described above and, in connection therewith,
give  such  discharges or releases as Attorney may deem appropriate; (e) file or
prosecute  any  claim,  litigation, suit or proceeding in any court of competent
jurisdiction or before any arbitrator, or take any other action otherwise deemed
appropriate  by  Attorney  for the purpose of collecting any and all such moneys
due  to  Credit Party whenever payable and to enforce any other right in respect
of  Credit  Party's

<PAGE>
property;  (f)  sell,  transfer,  pledge,  compromise  payment or make any other
agreement  with  respect to, or otherwise deal with any Collateral, and execute,
in  connection  with such sale or action, any endorsements, assignments or other
instruments of conveyance or transfer in connection therewith; and (g) cause the
certified public accountants then engaged by Credit Party to prepare and deliver
to Attorney at any time and from time to time, promptly upon Attorney's request,
the  following  reports:  (1)  a reconciliation of all accounts; (2) an aging of
all  accounts;  (3)  trial  balances; (4) test verifications of such accounts as
Attorney  may  request,  and  (5)  the  results of each physical verification of
inventory,  all  as  though  Attorney were the absolute owner of the property of
Credit  Party  for  all  purposes,  and  to  do, at Attorney's option and Credit
Party's  expense,  at  any  time or from time to time, all acts and other things
that  Attorney  reasonably deems necessary to perfect, preserve, or realize upon
the  Collateral  and  Attorney's  Liens thereon, all as fully and effectively as
Credit  Party might do. Credit Party hereby ratifies, to the extent permitted by
law,  all  that  said  attorneys shall lawfully do or cause to be done by virtue
hereof.
                              [SIGNATURE PAGE FOLLOWS]

                                        2
<PAGE>
     IN WITNESS WHEREOF, this Power of Attorney is executed by Credit Party, and
Credit  Party has caused its seal to be affixed pursuant to the authority of its
Board  of  Directors  on  August    ,  2006.
                                  --

                                        CROCHET & BOREL SERVICES, INC.

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

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

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

STATE OF NEW YORK   )
                    ) ss.:
COUNTY OF NEW YORK  )

     On  this        day  of  August,  2006,  before  me  personally  came
               ----
,                       ,  to  me  known,  who, being duly sworn, did depose and
 -----------------------
say,  that  he is the                  of the corporation described in and which
                      ----------------
executed  the foregoing instrument; and that he signed his name thereto by order
of  the  board  of  directors  of  said  corporation.

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

                                        3Unassociated Document

    Riata
      Energy, Inc.

    1601
      Northwest Expressway, Suite 1600

    Oklahoma
      City, OK 73118

    

    

    September
      7, 2006 

    

    American
      Real Estate Partners, L.P.

    American
      Real Estate Holdings Limited Partnership

    White
      Plains Plaza

    445
      Hamilton Avenue - Suite 1210

    White
      Plains, NY 10601

    

    

    Exclusivity
      Agreement and Letter of Intent

    Ladies
      and Gentlemen:

    

    This
      exclusivity agreement and letter of intent (the “Letter”)
      relates to a potential transaction among American Real Estate Partners, L.P.
      (“AREP”),
      American Real Estate Holdings Limited Partnership (“AREH”)
      and
      Riata Energy, Inc. (“Buyer”)
      under
      which Buyer would obtain an option (the “Option”)
      to
      acquire all of the issued and outstanding membership interests of NEG Oil &
Gas, LLC (the “Company”)
      from
      AREP O & G Holdings LLC (“Seller”),
      a
      wholly-owned subsidiary of AREP Oil & Gas Holdings LLC, which is in turn a
      wholly-owned subsidiary of AREH (“Oil
      & Gas Holdings”,
      together with AREH and AREP, the “Parents”)
      substantially on
      the
      terms and subject to the conditions set forth herein and in the term sheet
      attached hereto as Annex
      A
      (the
“Term
      Sheet”).
      For
      purposes of this Letter, the Parents shall cause Seller to take all actions
      and
      comply with all obligations set forth herein. For purposes of this Letter and
      the Term Sheet, (i) the Company shall not be deemed to include the corporate
      entity, National Energy Group, Inc. (“NEGI”)
      but
      will be deemed to include all of the issued and outstanding membership interests
      of NEG Holding LLC (“NEG
      Holding”)
      held
      by NEGI, which are to be acquired by the Company in the 
      Restructuring(1)(as defined in the Term Sheet), and (ii) NEGI shall not be
      deemed to be a direct or indirect subsidiary (or, solely for purposes of
Sections
      3, 5-7 and 9,
      an
      affiliate) of the Company, the Seller or the Parents. The proposed acquisition
      of all of the Company’s membership interests (including, for the avoidance of
      doubt, such membership interests of NEG Holding acquired by the Company through
      the Restructuring) is referred to herein as the “Transaction”.
      Except
      for the provisions of this Letter contained in the following sentence and
Sections
      1, 3, 5-12 and 15
      (and
      expressly excluding Annex
      A
      hereto),
      which are intended to be binding, this Letter is a preliminary summary of
      non-binding terms concerning a possible transaction between the parties. This
      Letter is for discussion purposes only in order to facilitate discussions
      between the parties regarding a potential transaction and, except for this
      sentence and sections 1, 3, 5-12 and 15 below (and expressly excluding
Annex
      A
      hereto),
      does not constitute and will not give rise to any legally binding agreement,
      obligation or duty of any kind or character including, without limitation,
      any
      agreement, obligation or duty to act reasonably, fairly or in good faith) on
      the
      part of either party or their respective affiliates, officers, directors,
      stockholders, employees or agents. 

     

      
        

      

    

    
      	(1)	
              As
                of July 31, 2006, NEGI’s assets, other than its membership interest in NEG
                Holding, consisted of: (i) cash and cash equivalents in the amount
                of
                approximately $3.06 million; (ii) accounts receivable from the Company
                and
                its subsidiaries under operating and management contracts (all of
                which
                will be terminated as of the closing of the Transaction) in the amount
                of
                approximately $1.4 million; (iii) a deferred tax asset in the amount
                of
                approximately $6.2 million; and (iv) other assets unrelated to oil
                and gas
                operations (including, furniture, computers, leases for office space
                and
                office equipment and similar items, but not including any information
                technology, software and data relevant to the oil and gas operations
                of
                the Company or its subsidiaries, including NEG Holding, whether or
                not on
                such computers, which will be transferred to Buyer as part of the
                Transaction). All references herein to the SEC Reports (as defined
                in
                Section 11(c)(ii)) and financial statements
                shall be deemed to exclude such assets of NEGI (other than NEGI’s
                membership interests in NEG Holding and such information technology,
                software and data).

            

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    1.  Payment.
      Simultaneously with the execution of this Letter, Buyer is paying to Seller
      $10
      million.

    

    2.  Definitive
      Documentation.
      Following the execution of this Letter, the parties will engage in discussions
      in order to develop definitive documents (the “Definitive Documentation”) to
      reflect the matters contained herein, and such other matters as may be agreed
      between the parties. Each party is free to negotiate the Definitive
      Documentation in its sole and absolute discretion and shall have no duty or
      obligation of any kind or character to the other party hereto in such
      negotiations, including, without limitation, to act reasonably, fairly or in
      good faith. The parties expect to execute the Definitive Documentation as
      promptly as practicable and no later than 70 days from the date hereof (provided
      that the Definitive Documentation shall be acceptable to each party in its
      sole
      and absolute discretion). If the Definitive Documentation shall have been
      executed by both parties, it is the parties’ mutual desire that in accordance
      with the terms and conditions of such Definitive Documentation, the Transaction
      be consummated as promptly as practicable. 

