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Exhibit 10.12    
    

 
 

INTERCREDITOR AND SUBORDINATION AGREEMENT    
    

        This Intercreditor and Subordination Agreement (this "Agreement"), dated as of January 31, 2008 is among
Société Générale, as administrative agent (in such capacity, with its successors and assigns, the "Senior
Administrative Agent") for the Senior Lenders (as defined below), Société Générale, as administrative agent (in such
capacity, the "Subordinated Administrative Agent") for the Subordinated Lenders (as defined below), and Abraxas Energy Partners, L.P., a Delaware
limited partnership (the "Borrower"). 

        WHEREAS,
the Borrower, the lenders party thereto from time to time (the "Senior Lenders"), and the Senior Administrative Agent are parties
to that certain Credit Agreement dated as of January 31, 2008 (as amended, restated, supplemented and otherwise modified from time to time, the "Senior Credit
Agreement"); 

        WHEREAS,
the Borrower, the lenders party thereto from time to time (the "Subordinated Lenders"), and the Subordinated Administrative Agent
are parties to that certain Subordinated Credit Agreement dated as of January 31, 2008 (as amended, restated, supplemented and otherwise modified from time to time, the
"Subordinated Credit Agreement"); 

        WHEREAS,
the Senior Lenders have agreed to make loans and other extensions of credit to the Borrower pursuant to the Senior Credit Agreement on the condition, among others, that the
Obligations (as such term is defined in the Senior Credit Agreement) shall be secured by first priority liens on, and security interests in, the assets of the Borrower and any subsidiaries of the
Borrower as provided therein. 

        WHEREAS,
the Subordinated Lenders have agreed to make loans and other extensions of credit to the Borrower pursuant to the Subordinated Credit Agreement on the condition, among others,
that the Obligations (as such term is defined in the Subordinated Credit Agreement) shall be secured by second
priority liens on, and security interests in, the assets of the Borrower and any subsidiaries of the Borrower as provided therein. 

        WHEREAS,
each of the Senior Credit Agreement and the Subordinated Credit Agreement require, among other things, that the parties set forth in this Agreement their respective rights,
obligations and remedies with respect to the assets of the Borrower and its subsidiaries. 

        NOW
THEREFORE, in consideration of the foregoing and the mutual covenants herein contained and other good and valuable consideration, the existence and sufficiency of which are expressly
recognized by all of the parties hereto, the parties agree as follows: 

ARTICLE I

Defined Terms.  

        Section 1.01    Each
capitalized term used in this Agreement, but not defined herein, shall have the meaning ascribed to such term in the Senior Credit Agreement. 

        Section 1.02    The
following terms have the following meanings when used in this Agreement: 

        "Blockage Period" means a Non-Payment Blockage Period or a Payment Blockage Period. 

        "Eligible Hedge Contract" means any present or future Hedge Contract between the Borrower or any Subsidiary and a counterparty that is a
Senior Lender or an Affiliate of a Senior Lender; provided that if such counterparty ceases to be a Senior Lender under the Senior Credit Agreement (or,
in the case of an Affiliate of a Senior Lender, the Person affiliated therewith ceases to be a Senior Lender under the Senior Credit Agreement), such Eligible Hedge Contract shall only cover such
obligations to the extent arising from transactions entered into at the time such counterparty was a Senior Lender or an Affiliate of a Senior Lender. 

 

        "Enforcement Action" means, with respect to any Subordinated Obligations or Senior Indebtedness, any enforcement of any right or remedy
including any enforcement or foreclosure of Liens granted by the Borrower or any Subsidiary to secure any or all of such Subordinated Obligations or Senior Indebtedness, any enforcement or foreclosure
of Liens on any capital stock or other equity interests in the Borrower or any Subsidiary which may be granted by the Borrower or its Subsidiaries or any holder of equity in the Borrower to secure any
or all of such Subordinated Obligations or Senior Indebtedness, or any other efforts to collect proceeds from the Borrower's or any of its Subsidiary's assets or properties (including proceeds of
production) to satisfy the Subordinated Obligations or Senior Indebtedness, including, without limitation, the commencement or the joining with any other creditor of the Borrower or any Subsidiary in
the commencement of any Insolvency Proceeding against the Borrower or any Subsidiary; provided, that none of the following shall constitute an
Enforcement Action: (a) acceleration of any of the Subordinated Obligations following acceleration of any of the Senior Indebtedness (provided that such acceleration of Senior Indebtedness has
not previously been rescinded), (b) acceleration of any of the Senior Indebtedness following acceleration of any of the Subordinated Obligations (provided that such acceleration of the
Subordinated Obligations has not previously been rescinded), (c) actions by any Subordinated Lender to obtain possession of or receive Reorganization Securities, (d) the sending of any
default notice by the Subordinated Indebtedness Representative or any Subordinated Lender, (e) the charging of a default rate of interest by any Subordinated Lender, or (f) taking any
action described above during the existence of any Insolvency Proceeding subject to the jurisdiction of a court of competent authority. 

        "Insolvency Proceeding" shall mean (a) any voluntary or involuntary case, action, or proceeding before any Governmental Authority
having jurisdiction over the applicable Person or its assets relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up, or relief of debtors,
or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; in each case whether undertaken under U.S. federal, state, or foreign law. 

        "Non-Payment Blockage Period" means, with respect to any Non-Payment Default, the period from and including the
date of receipt by the Subordinated Lenders or the Subordinated Administrative Agent or other representative of a Non-Payment Default Notice relating thereto until the first to occur of
(a) the Payment in Full of Senior Indebtedness, (b) the 179th day after receipt of such Non-Payment Default Notice, (c) the date on which the
Non-Payment Default that is the subject of such Non-Payment Default Notice has been waived in writing by the applicable holder or holders of the Senior Indebtedness or an agent
or representative on their behalf, cured, or ceased to exist, or (d) the date upon which the Person(s) giving such Non-Payment Default Notice notify the Subordinated Lenders or the
Subordinated Administrative Agent or other representative in writing of the termination of such Non-Payment Blockage Period. 

        "Non-Payment Default" means the occurrence of any Borrowing Base Deficiency (as defined in the Senior Credit Agreement) or any
event under any Senior Loan Document evidencing Senior Indebtedness, not constituting a Payment Default, which gives the holder(s) of such Senior Indebtedness, or an agent or representative acting on
behalf of such holder(s), the right to cause the maturity of such Senior Indebtedness to be accelerated immediately without any further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace period. 

        "Non-Payment Default Notice" means a written notice from or on behalf of the Senior Indebtedness Representative that a
Non-Payment Default has occurred and is continuing which identifies such Non-Payment Default and specifically designates such notice as a "Non-Payment Default
Notice". 

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        "Payment Blockage Period" means, with respect to any Payment Default or Senior Indebtedness Acceleration, the period from and including
the date of receipt by the Subordinated Lenders or the Subordinated Administrative Agent or other representative of a Payment Default Notice relating thereto until the first to occur of (a) the
Payment in Full of Senior Indebtedness, (b) if such Payment Default Notice relates to a Payment Default, the date on which the Payment Default which is the subject of such Payment Default
Notice has been waived in writing by the applicable holder or holders of the Senior Indebtedness or an agent or representative on their behalf, cured or ceased to exist, or if such Payment Default
Notice relates to a Senior Indebtedness Acceleration, the date on which such acceleration is rescinded, annulled or ceased to exist, or (c) the day upon which the Person(s) giving such Payment
Default Notice notify the Subordinated Lenders or the Subordinated Administrative Agent or other representative in writing of the termination of such Payment Blockage Period. 