    

    3. HSR.
      Seller
      and Buyer will use their best efforts to: (i) file with the Federal Trade
      Commission and/or the Department of Justice, as applicable, the required
      Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the
“HSR
      Act”),
      notification and report forms within 10 days following execution of this Letter,
      and will request expedited treatment (i.e., early termination) of such filing;
      (ii) furnish any supplemental information which may be requested in connection
      therewith as promptly as practicable; and (iii) obtain clearance under the
      HSR
      Act, either through early termination, expiration of the waiting period or
      otherwise, as soon as possible (it being understood that neither Buyer nor
      Seller shall be required to take any action with respect to selling, holding
      separate or otherwise disposing of any business or assets or conducting their
      or
      their respective subsidiaries’ business in any specified manner in order to
      obtain such clearance). If the Letter is terminated, Seller and Buyer shall
      take
      all action to immediately terminate all governmental and regulatory filings
      theretofore made, including the HSR Act filing. 

    

    4. Transaction.
      Under
      the Definitive Documentation, Buyer will have the Option, subject to the terms
      and conditions thereof, for a period from the date hereof until the End Date
      (or
      the Extended End Date, as the case may be), to purchase all of the issued and
      outstanding membership interests of the Company, for an aggregate consideration
      of $1.519 billion, which will consist of (i) the $10 million delivered upon
      execution of this Letter, (ii) at the closing of the Transaction (the
“Closing”),
      $1.015 billion in immediately available funds and 12,842,000 shares of Buyer
      common stock, (iii) the Company and its subsidiaries shall have no more than
      $300 million in third party debt obligations (consisting of borrowings under
      the
      Company’s Credit Facility with Citicorp USA, Inc. and Bear Stearns Corporate
      Lending Inc., dated as of December 20, 2005 (the “Credit
      Facility”))
      at
      Closing, and (iv) the Company and its subsidiaries shall have $50 million of
      cash(2)
      at
      Closing (the “Cash
      Amount”).
      If,
      as of the date of the Closing (the “Closing
      Date”),
      (i)
      the Cash Amount is less than $50 million, then the cash portion of the purchase
      price shall be reduced by the amount of any such shortfall and (ii) the Cash
      Amount is more than $50 million, then either, at the Buyer’s option, (A) the
      cash portion of the purchase price shall be increased by the amount of any
      such
      excess or (B) the Company shall distribute such excess cash to Seller. In
      addition, if at Closing: (A) the Net Working Capital (as defined below) is
      less
      than $0 (the “Specified
      Target”),
      then
      the cash portion of the purchase price shall be reduced by the amount of any
      shortfall; and (B) the Net Working Capital is more than the Specified Target,
      then Buyer will have the option to either: (x) adjust the aggregate cash
      consideration upwards by the amount of any excess; or (y) cause the Company
      to
      reduce the Net Working Capital to such Specified Target by distributing cash
      to
      Seller. “Net
      Working Capital”
shall
      mean current assets of the Company minus current liabilities of the Company,
      as
      defined by GAAP (and consistent, with respect to presentation, with the June
      30
      Financials (as hereafter defined)), excluding receivables or payables due to
      or
      from AREP or its affiliates which are being eliminated by the Parents as part
      of
      the Transaction, cash and all liabilities and obligations relating to the
      Company’s or its Subsidiaries’ hedging contracts and any other derivative
      financial instruments,
      and the
      Company and its subsidiaries shall have been operating in the ordinary course
      consistent with past practice
      with
      respect to net working capital items.

     

    
      

    

     

    
      	(2)	
              For
                the avoidance of doubt, neither “cash” nor “cash equivalents” shall
                include certain items such as monies restricted in connection with
                securing bonding requirements for plugging and abandonment obligations
                or
                other similar items.

            

    

     

    
      	(3)	
              Unless
                the Credit Facility is paid off by Buyer as part of the Transaction,
                the
                consents, waivers and/or amendments that Buyer shall obtain from
                the
                lenders under the Credit Facility shall include consent to (i) waive
                change of control, (ii) elimination of hedges, (iii) release of the
                Stock
                and the Note (as referred to in the Restructuring) from pledges for
                distribution to Seller, and (iv) distribution of the Stock and the
                Note
                and any excess cash to Seller as a result of adjustments relating
                to cash
                or Net Working Capital at Closing. Buyer will either obtain such
                required
                consents, together with any other consents under the Credit Facility
                required in order to consummate the Restructuring and the Transaction,
                or
                pay all amounts outstanding under the Credit Facility at
                Closing.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    At
      Closing, Seller shall unwind the Company’s and its subsidiaries’ hedging
      contracts and Seller shall retain all liabilities and obligations (or positive
      benefits and value) relating to the hedging contracts.

    

    5.  Exclusivity.
      From
      the date hereof until the termination of this Letter (such period, the
“Exclusivity
      Period”):

    

    (a)  none
      of
      the Parents, Seller, the Company, the Company’s subsidiaries (including for
      purposes of this Letter, NEG Holding, of which the Company is the managing
      member), or any of their respective (i) directors, officers or affiliates or
      (ii) advisors, investment bankers, financial advisors, attorneys, accountants,
      consultants, agents or employees, but only in the case of clause (ii) if and
      to
      the extent authorized to act on the behalf of the foregoing for the following
      purposes (collectively, “Representatives”)
      shall
      directly or indirectly, (A) initiate, solicit, invite or facilitate any inquiry,
      proposal or offer concerning the merger or sale of any of
      the
      assets of or equity interests in (whether by way of a single or series of direct
      purchases, mergers, or consolidations or otherwise) the Company or any of its
      subsidiaries, other than the sale of assets in the ordinary course of business
      consistent with past practice (any such inquires, or alternative offer or
      proposal, a “Competing
      Proposal”)
      or (B)
      engage or participate in any negotiations or discussions concerning (it being
      understood that a discussion consisting of a rejection of negotiations or
      discussions or a referral to someone else who provides such a rejection shall
      not be a violation of this Section
      5(a)),
      or
      provide access to its properties, books and records or any nonpublic information
      or data to, any person in connection with, any Competing Proposal, or execute
      or
      enter into any agreement, understanding or letter of intent with respect to, or
      accept, any Competing Proposal, in each case other than the transactions
      expressly contemplated or permitted herein;

    

    (b)  the
      Parents, Seller, the Company, the Company’s subsidiaries and their respective
      Representatives shall cease and terminate any and all discussions, negotiations
      and any provision of access to their properties, books and records, nonpublic
      information or data, with any person regarding any Competing Proposal (and
      shall
      promptly provide written notice to Buyer of receipt of any bona fide written
      Competing Proposal of which any of Carl Icahn, Keith Meister, Vincent Intrieri,
      Bob Alexander, Randy Cooley or Phil Devlin is aware, and the material terms
      and
      conditions thereof); 

     

    (c)  the
      Parents, Seller, the Company and their subsidiaries and Representatives shall
      instruct NEGI and NEGI’s employees, in their capacity as managers of the Company
      or its subsidiaries (and only to the extent that NEGI and such NEGI employees
      possess or have access to confidential or non-public information of, or
      participate in the management of, the Company or its subsidiaries (“NEGI’s
      Relevant Employees”),
      and
      the Parents, Seller, the Company and their subsidiaries shall use their
      commercially reasonable efforts, consistent with applicable laws, to cause
      NEGI
      and NEGI’s Relevant Employees: (i) not to provide access to any such
      confidential or nonpublic information or data to, any person in connection
      with
      any Competing Proposal; and (ii) to cease and terminate any and all provision
      of
      access to such confidential or nonpublic information or data, with any person
      regarding any Competing Proposal; and

    

    (d)  the
      Parents and Seller shall, and shall cause the Company, the Company’s
      subsidiaries and their respective Representatives (i) to take affirmative action
      to prevent any registration statements of NEG, Inc., the Company or any of
      the
      Company’s subsidiaries filed with the SEC prior to the date hereof that are not
      yet effective, from being amended or becoming effective (provided,
      however,
      that
      Seller shall not be required to withdraw any such registration statements and
      shall not be prohibited from making any amendments thereto required by the
      SEC
      in order to avoid the forced involuntary withdrawal of such registration
      statements by the SEC); (ii) not to file any such registration statements or
      similar forms or register any securities with respect to NEG, Inc. the Company
      or any of the Company’s subsidiaries with the SEC; provided,
      that
      the foregoing shall not apply to NEGI; and (iii) to cease all actions in
      furtherance of marketing or completing the initial public offering of NEG,
      Inc.,
      the Company or any of the Company’ subsidiaries or making effective any
      registration statements, provided,
      that
      nothing in this clause (iii) will limit Seller’s right to continue internal
      preparation and discussions with its Representatives with respect to such
      registration statements so long as such actions are kept confidential.

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    6.  Due
      Diligence.
      In
      order for Buyer and Seller to conduct their respective business, accounting
      and
      legal due diligence review of each other (the “Due
      Diligence”),
      Seller and Buyer agree to provide each other with reasonable cooperation and
      access, for a period from the date hereof until the termination of this Letter,
      to all of their and their subsidiaries’ respective, and in the case of Seller,
      to the Company’s and the Company’s subsidiaries’ respective, properties,
      offices, books and records (including bankruptcy records), abstracts of title,
      title opinions, title files, ownership maps, lease files, assignments, division
      orders, production, drilling and imbalance reports, operating records and
      agreements, well files, financial and accounting records (including SEC
      correspondence), geological, geophysical and engineering records, contracts,
      commitments and such financial information (including work papers), operating
      data, and all other information concerning their businesses, properties,
      personnel, representatives, landlords/sublandlords, tenants, licensees and
      franchisees as Buyer or Seller, as the case may be, may request. Buyer and
      Seller and their respective subsidiaries will (and Seller will cause the Company
      and its subsidiaries to) provide each other with reasonable access and
      cooperation as necessary to facilitate their respective ongoing Due Diligence,
      including access to, among other persons, management, Representatives and
      customers; provided,
      however,
      that
      only management of Buyer or Seller (or the Company and its subsidiaries) may
      be
      contacted and any contact of such other persons will be coordinated through
      a
      member of management of Buyer or Seller or the Company, as applicable,
provided,
      that
      the Representatives, personnel and customers of Buyer or Seller (or the Company
      and its subsidiaries), as the case may be, may be contacted by the other party
      in the ordinary course of business consistent with past practice.
      Notwithstanding the foregoing, Buyer and Seller will cooperate to limit their
      respective reviews so as to avoid (i) issues under applicable antitrust rules,
      regulations and interpretations and (ii) any conflicts with the provisions
      of
      any confidentiality agreements, license agreements or other restrictive
      agreements with third parties; provided,
      that
      the disclosing party will take such specific actions as are reasonably requested
      by the recipient and, at the recipient’s expense if such additional fees to such
      third parties are required, seek to enter into arrangements or obtain waivers
      or
      consents that would permit the provision of information without any such
      limitations.

    

    7.  Cooperation
      with Financing.
      The
      Parents and Seller shall, and shall cause the Company and its subsidiaries
      and
      its and their respective Representatives to use their commercially reasonable
      efforts to provide (subject to customary confidentiality agreements) and will
      request that the Company’s auditors and reserve engineers provide (at Buyer’s
      ultimate expense), reasonably necessary cooperation on a timely basis in
      connection with the arrangement of the Buyer’s equity and debt financing,
      including furnishing Buyer and its financing sources with timely financial
      information regarding the Company and the Company’s subsidiaries as shall be
      requested by Buyer (and including, with respect to any audited financial
      statements and engineering reserve reports, any consents to use the reports
      of
      the Company’s auditors and engineers thereon). In addition, the Parents and
      Seller shall request, and shall cause the Company and its subsidiaries to
      request the management of the Company to use their commercially reasonable
      efforts (i) to meet with investors in presentations, meetings, road shows and
      due diligence sessions, (ii) to provide timely assistance by providing
      information in connection with Buyer’s preparation of pro forma business
      projections, offering memorandum and similar materials (each of which shall
      be
      the sole responsibility of Buyer to prepare and approve),(4) and
      (iii)
      otherwise cooperate with the marketing efforts of Buyer for any of Buyer’s
      equity and debt financing. It is a condition of the obligations set forth above
      and in Section
      6
      (with
      respect to both Buyer and Seller) that in requesting information and assistance
      hereunder and under Section
      6
      (with
      respect to both Buyer and Seller), Buyer shall act in a commercially reasonable
      manner, including, without limitation, with respect to the amount of data and
      timing of responses requested by Buyer, and in determining whether the
      obligations set forth above and in Section
      6
      (with
      respect to both Buyer and Seller) have been satisfied, and in determining
      whether such parties acted reasonably or in a commercially reasonable manner,
      such parties shall not be required to “drop everything” or ignore their existing
      responsibilities to conduct their business and comply with their SEC or other
      reporting obligations. In addition, neither Parents, the Seller, the Company,
      nor their affiliates will have any liability to Buyer, its financing sources
      or
      otherwise should Buyer fail to secure adequate financing to close the
      transactions contemplated hereby.

     

    
      	(4)	
              It
                is intended that any such forward-looking financial information,
                if
                included in materials provided to potential financing parties, will
                either
                be subject to a confidentiality agreement or be a part of consolidated
                information of Buyer (but without identifying the components thereof
                attributable to the Company or identifying the Company as the source
                thereof), and in any case, will not be included in the offering memorandum
                prepared in connection with the financing.

            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    Buyer
      shall indemnify the Parents, Seller, Seller’s subsidiaries and the directors and
      officers of the foregoing, for any claims, liabilities and related expenses
      relating to Buyer’s equity and debt offerings pursuant to the Transaction (other
      than any such claims, liabilities and related expenses arising solely from
      information provided by such parties in writing and expressly approved by such
      parties in writing for use in a prospectus or offering memorandum). Neither
      the
      Parents nor Seller will be obligated to execute agreements with underwriters
      or
      purchasers in the Buyer’s equity and debt offerings pursuant to the Transaction
      or be responsible for any representations or indemnification thereto. The
      Definitive Documentation shall contain provisions substantially similar to
      the
      two foregoing sentences.

    

    8.  Transaction
      Expenses.
      Each
      party
      shall bear its own fees, costs and expenses related to the negotiation,
      investigations, due diligence and consummation of the Transaction. The
      Definitive Documentation will provide that the Parents and Seller shall be
      liable for all of their own and the Company’s, and any of its subsidiaries’ or
      affiliates’ transaction expenses, including fees and expenses of financial
      advisors, attorneys and other advisors;
      provided,
      that
      any transfer taxes resulting from Seller’s transfer of the Company’s membership
      interests to Buyer shall be split equally by Buyer and Seller.

     

    9.  Ordinary
      Course.
      From
      the date hereof, except as contemplated by and in furtherance of the
      Restructuring, the Parents and Seller will cause the Company and the Company’s
      subsidiaries to conduct their business in the ordinary course in substantially
      the same manner in which it previously has been conducted, and not to (it being
      understood and agreed that the provisions hereof shall not be applicable to
      NEGI, but will be applicable to NEG Holding and its subsidiaries):

    

    (a)  (i)
      acquire (by merger, consolidation, acquisition of stock or assets or otherwise)
      or organize, any corporation, limited liability company, partnership, joint
      venture, trust or other entity or person or any business organization or
      division thereof or (ii) acquire any rights, assets or properties other than
      in
      the ordinary course of business consistent with past practice;

    

    (b)  amend
      or
      otherwise change the constituent or organizational documents or alter through
      merger, liquidation, reorganization, restructuring or in any other fashion
      the
      corporate structure or ownership of the Company or its
      subsidiaries;

    

    (c)  sell,
      divest, transfer or otherwise dispose of any assets or equity interests, except
      regular sales of oil and gas sold from out of the ground or storage tanks or
      other inventories and supplies in the ordinary course of business consistent
      with past practice; provided,
      that
      the Company may also sell, divest, transfer or otherwise dispose of other assets
      in the ordinary course of business consistent with past practice not in excess
      in the aggregate of $100,000, or such other assets in the ordinary course of
      business consistent with past practice with the consent of Buyer not to be
      unreasonably withheld; provided,
      further,
      that
      the proceeds to be received from any such sale, divesture, transfer or
      disposition shall be retained for the benefit of Buyer at Closing and shall
      not
      be counted towards the Cash Amount or Net Working Capital);