        "Payment Default" means (a) a default by the Borrower or any Guarantor in the payment of any amount owing with respect to the
Senior Indebtedness, whether with respect to principal, interest, premium, letter of credit reimbursement obligations, hedge obligations, commitment fees or letter of credit fees or otherwise when the
same becomes due and payable, whether at maturity or at a date fixed for payment of an installment or prepayment or by declaration or acceleration or otherwise or (b) the failure of the
Borrower to deliver an election notice or to perform the actions chosen to remedy a Borrowing Base Deficiency (as defined in the Senior Credit Agreement) under Section 2.05(b)(i) of the Senior
Credit Agreement. 

        "Payment Default Notice" means a written notice from or on behalf of the Senior Indebtedness Representative that either (i) a
Payment Default with respect to such Senior Indebtedness has occurred and is continuing, or (ii) a Senior Indebtedness Acceleration with respect to such Senior Indebtedness has occurred and is
continuing, which, in either case, identifies such Payment Default or such Senior Indebtedness Acceleration, as applicable, and specifically designates such notice as a "Payment Default Notice". 

        "Payment in Full of Senior Indebtedness" means the first date on which (a) the Senior Indebtedness has been paid in cash in full,
(b) all commitments of any holder of the Senior Indebtedness to make loans or extensions of credit have been terminated, (c) all letters of credit issued by any holder of the Senior
Indebtedness have expired or have been terminated or cash collateralized, and (d) all Hedge Contracts between the Borrower or any of its Subsidiaries and any Senior Lender or Affiliate of a
Senior Lender have been terminated. 

        "Reorganization Securities" means (a) debt securities that are issued pursuant to an Insolvency Proceeding the payment of which is
subordinate and junior at least to the extent provided in this Agreement to the payment of the Senior Indebtedness outstanding at the time of the issuance thereof (including any refinancing of Senior
Indebtedness pursuant to an Insolvency Proceeding) and to the payment of all debt securities issued in exchange for such Senior Indebtedness in such Insolvency Proceeding (whether such subordination
is effected by the terms of such securities, an order or decree issued in such Insolvency Proceeding, by agreement of the Subordinated Lenders or otherwise), or (b) equity securities that are
issued pursuant to an Insolvency Proceeding; provided, in either case, that such securities are authorized by an order or decree made by a court of competent jurisdiction in such Insolvency
Proceeding. 

        "Required Senior Lenders" means the "Required Lenders" as defined in the Senior Credit Agreement. 

        "Senior Indebtedness" means and includes (a) all principal indebtedness for loans now outstanding or hereafter incurred, and all
letter of credit reimbursement obligations now existing or hereafter arising, under the Senior Credit Agreement, provided that the aggregate outstanding
principal amount of Senior Indebtedness under this clause (a) shall not exceed $300,000,000 at any time, and provided further, that if the
aggregate principal amount of Senior Indebtedness (constituting principal and letter 

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of
credit reimbursement obligations) shall exceed $300,000,000, then the subordination of the Subordinated Notes as contemplated by this Agreement to the Senior Indebtedness of $300,000,000 or less
shall not be impaired, (b) all amounts now or hereafter owing to any of the Senior Lenders or any of their Affiliates under any Eligible Hedge Contract, (c) all interest accruing on the
Senior Indebtedness described in the preceding clauses (a) and (b), and (d) all other monetary obligations (whether now outstanding or hereafter incurred) for which the Borrower or any
Guarantor is responsible or liable as obligor, guarantor or otherwise under or pursuant to any of the Senior Loan Documents including, without limitation, all fees, penalties, yield protections,
breakage costs, damages, indemnification obligations, reimbursement obligations, and expenses (including, without limitation, fees and expenses of counsel to the Senior Indebtedness Representative and
the Senior Lenders) together with interest on the foregoing to the extent provided for in the Senior Loan Documents. The interest described in the preceding clause (c) and the premiums and
penalties described in the preceding clause (d) include, without limitation, all interest accruing after the commencement of any Insolvency Proceeding under the terms of the Senior Loan
Documents whether or not such interest constitutes an allowed claim in any such Insolvency Proceeding. 

        "Senior Indebtedness Acceleration" means with, respect to the Senior Indebtedness, that the holder or holders of such Senior Indebtedness,
or an agent or representative on behalf of such holder or holders, have caused the maturity of such Senior Indebtedness to be accelerated. 

        "Senior Credit Agreement Event of Default" means the occurrence of an Event of Default as defined in the Senior Credit Agreement. 

        "Senior Indebtedness Default" means a Payment Default or a Non-Payment Default. 

        "Senior Indebtedness Representative" means (a) initially, Société
Générale, as administrative agent for the Senior Lenders under the Senior Credit Agreement or (b) such other Person selected pursuant to the terms of the Senior
Credit Agreement to replace Société Générale or the then Senior Indebtedness Representative. 

        "Senior Loan Documents" means the "Loan Documents" as defined in the Senior Credit Agreement. 

        "Standstill Period" means the period beginning with the commencement of a Blockage Period and ending on the earliest of (a) the
date when the Senior Indebtedness Default giving rise to such Blockage Period has been cured or waived in writing, (b) Payment in Full of Senior Indebtedness, (c) the date that is
179 days after the commencement of a Blockage Period, (d) the date on which the Senior Indebtedness shall have been declared due and payable prior to its stated maturity or any holder of
Senior Indebtedness commences proceedings to collect any Senior Indebtedness or realize upon any material part of the collateral for any Senior Indebtedness, and (e) the date upon which any
Insolvency Proceeding is commenced. 

        "Subordinated Credit Agreement Event of Default" means the occurrence of an Event of Default as defined in the Subordinated Credit
Agreement. 

        "Subordinated Indebtedness Representative" means (a) initially, Société
Générale, as administrative agent for the Subordinated Lenders under the Subordinated Credit Agreement or (b) such other Person selected pursuant to the terms of
the Subordinated Credit Agreement to replace Société Générale or the then Subordinated Indebtedness Representative. 

        "Subordinated Loan Documents" means the "Loan Documents" as defined in the Subordinated Credit Agreement. 

        "Subordinated Notes" means the "Notes" as defined in the Subordinated Credit Agreement. 

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        "Subordinated Obligations" means the "Obligations" as such term is defined in the Subordinated Credit Agreement (other than obligations
owing in respect of any Eligible Hedge Contract with a Subordinated Lender or an Affiliate thereof that is also a Senior Lender or an Affiliate thereof, which obligations shall constitute "Senior
Indebtedness"). 

 
 

ARTICLE II
  Subordination    
    

        Section 2.01    Subordination of Obligations.    The Borrower and each Subsidiary covenant and agree, and each
Subordinated Lender by its acceptance of a Subordinated Note covenants and agrees, that the payment of the Subordinated Obligations shall, to the extent set forth in this Agreement, be subordinate and
junior and subject in right of payment to the prior payment in full in cash of all Senior Indebtedness, whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed.
Notwithstanding anything to the contrary set forth in this Agreement, the Borrower may make and each Subordinated Lender may accept payments, scheduled or otherwise, in respect of the Subordinated
Obligations so long as (a) no Payment Blockage Period exists, (b) no Non-Payment Blockage Period exists, (c) no Standstill Period exists, (d) no Default (as
defined in the Senior Credit Agreement) or Senior Credit Agreement Event of Default exists, and (e) no Borrowing Base Deficiency (as defined in the Senior Credit Agreement) exists;  provided,
however, that the existence of any Non-Payment Default or a Standstill Period resulting from any Non-Payment Default,
shall not prevent or prohibit the Borrower or any Subsidiary from paying or prepaying the Subordinated Obligations in full or in part prior to the repayment or prepayment of any Senior Indebtedness so
long as (y) any Borrowing Base Deficiency is cured prior to such payment or prepayment and (z) such payment or prepayment of the Subordinated Obligations is made using Equity Issuance
Proceeds to the extent permitted under Section 2.05(b) of the Senior Credit Agreement. 