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (d)  lease,
      license, sublicense, mortgage, pledge, encumber or create, incur, assume or
      cause to be subjected to any lien (other than liens securing the Credit Facility
      and immaterial liens) on, any of the assets of the Company or its subsidiaries,
      except in the ordinary course of business in accordance with past
      practice;

     

    (e)  other
      than to borrow against its existing credit lines for ordinary course working
      capital purposes (i) incur or modify any indebtedness for borrowed money or
      issue any debt securities or any warrants or rights to acquire any debt security
      (other than, with respect to the Company, in connection with the pending
      amendment to its bank facility), (ii) assume, guarantee or endorse or otherwise
      become responsible for, the obligations of any person, (iii) enter into any
      off-balance sheet financing arrangement or any accounts receivable or payable
      financing arrangement, or (iv) make any loans, advances or enter into any other
      financing commitments, including without limitation, any financing commitments
      or obligations to Seller or any of its affiliates (other than the Company or
      its
      subsidiaries);

    

    (f)  pay,
      make
      or declare any dividends or distributions (other than cash tax distributions
      and
      cash distributions pursuant to the Operating Agreement of NEG Holding dated
      May
      1, 2001)(5) in
      respect of any of its equity interests; or

    

    (g)  issue,
      grant, sell, transfer, deliver, pledge, promise, dispose of or encumber, or
      authorize the issuance, grant, sale, transfer, deliverance, pledge, promise,
      disposition or encumbrance of, or alter or modify the terms of rights or
      obligations under, any equity interests, or any options, warrants, convertible
      or exchangeable securities or other rights of any kind to acquire any equity
      interest or any other ownership interest of the Company or any of its
      subsidiaries.

    

    10.  Entire
      Agreement; Confidentiality; No Third Party Beneficiaries.
      This
      Letter (including the Term Sheet) and the confidentiality agreement dated as
      of
      July 18, 2006 (the “Confidentiality
      Agreement”),
      among, Buyer, AREP and NEGI, constitutes the entire agreement between the
      parties and any of their respective affiliates and supersedes all prior
      communications, agreements and understandings (written or oral) with respect
      to
      the subject matter hereof. The parties acknowledge and agree that the terms
      of
      the Confidentiality Agreement shall continue in full force and effect and apply
      in all respects to this Letter and any information provided in accordance with
      the terms hereof. No
      oral
      agreements between the parties will be deemed to exist with respect to the
      Transaction. This Letter is solely for the benefit of the parties hereto and
      their respective successors and permitted assigns, and shall not be deemed
      to
      confer upon or give to any other third party any remedy, claim, liability,
      reimbursement, cause of action or other right.

    

    11.  Termination.
      This
      Letter shall terminate: 

    

    (a)  automatically,
      upon the first to occur of the following: (x) the close of business on November
      16, 2006 (the “End
      Date”),
      provided,
      that,
      if Buyer shall have satisfied in all material respects its obligations under
      Section
      3
      above
      through the close of business on the End Date but the waiting period (and any
      extension thereof) applicable to the Transaction under the HSR Act shall not
      have been terminated or expired, Buyer and Seller agree that the End Date shall
      be extended to the close of business on January 16, 2007 (the “Extended
      End Date”)
      to
      allow more time for such waiting period to have terminated or expired; and
      (y)
      the execution and delivery of Definitive Documentation, or;

     

    
      	(5)	
              Cash
                distributions pursuant to the Operating Agreement of NEG Holding
                are
                solely to allow NEGI to pay interest on its 10.75% senior notes due
                2006
                (which are held by the Company), and are generally made at the end
                of each
                October and April, in the amount of approximately $8 million per
                distribution.

            

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (b)  by
      mutual
      written consent of each of the parties hereto; 

    

    (c)  by
      Buyer
      upon written notice to Seller, if:(6)

    

    (i)  Seller
      breaches in any material respect: (x) its obligations under Section
      5
      during
      the Exclusivity Period; or (y) its obligations provided in Sections
      3, 6, 7 or 9
      (provided that if Seller shall cure such breach prior to the end of 3 full
      business days following the date of Seller’s receipt of written notice (which
      notice must be given on a business day), this Letter shall not be terminated
      and
      which cure period if invoked, shall extend the End Date referenced in
Section
      11(a)
      by such
      number of days); 

     

    (ii)  the
      Company’s most recent Form S-1, NEG, Inc.’s most recent Form S-1 and Form S-4,
      or the most recent public filing by AREP to the extent regarding segment
      information of the Company, in each case made prior to the date hereof, taken
      as
      a whole, excluding the financial statements contained therein (which are
      addressed in clause (iii) below) (the “SEC
      Reports”)
      (excluding the effect of any general disclaimers, risk factors or
      forward-looking statements, but after taking into account any disclosure in
      such
      provisions that are matters of fact), are materially untrue or incomplete or
      include a materially untrue statement of material fact or omit to state a
      material fact required to be stated therein or necessary in order to make the
      statements therein not materially misleading, in each case as of the date hereof
      (provided that the failure to update financial and accounting information to
      June 30, 2006 or to respond to SEC comments shall not in and of itself be
      conclusive of such SEC Reports being materially untrue or incomplete or be
      deemed to be a material omission); 

     

    (iii)  (A)
      the
      financial statements contained in the SEC Reports (provided that the failure
      to
      update financial and accounting information to June 30, 2006 or to respond
      to
      SEC comments shall not in and of itself be conclusive of such financial
      statements being materially untrue or incomplete or be deemed to be a material
      omission) or the NEG Oil & Gas LLC June 30, 2006 financial statements (the
“June
      30 Financials”)
      that
      have been provided to Buyer, or (B) the December 31, 2005 reserve report that
      has been provided to Buyer, are materially untrue or incomplete or include
      a
      materially untrue statement of material fact or omit to state a material fact
      required to be stated therein or necessary in order to make the statements
      therein not materially misleading, in each case as of the date of the financial
      statements contained in such SEC Reports, such June 30 Financials or December
      31, 2005 reserve report; or there shall have been a Material Adverse Change
      with
      respect to the Company (as defined in the Term Sheet) between June 30, 2006
      and
      the date hereof;

     

    (iv)  as
      of any
      date no earlier than 5 days prior to the End Date (or, if applicable, 5 days
      prior to the Extended End Date), Buyer is ready and willing to effect the
      Closing and able to obtain the financing**
      but, (A)
      Seller does not have board approval to enter into Definitive Documentation,
      (B)
      Seller, the Company or any material subsidiary of the Company is not duly
      formed, or (C) Seller does not possess unencumbered title to all of the equity
      interests of the Company (other than liens securing the Credit Facility and
      immaterial liens); 

     

    (v)  
      as of
      any date no earlier than 5 days prior to the End Date (or, if applicable, 5
      days
      prior to the Extended End Date), Buyer is ready and willing to effect the
      Closing and able to obtain the financing**
      but,
      Seller and the Company are unable to complete the Restructuring(7) prior
      to
      or on such date (provided that, if such inability is the result of an injunction
      issued by a court of competent jurisdiction, Buyer will not be entitled to
      terminate the Letter under this clause (v) unless Buyer shall have agreed to
      extend and has extended the End Date to the Extended End Date to allow Seller
      to
      remove such injunction, in which event the End Date shall be extended to the
      Extended End Date); and

     

    
      	(6)	
              To
                the extent that any items described in Sections
                11(c)(ii)
                or
                11(c)(iii)
                are based upon or include matters relating to Longfellow Ranch (in
                which
                Buyer owns a controlling interest) of which matters Buyer has knowledge
                as
                of the date hereof, such items shall not result in any breach of
                such
                Sections or otherwise give rise to any right of Buyer to terminate
                this
                Letter.

            

    

    
       

      
        	(7)	
                As
                  used in clause (v) of Section
                  11,
                  the phrase “Seller and the Company are unable to complete the
                  Restructuring” shall not include any obligation or ability on the part of
                  such parties to obtain any consents or amendments, or pay any amounts
                  outstanding, under the Credit Facility, as contemplated in footnote
                  3 of
                  this Letter, it being the sole obligation of Buyer to obtain or
                  pay the
                  same.

              

      

       

    

    
      	**	
              As
                used in clauses (iv) and (v) of Section 11, the phrase “able to
                obtain the financing”, means that Buyer shall be in a position to receive,
                within 48 hours, the proceeds of the financing necessary to effect
                the
                Closing (including, if necessary as a result of required consents
                contemplated in footnote 3 not being obtained, the proceeds necessary
                to
                pay off the Credit Facility) by delivering a borrowing or drawdown
                or
                similar notice, or take similar action that may be applicable to
                a 144A
                equity or debt drawdown (and that Buyer has entered into binding
                definitive financing documentation for such financing) but shall
                not mean
                that Buyer shall have obtained or irrevocably bound itself to obtain
                the
                proceeds of such financing.

            

    

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (vi)  the
      Company and its subsidiaries do not hold industry standard title to a material
      portion of their respective properties (other than liens securing the Credit
      Facility and immaterial liens) such that the SEC Reports or the June 30
      Financials are materially untrue or incomplete or include a materially untrue
      statement of material fact or omit to state a material fact required to be
      stated therein or necessary in order to make the statements therein not
      materially misleading.

     

    The
      parties agree that, in the event of termination of this Letter by Buyer as
      set
      forth in Section
      11(c)
      above,
      then Buyer shall be entitled to the return of the $10 million paid
      to
      Seller as provided in Section
      1.
      Buyer
      agrees that, except with respect to breaches of Section
      5
      (which
      shall be subject to the following paragraph), (i) it shall
      not seek
      to recover any losses or damages under this Letter or for any breach of the
      terms of this Letter beyond the return of such $10 million, (ii) the return
      of
      such $10 million payment is Buyer’s sole and exclusive remedy under this Letter
      or for any breach of the terms of this Letter and (iii) Buyer shall in no event
      seek or be entitled to an injunction or specific performance of any kind.
      The
      Parents, Seller, the Company and their affiliates agree that the retention
      of
      the $10 million paid to Seller pursuant to Section
      1
      shall be
      their sole and exclusive remedy under this Letter or
      for
      any breach of the terms of this
      Letter
      and that they shall
      not seek
      to recover any losses or damages, and shall in no event, seek or be entitled
      to
      an injunction or specific performance of any kind. The Parents and Seller
      agree to return to Buyer the $10 million amount provided in Section
      1,
      in
      immediately available funds to an account designated by Buyer, immediately
      if
      this Letter terminates pursuant to Section
      11(c).
      If
      Definitive Documentation has been executed and delivered, such Definitive
      Documentation shall contain substantially similar termination provisions as
      in
      this Section
      11
      in
      addition to customary termination rights for Seller and Buyer. Notwithstanding
      anything in this agreement to the contrary, if Buyer provides Seller with a
      good
      faith written notice of termination pursuant to Section
      11(c)
      prior to
      the automatic termination of this Letter pursuant to Section
      11(a)(x),
      then
      Buyer’s right to make a claim for the return of the $10 million paid to Seller
      shall survive until final resolution of such claim (notwithstanding an
      intervening automatic termination pursuant to Section
      11(a)(x)). Buyer
      agrees that neither (a) the declaration of a “Default” or an “Event of Default”
by the agent or the lenders under the Credit Facility as a result of the
      consummation of the Transaction or the Restructuring or the unwinding of hedges
      or the distribution of the Stock and the Note pursuant to the Restructuring
      or
      the distribution of cash pursuant to adjustments set forth in Section
      4
      or any
      similar provisions of the Definitive Documentation nor (b) the failure of the
      lenders under the Credit Facility to consent to any assignment, waiver,
      amendment, modification, forbearance or change under the Credit Facility
      necessary for the consummation of the Transaction, shall in any event give
      rise
      to a right of Buyer to receive a refund or return of the $10 million paid to
      Seller. Notwithstanding the foregoing, none of the foregoing limitations shall
      apply with respect to any breaches of the Confidentiality Agreement, which
      shall
      continue on its own terms as a fully enforceable agreement separate and apart
      from this Letter. 

    

    The
      parties agree that, in the event of termination of this Letter by Buyer as
      set
      forth in Section
      11(c)(i)(x)
      above
      (i.e., breach
      of
Section
      5),
      then:
      (i) Buyer shall be entitled to the return of the $10 million paid
      to
      Seller as provided in Section
      1;
      (ii) if
      the Parents, Seller, the Company or any of their affiliates shall, within three
      (3) months following such termination of this Letter, enter into a written
      agreement with a third party (as to which any of the parties bound by
Section
      5
      herein
      violated their obligations under Section
      5)
      with
      respect to a Competing Proposal, Buyer shall be entitled to an additional
      payment of $10 million from the Parents; (iii) Buyer shall
      not seek
      to recover any losses or damages beyond such amounts; (iv) the payment of such
      amounts is Buyer’s sole and exclusive remedy under this Letter or for any breach
      of the terms of this Letter; and (v) Buyer shall in no event seek or be entitled
      to an injunction or specific performance of any kind. The Parents and
Seller
      agree to make such payments to Buyer, in immediately available funds to an
      account designated by Buyer, immediately if this Letter terminates pursuant
      to
Section
      11(c)(i)(x).

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    12.  Assignment.
      Neither
      this Letter nor any rights or obligations hereunder may be assigned by any
      party
      hereto without the prior written consent of the other party.

    

    13.  Counterparts.
      This
      Letter may be signed in one or more counterparts, each of which may be an
      original or facsimile and all of which taken together shall constitute one
      and
      the same instrument.

    

    14.  Notices.
      All
      notices and other communications hereunder shall be in writing and delivered
      (i)
      personally, (ii) by overnight courier or (iii) facsimile (with a PDF or other
      copy by electronic mail), and shall be deemed duly given on the date of
      delivery. All notices hereunder shall be delivered as set forth below, or
      pursuant to such other instructions as may be designated in writing by the
      party
      to receive such notice.

    

    if
      to
      Buyer, to

    

    Riata
      Energy, Inc.

     

    1601
      Northwest Expressway, Suite 1600
Oklahoma
      City, OK 73118
Attention:
      General Counsel
Facsimile
      No.: (405) 753- 5975
Email:
      mmccann@riataenergy.net

     

    with
      a
      copy to

    

    Simpson
      Thacher & Bartlett LLP

    425
      Lexington Avenue

    New
      York,
      New York 10017

    Attention:
      Robert E. Spatt, Esq. 

    Edward
      J.
      Chung, Esq.

    Facsimile
      No.: (212) 455-2502

    Email:
      rspatt@stblaw.com

    Email:
      echung@stblaw.com

    

    if
      to
      AREP, AREH or Seller, to

    

    White
      Plains
      Plaza

    445
      Hamilton
      Avenue -
      Suite 1210

    White
      Plains,
      NY
      10601

    Attention:
      Felicia Buebel, Esq.

    Facsimile
      No.: (914) 614-7001

    Email:
      fpb@areh.net

    

    with
      a
      copy to:

    

    DLA
      Piper
      Rudnick Gray Cary

    1251
      Avenue of the Americas

    New
      York,
      New York 10020

    Attention:
      Steven L. Wasserman, Esq.

    Facsimile
      No.: (212) 835-6001

    Email:
      steven.wasserman@dlapiper.com

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    15.  Governing
      Law; Venue.
      This
      Letter shall be governed by and construed in accordance with the laws of the
      State of New York. Each party to this Letter agrees that it will bring any
      action or proceeding in respect of any claim arising out of or related to this
      Letter or the Transaction, whether in tort or contract or at law or in equity,
      exclusively in the federal or state courts located in New York, New York (the
      “Chosen
      Courts”).
      In
      addition, each party hereby (a) irrevocably submits to the exclusive
      jurisdiction of the Chosen Courts, (b) waives, to the fullest extent permitted
      by applicable law, any objection to laying venue in the Chosen Court and agrees
      that it will not attempt to deny or defeat such personal jurisdiction by motion
      or other request for leave from any such court, and (c) waives any objection
      or
      defense that the Chosen Court is an inconvenient forum or does not have personal
      jurisdiction over any party to this Letter. Each party hereto further agrees,
      to
      the fullest extent permitted by applicable law, that any final judgment in
      any
      such action or proceeding shall be conclusive and may be enforced in any other
      jurisdiction within or outside the United States by suit on the judgment.
      Further, each party hereto hereby waives all right to trial by jury in any
      claim, action, proceeding or counterclaim by either party against the other
      on
      any matters arising out of or in any way connected with this
      Letter.