        Section 2.02    Payment Default or Acceleration.    Except under circumstances when the terms of
Section 2.05 of this Agreement are applicable, if (a) a Payment Default or Senior Indebtedness Acceleration shall have occurred and be continuing and (b) the Subordinated Lenders
or the Subordinated Indebtedness Representative shall have received a Payment Default Notice, then neither the Borrower nor any Subsidiary may make, and no Subordinated Lender shall accept, receive or
collect, any direct or indirect payment or distribution of any kind or character (in cash, securities, other Property, by setoff, or otherwise other than Reorganization Securities) of any properties
or assets of the Borrower or any
Subsidiary on account of the Subordinated Obligations during the Payment Blockage Period; provided, however, that in the case of any payment on or in
respect of any Subordinated Obligation that would (in the absence of any such Payment Default Notice) have been due and payable on any date (a "Scheduled Payment
Date") during such Payment Blockage Period pursuant to the terms of the Subordinated Notes as in effect on the date hereof or as amended consistent with the provisions of
Section 2.12 of this Agreement, the provisions of this Section 2.02 shall not prevent the making and acceptance of such payment (a "Scheduled
Payment"), together with any additional default interest as is due on the Subordinated Notes, on or after the date immediately following the termination of such Payment
Blockage Period. In the event that, notwithstanding the foregoing, either the Borrower or any Subsidiary shall make any payment or distribution to any Subordinated Lender prohibited by the foregoing
provisions of this Section 2.02, then and in such event such payment or distribution shall be held in trust for the benefit of and immediately shall be paid over to the holders of the Senior
Indebtedness or the Senior Indebtedness Representative for application against the Senior Indebtedness remaining unpaid until such Senior Indebtedness is paid in full in cash. Any Payment Default
Notice shall be deemed received by the Subordinated Lenders upon the date of actual receipt by the Subordinated Lenders or the Subordinated Indebtedness Representative of such Payment Default Notice
in writing. 

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        Section 2.03    Non-Payment Default.    Except under circumstances when the terms of
Section 2.02 or Section 2.05 of this Agreement are applicable, if (a) a Non-Payment Default shall have occurred and be continuing, (b) the Subordinated Lenders
or the Subordinated Indebtedness Representative shall have received a Non-Payment Default Notice, and (c) no Non-Payment Default Notice shall have been given within the
360-day period immediately preceding the giving of such Non-Payment Default Notice, then neither the Borrower nor any Subsidiary may make, and no Subordinated Lender shall
accept, receive or collect, any direct or indirect payment or distribution of any kind or character (in cash, securities, other Property, by setoff, or otherwise other than Reorganization Securities)
of any properties or assets of the Borrower or any Subsidiary on account of the Subordinated Obligations during the Non-Payment Blockage Period;  provided, however, that in the case of any Scheduled
Payment on or in respect of any Subordinated Obligation that would (in the absence of any such
Non-Payment Default Notice) have been due and payable on any Scheduled Payment Date during such Non-Payment Blockage Period pursuant to the terms of the Subordinated Notes as
in effect on the date hereof or as amended consistent with the requirements of Section 2.12 of this Agreement, the provisions of this Section 2.03 shall not prevent the making and
acceptance of such Scheduled Payment, together with any additional default interest as is due on the Subordinated Notes, on or after the date immediately following the termination of such
Non-Payment Blockage Period. In the event that, notwithstanding the foregoing, the Borrower or any Subsidiary shall make any payment or distribution to any Subordinated Lender prohibited
by the foregoing provisions of this Section 2.03, then and in such event such payment or distribution shall be held in trust for the benefit of and immediately shall be paid over to the holders
of the Senior Indebtedness or the Senior Indebtedness Representative for application against the Senior Indebtedness remaining unpaid until such Senior Indebtedness is paid in full in cash. Any
Non-Payment Default Notice shall be deemed received by the Subordinated Lenders upon the date of actual receipt by the Subordinated Lenders or the Subordinated Indebtedness Representative
of such Non-Payment Default Notice in writing. 

        Section 2.04    Standstill.    At any time that a Standstill Period is in effect, the Subordinated Lenders and
the Subordinated Indebtedness Representative or any other representative of the Subordinated Lenders will not commence any Enforcement Action relative to the Borrower or any Subsidiary. Upon the
termination of the Standstill Period, the Subordinated Lenders may exercise all rights or remedies they may have in law or equity; provided, however,
that if a Standstill Period terminates pursuant to clause (e) of the definition thereof, no Subordinated Lender and no agent or representative thereof shall exercise any remedies against, or
attempt to foreclose upon, garnish, sequester or execute upon, any Property known to it as constituting collateral for the Senior Indebtedness (other than to file or record any judgment Liens it may
have obtained against such collateral) during the period that such Standstill Period would have been in effect but for termination pursuant to clause (e) of the definition of "Standstill
Period;" provided further, that the Payment Blockage Period or the Non-Payment Blockage Period, as the case may be, if not also terminated,
shall continue for its full period notwithstanding the termination of the Standstill Period. Notwithstanding the foregoing, no Standstill Period may be commenced while any other Standstill Period
exists or within 180 days following the termination of any prior Standstill Period (provided that this sentence shall not relieve any Subordinated Lender of its obligation to provide notice
under Section 2.09 of this Agreement). 

        Section 2.05    Insolvency; Bankruptcy; Etc.    In the event of the institution of any Insolvency Proceeding
relative to the Borrower or any Subsidiary, then: 

        (a)   The
holders of the Senior Indebtedness shall be entitled to receive payment in full in cash of the Senior Indebtedness before the Subordinated Lenders are entitled to
receive any direct or indirect payment or distribution of any kind or character, whether in cash, Property or securities (other than Reorganization Securities) on account of the Subordinated
Obligations. 

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        (b)   Any
direct or indirect payment or distribution of any kind or character, whether in cash, Property or securities, by setoff or otherwise, which may be payable or
deliverable in such proceedings in respect of the Subordinated Obligations but for the provisions of this Agreement shall be paid or delivered by the Person making such payment or distribution,
whether the Borrower, a Subsidiary of the Borrower, a trustee in bankruptcy, a receiver, a liquidating trustee, or otherwise, directly to the holders of the Senior Indebtedness or the Senior
Indebtedness Representative, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid; provided, however,
that no delivery of any Reorganization Securities shall be made to any holders of the Senior Indebtedness. In the event that, notwithstanding the foregoing provisions of this Section 2.05, any
Subordinated Lender shall have received any such payment or distribution of any kind or character, whether in cash, Property or securities (other than Reorganization Securities), by setoff or
otherwise, before all Senior Indebtedness is paid in full in cash, which is to be paid to the holders of the Senior Indebtedness under the foregoing provisions of this Section 2.05, then and in
such event such payment or distribution shall be held in trust for the benefit of and immediately shall be paid over to the holders of the Senior
Indebtedness or the Senior Indebtedness Representative for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full in
cash. 

        (c)   If
no proof of claim is filed in any Insolvency Proceeding with respect to any Subordinated Obligations by the tenth day prior to the bar date for any such proof of
claim, the Senior Indebtedness Representative may, after notice to the Subordinated Lenders or the Subordinated Administrative Agent or other representative, file such a proof of claim on behalf of
the Subordinated Lenders, and each Subordinated Lender hereby irrevocably appoints the Senior Indebtedness Representative as its agent and attorney-in-fact for such limited
purpose; provided, that the foregoing shall not confer to the holder of any Senior Indebtedness the right to vote on behalf of the Subordinated Lenders
in any Insolvency Proceedings. The Senior Indebtedness Representative shall promptly deliver to the Subordinated Indebtedness Representative a copy of any proof of claim filed by it pursuant to this
Section, but there shall no be no liability for failure to deliver such copy. 