    

    [Signature
      page follows]

    

      
         

        
          
             

          

          
            10

            
              

            

          

          
             

          

        

      

    

    If
      the
      foregoing terms and conditions correctly sets forth your understanding with
      respect to the Option and the Transaction, please indicate by executing a copy
      of this Letter as provided below and returning the same to the
      undersigned.

    

    

    

    RIATA
      ENERGY, INC.

    

    

    

    By:
      ____________/s/
      Tom L. Ward__

    Name:
      Tom
      L. Ward

    Title:
      Chief Executive Officer

    

    

    ACCEPTED
      AND AGREED:

    

    

    AMERICAN
      REAL ESTATE PARTNERS, L.P.

    

    By:
      American Property Investors, Inc.,

    its
      general partner

    

    

    By:
      ______/s/
      Keith A. Meister__________

    Name:
      Keith A. Meister

      
      Title:
      Principal Executive Officer

    

    

    AMERICAN
      REAL ESTATE HOLDINGS 

    LIMITED
      PARTNERSHIP

    

    By:
      American Property Investors, Inc.,

    its
      general partner

    

    

    By:
      ________/s/
      Keith A. Meister _____

    Name:
      Keith A. Meister

      
      Title:
      Principal Executive Officer

    

    

    

      [Exclusivity
        Agreement and Letter of Intent Signature Page]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ANNEX
      A

    

      THIS
        TERM SHEET IS A PRELIMINARY SUMMARY OF NON-BINDING TERMS CONCERNING A POSSIBLE
        TRANSACTION BETWEEN THE PARTIES. THIS TERM SHEET IS FOR DISCUSSION PURPOSES
        ONLY
        IN ORDER TO FACILITATE DISCUSSIONS BETWEEN THE PARTIES REGARDING A POTENTIAL
        TRANSACTION AND DOES NOT CONSTITUTE AND WILL NOT GIVE RISE TO ANY LEGALLY
        BINDING AGREEMENT, OBLIGATION OR DUTY OF ANY KIND OR CHARACTER (INCLUDING,
        WITHOUT LIMITATION, ANY AGREEMENT, OBLIGATION OR DUTY TO ACT REASONABLY,
        FAIRLY
        OR IN GOOD FAITH) ON THE PART OF EITHER PARTY OR THEIR RESPECTIVE AFFILIATES,
        OFFICERS, DIRECTORS, STOCKHOLDERS, EMPLOYEES OR
        AGENTS.

    

    

    Term
      Sheet

    

    
      	
              Defined
                Terms:

            	
              Capitalized
                terms used but not defined in this Term Sheet have the meanings given
                in
                the Letter to which this Term Sheet is attached.

            
	
              Buyer:

            	
              Riata
                Energy, Inc. or a subsidiary thereof.

            
	
              Seller:

            	
              AREP
                O & G Holdings LLC, the sole owner of membership interests in NEG Oil
                & Gas, LLC, after giving effect to the Restructuring (as defined
                below). For
                purposes of this Term Sheet and the avoidance of doubt, the Company
                shall
                not be deemed to include the corporate entity, National Energy Group,
                Inc.
                but will be deemed to include all of the issued and outstanding membership
                interests of NEG Holding LLC held by NEGI to be acquired by the Company
                in
                the Restructuring, and NEGI shall not be deemed to be a direct or
                indirect
                subsidiary of the Company, the Seller or the
                Parents.(8)

            
	
              The
                Parents: 

            	
              American
                Real Estate Partners L.P.

              American
                Real Estate Holdings Limited Partnership

              AREP
                Oil & Gas Holdings, LLC

            
	
              Transaction;
                Restructuring:

            	
              If
                Buyer elects to exercise the Option, on the Closing Date, Buyer will
                purchase from Seller, and Seller will sell to Buyer, all of the issued
                and
                outstanding membership interests of the Company. 

               

              Prior
                to the Closing, Seller will, or will cause the Company to (or will
                cause
                NEG Holding to), at Seller’s expense, exercise its redemption/call right
                provided in Section 5.4 of the Operating Agreement For NEG Holding
                LLC,
                dated May 1, 2001 (or achieve the same result through another mechanism),
                and distribute (i) the Company’s 50.1% common stock interest of NEGI (the
                “Stock”)
                to Seller or its other affiliates and (ii) the $148.6 million NEGI
                10.75%
                senior notes due 2006 (extended maturity to 10/31/2007) held by the
                Company (the “Note”)
                in a transaction to close upon and simultaneously with the Closing,
                such
                that the Company will own 100% of NEG Holding (the “Restructuring”);
                Parents will indemnify Buyer for all liabilities related to NEGI,
                any
                claims of or liabilities to the shareholders of NEGI, or any obligations
                or liabilities related to the exercise of the redemption/call
                right; Buyer
                will either obtain any required consents or amendments, or pay all
                amounts
                outstanding, under the Credit Facility at Closing, as contemplated
                in
                footnote 3 of the Letter.

               

              As
                between Buyer and Seller, Parents and Seller shall retain all liabilities
                and obligations related to the Restructuring and the cash-out of
                the
                public shareholders of NEGI, if any, and shall bear all liabilities,
                costs
                and expenses associated with or resulting from the Restructuring,
                or any
                claims made by the public shareholders of NEGI regarding NEGI, the
                Restructuring, or any subsequent liquidation or similar action with
                respect to NEGI (the “Restructuring
                Liabilities”).

            

    

     

    
      	(8)	
              As
                of July 31, 2006, NEGI’s assets, other than its membership interest in NEG
                Holding, consisted of: (i) cash and cash equivalents in the amount
                of
                approximately $3.06 million; (ii) accounts receivable from the Company
                and
                its subsidiaries under operating and management contracts (all of
                which
                will be terminated as of the closing of the Transaction) in the amount
                of
                approximately $1.4 million; (iii) a deferred tax asset in the amount
                of
                approximately $6.2 million; and (iv) other assets unrelated to oil
                and gas
                operations (including, furniture, computers, leases for office space
                and
                office equipment and similar items, but not including any information
                technology, software and data relevant to the oil and gas operations
                of
                the Company or its subsidiaries, including NEG Holding, whether or
                not on
                such computers, which will be transferred to Buyer as part of the
                Transaction). All references herein to the SEC Reports (as defined
                in
                Section
                11(c)(ii)
                of the Letter) and financial statements shall be deemed to exclude
                such
                assets of NEGI (other than NEGI’s membership interests in NEG Holding and
                such information technology, software and
                data). 

            

    

     

     

    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    

     

    
      	
              Purchase
                Price:

            	
              Aggregate
                purchase price of $1.519 billion (described in further detail below),
                subject to the mandatory cash adjustment and working capital adjustment
                described in Section
                4
                of
                the Letter.

            
	
              Cash:

            	
              $1.025
                billion in immediately available funds currently contemplated to
                come
                from:

              ·  The
                $10 million that has been provided in connection with the execution
                of the
                Letter shall be applied towards the aggregate purchase price and
                shall
                reduce the below amounts accordingly

              ·  $400
                million will be provided from new 3rd
                party common stock issuance

              ·  $625
                million will be provided by a bridge loan to be replaced by a high
                yield
                debt offering (but some of which could be common stock
                instead)

            
	
              Buyer
                Common Stock:

            	
              12,842,000
                shares of Buyer common stock.