        Section 2.06    No Impairment.    No right of any present or future holder of Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Borrower or any Subsidiary or by any non-compliance
by the Borrower or any Subsidiary with the terms, provisions, and covenants of this Agreement, the Subordinated Credit Agreement or the Subordinated Notes, regardless of any knowledge thereof any such
Subordinated Lender may have or be otherwise charged with. The provisions of this Agreement shall be enforceable directly by any present or future holder of the Senior Indebtedness and/or the Senior
Indebtedness Representative. 

        Section 2.07    Rights of Creditors; Subrogation.    The provisions of this Agreement are for the purpose of
defining the relative rights of the holders of the Senior Indebtedness on the one hand, and the Subordinated Lenders on the other hand, and nothing herein shall impair, as between the Borrower and the
Guarantors and the Subordinated Lenders, the obligation of the Borrower and the Guarantors, which are unconditional and absolute, to pay to the Subordinated Lenders the principal thereof and interest
thereon and any other amounts owing in accordance with their terms and the provisions thereof, nor shall anything herein, except as otherwise provided in Section 2.04 of this Agreement, prevent
the Subordinated Lenders from exercising all remedies otherwise permitted by applicable law or hereunder upon default under the Subordinated Credit Agreement or under the Subordinated Notes (including
the right to demand payment and sue for performance thereof and of the Subordinated Notes and to accelerate the maturity thereof as provided by the terms of the Subordinated Notes), subject to the
rights of holders of the Senior Indebtedness under this Agreement. Upon the Payment in Full of Senior Indebtedness, the Subordinated Lenders shall, to the extent of any payments or 

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distributions
paid or delivered to the holders of the Senior Indebtedness or otherwise applied to the Senior Indebtedness pursuant to the provisions of this Agreement, be subrogated to the rights of
the holders of the Senior Indebtedness to receive payments or distributions of assets of the Borrower or any Guarantor made on Senior Indebtedness (and any security therefor) until the Subordinated
Obligations shall be paid in full (and, for this purpose, no such payments or distributions paid or delivered to the holders of the Senior Indebtedness or otherwise applied to the Senior Indebtedness
shall be deemed to have discharged the Subordinated Obligations), and, for the purposes of such subrogation, no payments to the holders of the Senior Indebtedness of any cash, assets, stock, or
obligations to which the Subordinated Lenders would be entitled except for the provisions of this Agreement shall, as between the Borrower and the Guarantors, any of their respective creditors (other
than the holders of the Senior Indebtedness), and the Subordinated Lenders, be deemed to be a payment by the Borrower or any Guarantor to or on account of Senior Indebtedness. The fact that failure to
make any payment on account of the Subordinated Obligations is caused by reason of the operation of any provision of this Agreement shall not be construed as preventing the occurrence of a
Subordinated Credit Agreement Event of Default. 

        Section 2.08    Payments on Senior Indebtedness.    In the event that any Subordinated Lender determines in
good faith that evidence is required with respect to (a) the right of any holder of the Senior Indebtedness to participate in any payment or distribution pursuant to this Agreement or
(b) the amount of such participation, such Subordinated Lender may request such Person to furnish evidence to the reasonable satisfaction of such Subordinated Lender as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this
Agreement, and if such evidence is not furnished, such Subordinated Lender may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment;  provided that, upon the written request of such Person to such Subordinated Lender, such payment shall be made to the court having jurisdiction over
such judicial determination or to another Person mutually satisfactory to such Person and such Subordinated Lender, as escrowee, to be held and invested pending such judicial determination in
accordance with such instructions as shall be mutually satisfactory to such Person and such Subordinated Lender and upon such judicial determination becoming final and non-appealable to be
distributed in accordance therewith to the Person entitled thereto. 

        Section 2.09    Notice of Acceleration, Enforcement Action.    

        (a)   Each
Subordinated Lender agrees that in the event any Subordinated Credit Agreement Event of Default shall occur, and as a result thereof, any Subordinated Lender or the
Subordinated Indebtedness Representative or any other representative of such Subordinated Lender accelerates maturity of the Subordinated Notes, then such Subordinated Lender or the Subordinated
Indebtedness Representative or other representative shall give prompt (and in any event within three (3) Business Days) notice thereof in writing to the holders of the Senior Indebtedness or
the Senior Indebtedness Representative. Neither the Borrower nor any Subsidiary may pay the Subordinated Notes until ten (10) Business Days after the Senior Indebtedness Representative receives
the notice described above and, after that ten (10) Business Day period, may pay the Subordinated Notes and the Subordinated Lenders may receive or collect such payment only if the provisions
of this Agreement do not prohibit such payment at that time. 

        (b)   Each
Subordinated Lender agrees that in the event any Subordinated Credit Agreement Event of Default shall occur, and as a result thereof, any Subordinated Lender or the
Subordinated Indebtedness Representative or any other representative of such Subordinated Lender intends to commence any Enforcement Action, then such Subordinated Lender or the Subordinated
Indebtedness Representative or other representative shall first deliver notice thereof in writing to the Senior Indebtedness Representative both (i) not less than ten (10) days prior to 

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taking
any such Enforcement Action and (ii) one (1) Business Day after such Enforcement Action is taken. 

        (c)   Each
Senior Lender agrees that in the event any Senior Credit Agreement Event of Default shall occur, and as a result thereof, any Senior Lender or the Senior
Indebtedness Representative or any other representative of such Senior Lender accelerates maturity of the Senior Indebtedness, then such Senior Lender or the Senior Indebtedness Representative or
other representative shall use reasonable efforts to give prompt (and in any event within three (3) Business Days) notice thereof in writing to the holders of the Subordinated Notes or the
Subordinated Administrative Agent, but there shall be no liability for failure to deliver such notice. 

        (d)   Each
Senior Lender agrees that in the event any Senior Credit Agreement Event of Default shall occur, and as a result thereof, any Senior Lender or the Senior
Indebtedness Representative or other representative of such Senior Lender intends to commence any Enforcement Action, then such Senior Lender or the Senior Indebtedness Representative or other
representative shall use reasonable efforts to give notice thereof in writing to the Subordinated Administrative Agent within one (1) Business Day after such Enforcement Action is taken, but
there shall be no liability for failure to deliver such notice. 

        Section 2.10    Reinstatement.    Subject to the provisions of this Section 2.10, the provisions of this
Agreement shall remain in force and effect until the termination of this Agreement pursuant to Section 5.02. To the
extent any payment of or distribution in respect of the Senior Indebtedness (whether by or on behalf of the Borrower or any of its Subsidiaries, as proceeds of security or enforcement of any right of
set off or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to the Borrower or any Subsidiary or any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment or distribution is recovered by, or paid over to, the Borrower
or any Subsidiary or such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment had not occurred and the provisions of this Agreement shall continue to be applicable in respect of said reinstated Senior Indebtedness. 

        Section 2.11    Rights of Holders of the Senior Indebtedness.    The holders of the Senior Indebtedness may, at
any time and from time to time, subject to the terms of the Senior Indebtedness, without the consent of or notice to the Subordinated Lenders or the Subordinated Indebtedness Representative or any
other representative of the Subordinated Lenders, without incurring responsibility to the Subordinated Lenders and without impairing or releasing the subordination or other benefits provided in this
Agreement or the obligations hereunder of the Subordinated Lenders to the holders of the Senior Indebtedness, do any one or more of the following: (a) change the manner, place or terms of
payment or extend the time of payment of, or renew, increase (but with respect to the principal amount of the Senior Indebtedness, not in excess of the cap provided for in clause (a) of the
definition of "Senior Indebtedness"), alter or amend, Senior Indebtedness or any instrument evidencing the same or any covenant or agreement under which Senior Indebtedness is outstanding or secured
or any liability of any obligor thereon; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness to the extent currently
permitted under the terms of the Senior Credit Agreement, but any sale, exchange or release of property pledged, mortgaged or otherwise securing Senior Indebtedness in contravention of such currently
existing provisions can only be made with the prior written consent of the Subordinated Indebtedness Representative; (c) settle or compromise any Senior Indebtedness or any liability of any
obligor thereon or release any Person liable in any manner for the payment of Senior Indebtedness; and (d) waive any default under Senior Indebtedness and exercise or refrain from exercising
any rights against the Borrower, any Subsidiary or any other Person. The foregoing provisions are not intended to permit a change to the definition of "Senior Indebtedness". 