               

              Tom
                Ward and Malone Mitchell (in each case, together with his wife and
                children, entities, trusts and other affiliates, whether or not controlled
                (the “Affiliated
                Parties”)
                holding common stock, preferred stock, options, warrants, or any
                other
                equity or debt securities or instruments convertible into common
                stock, of
                Buyer (“Buyer
                Equity Securities”))
                and Buyer will undertake, that if Tom Ward or Malone Mitchell or
                any
                Affiliated Parties acquire any Buyer Equity Securities from Buyer
                from
                September 1, 2006 until the expiration of the post-Qualified Public
                Offering lock-up period applicable to Seller and its affiliates at
                less
                than fair market value (it being agreed that Tom Ward, Malone Mitchell
                and
                the Affiliated Parties shall only acquire Buyer Equity Securities
                for cash
                or tangible assets), other than as part of their participation in
                management or employee compensation arrangements not to exceed, with
                respect to all employees of Buyer, in the aggregate 2% of outstanding
                Buyer common stock per calendar year, then Seller shall be provided
                an
                opportunity, to close at the same time as any such transaction involving
                Tom Ward, Malone Mitchell or the Affiliated Parties, to acquire from
                Buyer
                a proportionate number of additional Buyer Equity Securities at the
                same
                price and on the same terms as Tom Ward or Malone Mitchell or such
                Affiliated Parties, as the case may be.

               

              None
                of the Parents, Seller or any of their respective affiliates shall
                be
                restricted from purchasing additional Buyer Equity Securities and
                the
                Definitive Documentation will contain no “stand-still” provisions on such
                purchases.

            
	
              Cash
                and Debt at Closing:

            	
              The
                Company and its subsidiaries will have $50 million of cash (or, if
                the
                cash amount is more or less than $50 million, adjustments to the
                cash
                consideration will be made pursuant to Section
                4
                of
                the Letter) and no more than $300 million of third party debt obligations
                (consisting of borrowings under the Credit Facility) at
                Closing.

               

            
	
              Transaction
                Expenses:

            	
              See
                Section
                8
                of
                the Letter.

            
	
              Tax
                Treatment:

            	
              The
                purchase of all of the Company's membership interests is substantially
                an
                asset purchase from the Buyer's perspective (and the Company has
                not and
                will not elect to be treated as a corporation). 

               

              To
                the extent possible, Seller will make, and will cause the Company
                and its
                subsidiaries to make, all Section 754 elections as Buyer may
                request.

               

              The
                distributions of the Stock and the Note shall not be taxable to the
                Company and its subsidiaries.

               

              Any
                upstream notes, obligations or liabilities of the Company or its
                subsidiaries for the benefit of the Parents, Seller or their respective
                affiliates will be eliminated without the incurrence of tax obligations
                or
                liabilities to the Company or its subsidiaries.

               

              To
                the extent any such matters that are intended to be tax neutral to
                the
                Company and its subsidiaries are not, the Parents shall indemnify
                Buyer
                against all such taxes.

            

    

     

     

    
      
         

      

      
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              Employee
                Matters: 

            	
              Buyer
                shall have the option, but not the obligation, to offer employment
                to any
                or all of the former NEGI employees. Buyer is not responsible for
                any
                obligations to the former NEGI employees, and Seller or NEGI will
                retain
                all liabilities and obligations to such employees (including
                severance).

               

            
	
              Ordinary
                Course Operation:

            	
              Prior
                to Closing, the Company shall be operated in the ordinary course
                of
                business consistent with past practice and will not, among other
                things,
                take any actions enumerated in Section
                9
                of
                the Letter. 

            
	
              IPO
                of Buyer:

            	
              Buyer
                shall use its reasonable best efforts to complete an initial public
                offering within one year after the Closing (the “Target
                Date”),
                which shall be an underwritten, broad based offering of in excess
                of $100
                million in common shares and result in not less than 20 million shares
                (including the 144A equity holders) being listed for trading on a
                national
                securities exchange (a “Qualified
                Public Offering”).

            
	
              Registration
                Rights:

            	
              Seller
                will have customary piggyback registration rights and, following
                a
                Qualified Public Offering, 3 demand registration rights (including
                shelf
                registration, if available) with customary terms, restrictions and
                blackout periods. Shares of Buyer common stock held by Seller and
                its
                affiliates will be subject to a lock up (including as to PORTAL and
                144A
                trading) from the date of issuance until 180 days after a Qualified
                Public
                Offering of Buyer ̧ provided,
                that (i) Tom Ward and Malone Mitchell and the Affiliated Parties
                agree to
                an equivalent lock up for the same period and (ii) Seller shall be
                released (a) if and to the same extent as the lock-up with respect
                to Tom
                Ward or Malone Mitchell or the Affiliated Parties is released and
                (b)
                solely with respect to PORTAL and 144A trading, upon the Target Date.
                For
                the avoidance of doubt, (A) if Seller exercises its demand registration
                right (subject to the terms herein) such registration rights will
                have
                priority to, and will not be cut back as a result of, piggyback
                registration rights held by Tom Ward or Malone Mitchell or the Affiliated
                Parties, (B) if Tom Ward or Malone Mitchell or the Affiliated Parties
                exercise a demand registration right, such registration rights will
                have
                priority to, and will not be cut back as a result of, piggyback
                registration rights held by Seller or its affiliates, and (C) if
                any third
                party exercises a demand registration right or Buyer otherwise files
                a
                registration statement or effects an initial public offering, each
                of Tom
                Ward, Malone Mitchell and the Affiliated Parties, on the one hand,
                and
                Seller and its affiliates, on the other, shall have pari passu piggyback
                registration rights with respect to each other regarding such registration
                or initial public offering.

               

              If
                Buyer has not completed a Qualified Public Offering prior to the
                Target
                Date, Seller will have the right to cause the Company to go public
                by
                exercising its demand registration right, but such right shall be
                subject
                to customary terms, restrictions and blackout periods (provided that
                Seller may not impose any black-out period for more than 60 days
                in any 90
                day period or 90 days in any 360 day period). Tom Ward and Malone
                Mitchell
                and the Affiliated Parties shall not have a parallel pre-Qualified
                Public
                Offering demand registration right (as described in the preceding
                sentence).

               

              Seller
                shall have the ability to transfer rights under its registration
                rights
                agreement (other than the rights described in the immediately preceding
                paragraph) to up to two transferees in connection with substantial
                (amount
                to be determined in Definitive Documentation) sales of its shares
                so long
                as the overall rights under the registration rights agreement (e.g.,
                number of demands, etc.) are not expanded and Seller and such transferees
                exercise such registration rights together as a group acting by majority
                vote of the shares held by them.

               

            

    

     

     

    
      
         

      

      
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              Seller’s
                registration rights will be subject to existing priority and timing
                of
                registration rights of existing 144A holders as provided in the Resale
                Registration Rights Agreement between Buyer and Banc of America Securities
                LLC, dated December 21, 2005 and attached as Exhibit 4.2 to the Buyer
                S-1,
                filed on February 10, 2006 with the SEC, which agreement may not
                be
                amended in any manner detrimental in any material respect to Seller’s
                registration rights described in this Term Sheet. Seller shall have
                pari
                passu rights with any future registration rights granted by Buyer
                (including in connection with the contemplated acquisition financing)
                for
                such periods and on such terms as are agreed by the parties. 

               

              Tag
                Along Rights: Seller shall have tag along rights with respect to
                the
                shares purchased or received hereunder on negotiated and block sales
                of
                substantial blocks of Buyer common stock by Tom Ward and Malone Mitchell
                and the Affiliated Parties, provided,
                that such rights shall expire on the earlier of (i) 2 years after
                a
                Qualified Public Offering or (ii) such time when the remaining shares
                purchased or acquired hereunder, beneficially owned by the Parents,
                Seller
                and their affiliates taken together, represent in the aggregate less
                than
                5% of Buyer (but in no event shall such parties be deemed to beneficially
                own less than 5% of Buyer as a result of the contemplated acquisition
                financing). Prior to the Qualified Public Offering, without Seller’s
                consent, neither Tom Ward nor Malone Mitchell nor the Affiliated
                Parties
                shall sell Buyer Equity Securities unless Seller has previously sold
                all
                of its shares of Buyer common stock acquired pursuant to the Transaction
                or Seller is provided an opportunity to sell all of such shares in
                such
                sale on the same terms and conditions as Tom Ward or Malone Mitchell
                or
                the Affiliated Parties, as the case may be.

               

              Buyer
                will bear the registration expenses (exclusive of underwriting discounts
                and commissions) of all piggyback and demand registrations, including
                the
                reasonable fees and expenses of one counsel for the selling holders
                of its
                securities. The definitive registration rights documentation will
                contain
                such other provisions with respect to registration rights as are
                customary, including cross-indemnification and underwriting
                arrangements.

            
	
              Material
                Adverse Change

            	
              “Material
                Adverse Change”
                shall mean, when used in connection with Buyer or Seller, as the
                case may
                be, any change, event, occurrence, condition, circumstance, development
                or
                effect that, individually or in the aggregate has had, or will have,
                a
                material adverse effect on the business, properties, assets, liabilities,
                condition (financial or otherwise) or results of operations of such
                entity
                and its subsidiaries taken as a whole, or that would reasonably be
                expected to materially delay or adversely affect the ability of such
                entity to consummate the Transaction; provided,
                however, that any change, event, occurrence, condition, circumstance,
                development or effect that is (i) primarily caused by conditions
                affecting
                the United States economy generally or the economy of any nation
                or region
                in which such entity or any of its subsidiaries conducts business
                that is
                material to the business of such entity and its subsidiaries, taken
                as a
                whole, shall not be taken into account in determining whether there
                as
                been or would be "Material Adverse Change" on or with respect to
                such
                entity, (ii) primarily caused by conditions generally affecting the
                oil
                and gas industry shall not be taken into account in determining whether
                there has been or would be a "Material Adverse Change" on or with
                respect
                to such entity, and (iii) primarily caused by the announcement or
                pendency
                of the Letter, the Definitive Documentation or the transactions
                contemplated hereby shall not be taken into account in determining
                whether
                there has been or would be a "Material Adverse Change" on or with
                respect
                to such entity, except in the case of clauses (i) and (ii), to the
                extent
                such change, event, occurrence, condition, circumstance, development
                or
                effect has a disproportionate adverse effect on such party and its
                subsidiaries as compared to any other person engaged in the same
                business.

            

    

     

     

    
      
         

      

      
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              Seller
                Representations and Warranties; Survival:

               

            	
              None
                of the representations and warranties in the definitive purchase
                agreement
                shall survive the Closing except:

              (i)  certain
                fundamental representations regarding authority, due formation, and
                capital structure of the Company and title to equity interests being
                sold
                shall survive indefinitely; 

              (ii)  representations
                and warranties with respect to accuracy in all material respects
                of the
                SEC Reports (excluding the effect of any general disclaimers, risk
                factors
                or forward-looking statements, but after taking into account any
                disclosure in such provisions that are matters of fact) (subject
                to the
                same provisos in the Letter), accuracy in all material respects of
                updated
                financial statements, accuracy in all material respects of the updated
                reserve report, industry standard title to properties, absence of
                Restructuring Liabilities, termination of affiliate transactions
                (including guarantees and obligations to Seller affiliates or to
                third
                parties on behalf of Seller affiliates), and absence of Material
                Adverse
                Change of the business since the date of the updated financials shall
                survive for 15 months after the Closing;

              (iii)  representations
                and warranties with respect to material environmental liabilities
                (which
                shall be knowledge based) shall survive 2 years after the Closing;
                and

              (iv)  representations
                and warranties with respect to tax liabilities shall survive the
                Closing
                for a period ending 15 days past the applicable statute of
                limitations.

               

              The
                representations and warranties in clauses (ii), (iii) and (iv) are
                referred to as the “Seller
                Business Representations”.

            
	
              Buyer
                Representations and Warranties; Survival:

            	
              None
                of the representations and warranties in the definitive purchase
                agreement
                shall survive the Closing except:

              (i)  certain
                fundamental representations regarding authority, due formation, and
                capital structure of Buyer shall survive indefinitely; 

              (ii)  representations
                and warranties with respect to accuracy in all material respects
                of the
                144A offering memorandum prepared in connection with the raising
                of the
                third party common stock issuance for the Transaction described under
                “Purchase Price - Cash” above (currently contemplated to be approximately
                $400 million) (excluding the effect of any general disclaimers, risk
                factors or forward-looking statements, but after taking into account
                any
                disclosure in such provisions that are matters of fact) (subject
                to the
                same provisos in the Letter), accuracy in all material respects of
                financial statements contained in such 144A offering memorandum,
                and
                absence of Material Adverse Change of the business since the date
                of such
                financials contained in the 144A offering memorandum shall survive
                15
                months after the Closing (such representations and warranties in
                this
                clause (ii), the “Buyer
                Business Representations”).

            
	
              Indemnification:

            	
              Definitive
                Documentation will include post-closing indemnification of Buyer
                by the
                Parents for (a) Restructuring Liabilities and any other liabilities
                related to NEGI (including employee severance and other costs), (b)
                all
                pre-Closing tax liabilities, (c) liabilities of Seller or the Parents
                incurred by Buyer based on the Company’s former status as a subsidiary or
                member of the consolidated entity with the Parents, (d) liabilities
                related to affiliate transactions and guarantees (e) breaches of
                any
                covenants, and (f) breaches of representations and warranties stated
                to
                survive the Closing.

               

              $5
                million basket and 25% cap reciprocal with respect to indemnities
                for the
                Seller Business Representations and Buyer Business
                Representations.

            
	
              Affiliate
                Transactions: 

            	
              The
                Parents, Seller and the Company shall terminate all obligations and
                liabilities of the Company or its subsidiaries to, or on behalf of,
                the
                Parents, Seller or their respective affiliates, and there shall not
                exist
                any such remaining liability of the Company or any of its subsidiaries
                after the Closing to the Parents, Seller or their other respective
                affiliates. 

            

    

     

     

    
      
         

      

      
        A-5

        
          

        

      

      
         

      

    

     

    
      	
              Closing
                Conditions:

            	
              The
                Definitive Documentation will contain customary closing conditions
                for oil
                and gas transactions. Without limiting the foregoing, the closing
                conditions shall include: (a) no material adverse change to Buyer
                or
                Seller since the date of their respective updated financials, (b)
                receipt
                of all required approvals from governmental authorities including
                HSR
                approval, (c)
                receipt of any material third party consents or approvals, (d) completion
                of the Restructuring substantially in accordance with this Term Sheet,
                (e)
                no injunction, (f) termination
                of all affiliate transactions, guarantees (including obligations
                to third
                parties on behalf of the Parents, Seller or their respective affiliates)
                (other than between the Company and the Company’s subsidiaries),
                and
                (g) Buyer’s receipt of financing.

               

              To
                the extent that the parties enter into Definitive Documentation that
                contemplates a closing after the End Date (or the Extended End Date,
                as
                the case may be), such entering into will be by choice of the parties
                and
                the Definitive Documentation under such circumstances will likely
                contain
                a drop dead date to be negotiated.

            
	
              No
                Third Party Beneficiaries:

            	
              This
                Term Sheet and the Letter to which it is attached is solely for the
                benefit of Buyer and Seller and their respective successors and permitted
                assigns and shall not be deemed to confer upon or give to any other
                third
                party any remedy, claim, liability, reimbursement, cause of action
                or
                other right.

            
	
              Public
                Announcements:

            	
              Except
                as may be required by law or legal process and disclosures necessary
                in
                connection with financing transactions by Buyer or any of its related
                entities, neither Buyer nor Seller, nor any of their respective
                affiliates, will issue any press release or make any public statement
                regarding the Transaction before consummation of the Transaction.
                

               

              Buyer
                acknowledges that (i) Seller will promptly file this Term Sheet and
                the
                accompanying Letter as an exhibit to an amendment to its Schedule
                13D and
                (ii) AREP will file a Form 8-K with respect to entering into a material
                agreement. Seller acknowledges that Buyer will conduct an investor
                conference call with its 144A holders. Buyer and Seller will promptly
                issue a joint press release. Each of the parties agrees to consult
                with
                the other regarding these respective disclosures.

            
	
              Governance
                Rights:

            	
              Seller
                will not receive any governance rights, boards seats, or other similar
                provisions. 

            

    

    

    

    
      
         

      

      
        A-6

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