9

 

        Section 2.12    Modification of Subordinated Obligations.    The Borrower, the Subordinated Administrative
Agent, and the Subordinated Lenders agree that without the prior written consent of the Senior Indebtedness Representative and the Required Senior Lenders, they will not renew, extend, modify or amend
the Subordinated Credit Agreement or any of the instruments or documents relating to the Subordinated Obligations to (i) increase the maximum principal amount of the debt to be advanced or
outstanding under the Subordinated Credit Agreement to more than $50,000,000 (other than increases in principal resulting from the capitalization of interest, fees, expenses or indemnities),
(ii) except in connection with the imposition of a default rate of interest in accordance with the terms of the Subordinated Loan Documents and increases that require payment of the interest
with respect to such increase only in kind and not in cash, securities or other property, increase the interest rate by more than two percent (2%) per annum, (iii) change the maturity date,
(iv) increase the frequency or amount
of mandatory repayments due pursuant to the Subordinated Loan Documents, (v) increase the frequency of or change to be earlier in the calendar quarter the dates upon which payments of interest
on the Subordinated Obligations are due, (vi) change or add any event of default or any covenant under or with respect to the Subordinated Obligations, (vii) change any redemption or
prepayment provisions of the Subordinated Obligations, (viii) subordinate the Subordinated Obligations to any other indebtedness, or (ix) change or amend any other term of the
Subordinated Loan Documents if such change or amendment would result in a Senior Indebtedness Default, increase the obligations of the Borrower or any guarantor of the Subordinated Indebtedness or
confer additional material rights on Subordinated Lender or any other holder of the Subordinated Indebtedness in a manner adverse to the Borrower unless with respect to the foregoing
clause (vi) such change or amendment is necessary to maintain the same relative position with respect to a corresponding provision of any Senior Loan Document. 

        Section 2.13    Amendments.    No amendment of this Agreement or the definitions used in this Agreement, or
which would have the effect of modifying this Agreement or the definitions used in this Agreement, shall be effective unless it is in writing and complies with Section 5.03. 

        Section 2.14    Identity of Subordinated Lenders and Senior Lenders for Notice Purposes.    

        (a)   For
purposes of any notice required or permitted to be given hereunder by the holders of the Senior Indebtedness or the Senior Indebtedness Representative to the
Subordinated Lenders, or any of them, the holders of the Senior Indebtedness and the Senior Indebtedness Representative shall be entitled to rely, conclusively, on the identity and address of each
Subordinated Lender as set forth in the Subordinated Credit Agreement or as otherwise set forth in the most recent notice received by the Senior Indebtedness Representative from a Subordinated Lender
referring to the Subordinated Credit Agreement for purposes of providing the identity and address of each Subordinated Lender. The Subordinated Lenders agree that any notice required to be given to
the Subordinated Lenders shall be effective if such notice is given to the Subordinated Indebtedness Representative or other representative of the Subordinated Lenders. For so long as the Subordinated
Obligations are outstanding, the Subordinated Lenders agree to designate and maintain an agent or other representative for such purposes. 

        (b)   For
purposes of any notice required or permitted to be given hereunder by the holders of the Subordinated Obligations or the Subordinated Administrative Agent to the
Senior Lenders, or any of them, the holders of the Subordinated Obligations and the Subordinated Administrative Agent shall be entitled to rely, conclusively, on the identity and address of each
Senior Lender as set forth in the Senior Credit Agreement or as otherwise set forth in the most recent notice received by the Subordinated Administrative Agent from a Senior Lender referring to the
Senior Credit Agreement for purposes of providing the identity and address of each Senior Lender. The Senior Lenders agree that any notice required to be given to the Senior Lenders shall be effective
if such notice is given to the Senior Indebtedness Representative or other representative of the Senior Lenders. For so long as the Senior Indebtedness is outstanding, the Senior Lenders agree to
designate and maintain an agent or other representative for such purposes. 

10

 

 

        Section 2.15    Liens.    

        (a)   All
Liens granted by the Borrower, or, if applicable, any Guarantor, which at any time secure the Subordinated Credit Agreement, any Subordinated Note or any other
Subordinated Loan Document are hereby made, and will at all times prior to the Payment in Full of Senior Indebtedness be, subject and subordinate to all Liens granted by the Borrower or any Guarantor
which at any time secure the Senior Indebtedness, which subordination shall be effective whether or not all such Liens securing Senior Indebtedness have been properly recorded, filed and otherwise
perfected prior to all such Liens securing any Subordinated Note and regardless of the relative priority of such Liens as determined without regard to this Agreement. The mortgages included in the
Senior Loan Documents do (and other mortgages, security agreements and similar Senior Loan Documents may) describe the indebtedness secured thereby in a manner which might include indebtedness other
than the Senior Indebtedness. For so long as any Subordinated Note is outstanding, as between the Subordinated Lenders and the holders of the Senior Indebtedness, only the Senior Indebtedness shall be
deemed to be secured by any Liens granted under the Senior Loan Documents. 

        (b)   Each
Subordinated Lender agrees that it will not initiate, join in or prosecute any claim, action or other proceeding challenging the validity or enforceability of the
Senior Indebtedness or the Liens securing the Senior Indebtedness. Furthermore, each Subordinated Lender agrees that if the Senior Indebtedness Representative shall take any Enforcement Action
respecting any collateral under the Senior Indebtedness, the Subordinated Lenders will not enjoin or otherwise interfere with such Enforcement Action. 

        (c)   The
Subordinated Indebtedness Representative agrees to promptly release all Liens granted by the Borrower, or, if applicable, any Guarantor, which at any time secure the
Subordinated Credit Agreement, any Subordinated Note or any other Subordinated Loan Document if such release is authorized by the terms of the Senior Loan Documents. 

        Section 2.16    Legend.    

        (a)   Each
Subordinated Note shall be conspicuously inscribed with a legend substantially in the form and substance as follows: 

PAYMENT
OF THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN THE INTERCREDITOR AND SUBORDINATION AGREEMENT DATED JANUARY 31, 2008 BY AND AMONG SOCIÉTÉ
GÉNÉRALE, AS SENIOR ADMINISTRATIVE AGENT, SOCIÉTÉ GÉNÉRALE, AS SUBORDINATED ADMINISTRATIVE AGENT AND ABRAXAS
ENERGY PARTNERS, L.P., BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS, THE PROVISIONS OF SUCH INTERCREDITOR AGREEMENT BEING INCORPORATED
HEREIN AND BY THIS REFERENCE BEING MADE A PART HEREOF. 

        (b)   The
Borrower and each Subordinated Lender or the Subordinated Indebtedness Representative or other representative of the Subordinated Lenders shall cause each mortgage,
security agreement and other instrument securing all or any part of the Subordinated Obligations to be conspicuously inscribed with a legend substantially in the form and substance as follows: 

ALL
LIENS GRANTED BY, AND THE INDEBTEDNESS SECURED BY, THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN THE INTERCREDITOR AND SUBORDINATION AGREEMENT JANUARY 31, 2008 BY AND AMONG
SOCIÉTÉ GÉNÉRALE, AS SENIOR ADMINISTRATIVE AGENT, SOCIÉTÉ GÉNÉRALE, AS
SUBORDINATED ADMINISTRATIVE AGENT AND ABRAXAS ENERGY PARTNERS, L.P., BE SUBORDINATE AND JUNIOR TO ALL LIENS 

11

 

GRANTED
BY GRANTOR TO SECURE THE SENIOR INDEBTEDNESS REGARDLESS OF THE RELATIVE PRIORITY OF SUCH LIENS, SUCH INTERCREDITOR AGREEMENT BEING INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART
HEREOF. 

        Section 2.17    Successors and Assigns.    Each Subordinated Lender acknowledges and agrees that the provisions
of this Agreement are, and are intended to be, an inducement and a consideration to each holder of the Senior Indebtedness to make, extend and continue the Senior Indebtedness, and each holder of the
Senior Indebtedness shall be deemed conclusively to have relied upon the provisions of this Agreement in permitting the Borrower to incur the Subordinated Obligations and in making, extending,
continuing and/or acquiring such Senior Indebtedness. This Agreement shall pass to and be fully binding upon the successors and assigns of each Subordinated Lender and shall inure to the benefit of
the present and future holders of the Senior Indebtedness and the Senior Indebtedness Representative and their respective successors and assigns (including without limitation any Person refinancing
any Senior Indebtedness). 

        Section 2.18    Rights of Subordinated Lenders as Unsecured Creditors.    Except as otherwise provided herein,
in any Insolvency Proceeding, the Subordinated Indebtedness Representative and the Subordinated Lenders may exercise their respective rights and remedies as unsecured creditors against the Borrower
and any Guarantor in accordance with the Subordinated Loan Documents and applicable law; provided that any payment received or judgment Lien obtained and all rights and remedies in respect of any
such payment or judgment Lien obtained by the Subordinated Indebtedness Representative or any Subordinated Lender shall be subject in all respects to the terms of this Agreement. 

 
 

ARTICLE III
  RELIANCE; WAIVERS; ETC.    
    

        Section 3.01    Reliance.    The Senior Loan Documents are deemed to have been executed and delivered, and all
extensions of credit thereunder are deemed to have been made or incurred, in reliance upon this Agreement. The Subordinated Administrative Agent expressly waives all notice of the acceptance of and
reliance on this Agreement by the Senior Lenders. 

        Section 3.02    No Warranties or Liability.    The Subordinated Administrative Agent and the Senior
Administrative Agent acknowledge and agree that neither has made any representation or warranty with respect to the execution, validity, legality, completeness, collectibility or enforceability of any
Senior Loan Document. Except as otherwise provided in this Agreement, the Subordinated Administrative Agent and the Senior Administrative Agent will be entitled to manage and supervise their
respective extensions of credit to the Borrower in accordance with law and their usual practices, modified from time to time as they deem appropriate. 

        Section 3.03    No Waivers.    Except as provided in Section 5.03, no right or benefit of any party
hereunder shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of such party or any other party hereto or by any noncompliance by the Borrower or any of its
Subsidiaries with the terms and conditions of any of the Senior Loan Documents. 

 
 

ARTICLE IV
  OBLIGATIONS UNCONDITIONAL    
    

        Section 4.01    Senior Indebtedness Unconditional.    All rights of the Senior Administrative Agent and the
Senior Lenders hereunder, and all agreements and obligations of each of the Subordinated 

12

 

Administrative
Agent, Subordinated Lenders, the Borrower and the Guarantors under the Senior Loan Documents (to the extent applicable) hereunder, shall remain in full force and effect irrespective of: 

        (a)   any
lack of validity or enforceability of any Senior Loan Document; 

        (b)   any
change in the time, place or manner of payment of, or in any other term of, all or any portion of the Senior Indebtedness, or any amendment, waiver or other
modification, whether by course of conduct or otherwise, or any refinancing, replacement, refunding or restatement of any Senior Loan Document; 

        (c)   prior
to the Payment in Full of Senior Indebtedness, and except as provided in Section 2.11(b), any exchange, release, voiding, avoidance or
non-perfection of any security interest in any collateral, or any release, amendment, waiver or other modification, whether by course of conduct or otherwise, or any refinancing,
replacement, refunding or restatement of all or any portion of the Senior Indebtedness or any guarantee thereof; or 

        (d)   any
other circumstances that otherwise might constitute a defense available to, or a discharge of, (i) the Borrower or any Guarantor in respect of the Senior
Indebtedness or (ii) the Subordinated Indebtedness Representative, any Subordinated Lender, the Borrower or any Guarantor, to the extent applicable, in respect of this Agreement. 

 
 

ARTICLE V
  MISCELLANEOUS    
    

        Section 5.01    Conflicts.    In the event of any conflict between the provisions of this Agreement and the
provisions of any Senior Loan Document or the Subordinated Loan Documents, the provisions of this Agreement shall govern. 

        Section 5.02    Continuing Nature of Provisions; Termination.    This Agreement shall continue to be effective,
and shall not be revocable by any party hereto, until, but, subject to Section 2.10, shall automatically
terminate and be of no further force or effect on, the earlier to occur of (i) the date upon which the Senior Indebtedness has been paid in full in cash, all commitments of any holder of Senior
Indebtedness to make loans or extensions of credit have terminated, and all letters of credit issued by any holder of Senior Indebtedness have expired, terminated or been fully collateralized in cash
and (ii) to the extent not in violation of this Agreement, the date that the Subordinated Obligations have been paid in full. This is a continuing agreement and the Senior Lenders and the
Subordinated Lenders may continue, at any time and without notice to the other parties hereto, to extend credit and other financial accommodations, lend monies and provide indebtedness to, or for the
benefit of, Borrower or any Guarantor on the faith hereof. 

        Section 5.03    Amendments; Waivers.    No amendment or modification of any of the provisions of this Agreement
shall be effective unless the same shall be in writing and signed by the Senior Indebtedness Representative, the Subordinated Indebtedness Representative and, only if the rights or duties of the
Borrower or any Guarantor are directly affected thereby, such Person. 

        Section 5.04    Information Concerning Financial Condition of the Borrower.    The Subordinated Administrative
Agent and the Senior Administrative Agent each hereby assume responsibility for keeping itself informed of the financial condition of the Borrower and each of the Guarantors and all other
circumstances bearing upon the risk of nonpayment of the Senior Indebtedness or the Subordinated Obligations. The Subordinated Administrative Agent and the Senior Administrative Agent hereby agree
that no party shall have any duty to advise any other party of information known to it regarding such condition or any such circumstances. In the event the Subordinated Administrative Agent or the
Senior Administrative Agent, in its sole discretion, undertakes at any time or from time to time to provide any information to any other party to this Agreement, it shall be under no obligation
(1) to provide any such information to such other party or any other party on any subsequent occasion, 

13

 

(2) to
undertake any investigation not a part of its regular business routine, or (3) to disclose any other information. 

        Section 5.05    Governing Law.    This Agreement shall be construed in accordance with and governed by the law
of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than the State of New York
are governed by the laws of such jurisdiction. 

        Section 5.06    Submission to Jurisdiction; Waiver of Jury Trial.    

        (a)    Submission to Jurisdiction.    Each party hereto hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of the courts of the State of New York sitting in New York City and of the United States District Court for the Southern District of the State of New
York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties
hereto
irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by
applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Senior Lender may otherwise have to bring any action or proceeding relating to this
Agreement or any Senior Loan Documents against the Borrower or any Guarantor or its properties in the courts of any jurisdiction. 

        (b)   The
Borrower and the Subordinated Administrative Agent hereby irrevocably and unconditionally waive to the fullest extent permitted by applicable law (x) any
objection they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this
Section 5.06 and (y) the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 

        (c)   Each
party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 5.07. Nothing in this Agreement will affect
the right of any party to this Agreement to serve process in any other manner permitted by law. 

        (d)   EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (i) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER AND (ii) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION. EACH PARTY HEREBY AGREES AND CONSENTS THAT THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

        Section 5.07    Notices.    Unless otherwise specifically provided herein, any notice or other communication
herein required or permitted to be given shall be in writing and may be personally 

14

 

served,
telecopied, or sent by overnight express courier service or United States mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy
or five (5) days after deposit in the United States mail (certified, with postage prepaid and properly addressed). For the purposes hereof, the addresses of the parties hereto (until notice of
a change thereof is delivered as provided in this Section) shall be as set forth below each party's name on the signature pages hereof, or, as to each party, at such other address as may be designated
by such party in a written notice to all of the other parties. 

        Section 5.08    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and each of the Senior Lenders and Subordinated Lenders and their respective successors and assigns, and nothing herein is intended, or shall be construed to give, any other
Person any right, remedy or claim under, to or in respect of this Agreement or any collateral. All references to any Person shall include such Person as debtor-in-possession
and any receiver or trustee for such Person in any Insolvency Proceeding. 

        Section 5.09    Headings.    Section headings used herein are for convenience of reference only, are not part
of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. 

        Section 5.10    Severability.    Any provision of this Agreement held to be invalid, illegal or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the
remaining provisions hereof; the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 

        Section 5.11    Counterparts; Integration; Effectiveness.    This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an
executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement shall become effective when
it has been executed by each party hereto. 

        Section 5.12    Consent to Incurrence of Senior Indebtedness.    Notwithstanding any provision of the
Subordinated Loan Documents to the contrary, the Subordinated Administrative Agent and each of the Subordinated Lenders consents to the incurrence of the Senior Indebtedness in amounts up to the caps
on the principal amount thereof set forth in the definition of Senior Indebtedness. 

        Section 5.13    Senior Administrative Agent Acting as Bailee and Agent.    The Senior Administrative Agent may
from time to time, in order to perfect a security interest in certain collateral securing the Senior Indebtedness, hold possession of stock certificates or other collateral in which a security
interest can be perfected by possession or may enter into a control agreement with respect to collateral in which a security interest can be perfected by having control. For purposes of perfecting the
junior and subordinate lien of the Subordinated Lenders in such collateral, the Senior Administrative Agent agrees to also hold such certificates or other collateral as agent and bailee for the
Subordinated Lenders, subject to the provisions of this Agreement. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Senior Administrative Agent shall not have any duties
or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Subordinated Lender or the Subordinated Administrative Agent, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Senior Administrative Agent. 

        Section 5.14    Purchase of Senior Indebtedness.    The Senior Indebtedness Representative, on behalf of itself
and the Senior Lenders (and, where appropriate with regard to the Eligible Hedge Contracts, their respective Affiliates), and the Borrower hereby agree with the Subordinated Lenders that, if the 

15

 

Senior
Indebtedness Representative delivers a Payment Default Notice to the Subordinated Administrative Agent or the Subordinated Lenders, then the Subordinated Lenders may (but shall not be obligated
to) purchase the Senior Indebtedness and all of the rights, titles and interests of the Senior Indebtedness Representative and the Senior Lenders under the Senior Loan Documents, by giving notice of
Subordinated Lenders' intent to buy within ten days after delivery of such Payment Default Notice and consummating such sale within thirty days after the delivery of such Payment Default Notice for a
price in immediately available funds equal to the unpaid principal of and accrued interest on the Senior Indebtedness, all other amounts then due to the Senior Indebtedness Representative and the
Senior Lenders under the Senior Loan Documents and all unpaid amounts and termination payments due to the Senior Lenders (and their respective Affiliates, where appropriate) of the Eligible Hedge
Contracts, all subject to documents reasonably acceptable to the Senior Indebtedness Representative, the Senior Lenders and the Subordinated Lenders, but without any necessity for any consent from the
Borrower or any Guarantor. 

[Signature
Pages Begin on the Next Page] 

16

  
        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. 

	 	 	SOCIÉTÉ GÉNÉRALE, as Senior Administrative Agent for and on behalf of the Senior Lenders
	

 	
 	

By:	
 	
/s/ Elena Robciuc
 Elena Robciuc

Director

	 	 	SOCIÉTÉ GÉNÉRALE, as Subordinated Administrative Agent for and on behalf of the Subordinated Lenders
	

 	
 	

By:	
 	
/s/ Elena Robciuc
 Elena Robciuc

Director

	 	 	ABRAXAS ENERGY PARTNERS, L.P.
	 	 	By:	 	Abraxas General Partner, LLC,

its general partner
	

 	
 	

By:	
 	
/s/ Barbara M. Stuckey
 Barbara M. Stuckey

President and Chief Operating Officer

QuickLinks

Exhibit 10.12

INTERCREDITOR AND SUBORDINATION AGREEMENT

ARTICLE II Subordination

ARTICLE III RELIANCE; WAIVERS; ETC.

ARTICLE IV OBLIGATIONS UNCONDITIONAL

ARTICLE V MISCELLANEOUSQuickLinks
 -- Click here to rapidly navigate through this document

 

 
 

Exhibit 10.13    
    

PURCHASE AND SALE AGREEMENT  

 BETWEEN  

 ST. MARY LAND & EXPLORATION COMPANY, ET AL.,  

 AS SELLER  

 AND  

 ABRAXAS OPERATING, LLC  

 AS BUYER  

 Dated: December 11, 2007  

 

  TABLE OF CONTENTS  

	 
	 	 
	 	Page

	ARTICLE 1        ASSETS	 	1
	  	 	 	 	 
	 	Section 1.01	 	Agreement to Sell and Purchase	 	1
	 	Section 1.02	 	Assets	 	1
	 	Section 1.03	 	Excluded Assets	 	3
	
ARTICLE 2        PURCHASE PRICE	
 	
4
	  	 	 	 	 
	 	Section 2.01	 	Purchase Price	 	4
	 	Section 2.02	 	Deposit	 	4
	 	Section 2.03	 	Allocated Values	 	5
	 	Section 2.04	 	Section 1031 Like-Kind Exchange	 	5
	
ARTICLE 3        EFFECTIVE TIME	
 	
6
	  	 	 	 	 
	 	Section 3.01	 	Ownership of Assets	 	6
	 	Section 3.02	 	Production Imbalances	 	6
	
ARTICLE 4        TITLE AND ENVIRONMENTAL MATTERS	
 	
6
	  	 	 	 	 
	 	Section 4.01	 	Examination Period	 	6
	 	Section 4.02	 	Title Defects	 	6
	 	Section 4.03	 	Notice of Title Defects	 	7
	 	Section 4.04	 	Remedies for Title Defects	 	8
	 	Section 4.05	 	Special Warranty of Title	 	9
	 	Section 4.06	 	Preferential Rights to Purchase	 	11
	 	Section 4.07	 	Consents to Assignment	 	11
	 	Section 4.08	 	Remedies for Title Benefits	 	12
	 	Section 4.09	 	Environmental Review	 	13
	 	Section 4.10	 	Definitions Used in Article 4 and in this Agreement	 	14
	 	Section 4.11	 	Notice of Environmental Defects	 	15
	 	Section 4.12	 	Remedies for Environmental Defects	 	15
	 	Section 4.13	 	Independent Experts	 	16
	 	Section 4.14	 	Limitation of Remedies For Title Benefits, Title Defects and Environmental Defects	 	17
	 	Section 4.15	 	DISCLAIMER AND WAIVER	 	17
	
ARTICLE 5        REPRESENTATIONS AND WARRANTIES OF SELLER	
 	
18
	  	 	 	 	 
	 	Section 5.01	 	Existence	 	18
	 	Section 5.02	 	Legal Power	 	18
	 	Section 5.03	 	Execution	 	18
	 	Section 5.04	 	Brokers	 	18
	 	Section 5.05	 	Bankruptcy	 	18
	 	Section 5.06	 	Suits and Claims	 	18
	 	Section 5.07	 	Taxes	 	19
	 	Section 5.08	 	AFEs	 	19
	 	Section 5.09	 	Compliance with Laws	 	19
	 	Section 5.10	 	Contracts	 	19
	 	Section 5.11	 	Production Imbalances	 	19
	 	Section 5.12	 	Royalties; Payments for Production	 	19
	 	Section 5.13	 	Insurance	 	19
	 	Section 5.14	 	Plugging Obligations	 	19
	 	Section 5.15	 	Personal Property and Equipment	 	19
	 	Section 5.16	 	No Alienation	 	20

i

 

	 	Section 5.17	 	Hydrocarbon Sales Contracts	 	20
	 	Section 5.18	 	Area of Mutual Interest and Other Agreements	 	20
	 	Section 5.19	 	Leases	 	20
	 	Section 5.20	 	Property Expenses	 	20
	 	Section 5.21	 	Governmental Permits	 	20
	 	Section 5.22	 	No Adverse Change	 	20
	 	Section 5.23	 	Information	 	20
	 	Section 5.24	 	Representations and Warranties Exclusive	 	21
	
ARTICLE 6        REPRESENTATIONS AND WARRANTIES OF BUYER	
 	
21
	  	 	 	 	 
	 	Section 6.01	 	Existence	 	21
	 	Section 6.02	 	Legal Power	 	21
	 	Section 6.03	 	Execution	 	21
	 	Section 6.04	 	Brokers	 	21
	 	Section 6.05	 	Bankruptcy	 	21
	 	Section 6.06	 	Suits and Claims	 	21
	 	Section 6.07	 	Independent Evaluation	 	22
	 	Section 6.08	 	Qualification	 	22
	 	Section 6.09	 	Securities Laws	 	22
	 	Section 6.10	 	No Investment Company	 	22
	 	Section 6.11	 	Funds	 	22
	 	Section 6.12	 	Notice of Changes	 	22
	 	Section 6.13	 	Representations and Warranties Exclusive	 	22
	
ARTICLE 7        OPERATION OF THE ASSETS	
 	
23
	  	 	 	 	 
	 	Section 7.01	 	Operation of the Assets	 	23
	 	Section 7.02	 	Buyer's Qualification	 	23
	 	Section 7.03	 	Operation of the Assets after the Closing	 	24
	 	Section 7.04	 	Post Closing Accounting by Seller	 	24
	 	Section 7.05	 	Limitations on Liability of Operator	 	25
	 	Section 7.06	 	Public Announcements	 	25
	 	Section 7.07	 	Disclosure Information	 	25
	
ARTICLE 8        CONDITIONS TO OBLIGATIONS OF SELLER	
 	
26
	  	 	 	 	 
	 	Section 8.01	 	Representations	 	26
	 	Section 8.02	 	Performance	 	26
	 	Section 8.03	 	Pending Matters	 	26
	
ARTICLE 9        CONDITIONS TO OBLIGATIONS OF BUYER	
 	
26
	  	 	 	 	 
	 	Section 9.01	 	Representations	 	26
	 	Section 9.02	 	Performance	 	26
	 	Section 9.03	 	Pending Matters	 	26
	 	Section 9.04	 	Wachovia Liens	 	26
	
ARTICLE 10        THE CLOSING	
 	
27
	  	 	 	 	 
	 	Section 10.01	 	Time and Place of the Closing	 	27
	 	Section 10.02	 	Allocation of Costs and Expenses and Adjustments to Purchase Price at the Closing	 	27
	 	Section 10.03	 	Closing Adjustments and Allocations Statement	 	28
	 	Section 10.04	 	Post-Closing Allocations and Adjustments to Purchase Price	 	28
	 	Section 10.05	 	Transfer Taxes	 	29
	 	Section 10.06	 	Ad Valorem and Similar Taxes	 	29

ii

 

	 	Section 10.07	 	Actions of Seller at the Closing	 	30
	 	Section 10.08	 	Actions of Buyer at the Closing	 	30
	 	Section 10.09	 	Recordation; Further Assurances	 	30
	
ARTICLE 11        TERMINATION	
 	
31
	  	 	 	 	 
	 	Section 11.01	 	Right of Termination	 	31
	 	Section 11.02	 	Effect of Termination	 	31
	 	Section 11.03	 	Attorneys' Fees, Etc	 	31
	
ARTICLE 12        ASSUMPTION AND INDEMNIFICATION	
 	
31
	  	 	 	 	 
	 	Section 12.01	 	Buyer's Obligations after Closing	 	31
	 	Section 12.02	 	Seller's Obligations after Closing	 	32
	 	Section 12.03	 	Plugging and Abandonment Obligations	 	32
	 	Section 12.04	 	Environmental Obligations	 	33
	 	Section 12.05	 	Definition of Claims	 	34
	 	Section 12.06	 	Application of Indemnities	 	34
	 	Section 12.07	 	Buyer's Indemnity	 	35
	 	Section 12.08	 	Seller's Indemnity	 	35
	 	Section 12.09	 	Notices and Defense of Indemnified Claims	 	35
	 	Section 12.10	 	Survival	 	35
	 	Section 12.11	 	Exclusive Remedy	 	36
	 	Section 12.12	 	Defenses and Counterclaims	 	36
	 	Section 12.13	 	Anti-Indemnity Statute	 	36
	
ARTICLE 13        DISCLAIMERS; CASUALTY LOSS AND CONDEMNATION	
 	
36
	  	 	 	 	 
	 	Section 13.01	 	Disclaimers of Representations and Warranties	 	36
	 	Section 13.02	 	NORM	 	37
	 	Section 13.03	 	Casualty Loss; Condemnation	 	37
	
ARTICLE 14        MISCELLANEOUS	
 	
38
	  	 	 	 	 
	 	Section 14.01	 	Names	 	38
	 	Section 14.02	 	Expenses	 	38
	 	Section 14.03	 	Document Retention	 	38
	 	Section 14.04	 	Entire Agreement	 	38
	 	Section 14.05	 	Waiver	 	38
	 	Section 14.06	 	Construction	 	39
	 	Section 14.07	 	No Third Party Beneficiaries	 	39
	 	Section 14.08	 	Assignment	 	39
	 	Section 14.09	 	Governing Law; Venue	 	39
	 	Section 14.10	 	Notices	 	39
	 	Section 14.11	 	Severability	 	40
	 	Section 14.12	 	Interpretation	 	40
	 	Section 14.13	 	Time of the Essence	 	41
	 	Section 14.14	 	Counterpart Execution	 	41

iii

 
EXHIBITS AND SCHEDULES  

	Exhibit A	 	Subject Interests and Surface Agreements
	Exhibit B	 	Wells
	Exhibit C	 	Excluded Assets
	Exhibit D	 	Allocated Values
	Exhibit E	 	Form of Assignment and Bill of Sale
	Exhibit F-1	 	Buyer Press Release
	Exhibit F-2	 	St. Mary Press Release
	Schedule 1.02(g)	 	Production Imbalances
	Schedule 1.02(h)	 	Fee Property Description
	Schedule 4.06	 	Rights of Preferential Purchase
	Schedule 4.07	 	Consents to Assignment
	Schedule 5.06	 	Litigation
	Schedule 5.08	 	Authorizations for Expenditures
	Schedule 5.13	 	Insurance
	Schedule 5.14	 	Inactive Wells
	Schedule 5.17	 	Production Sales Agreements
	Schedule 5.21	 	Non-Transferable Permits

iv

 
Table of Defined Terms  

	Agreement	 	1
	Allocated Values	 	6
	Assets	 	1
	Assignment	 	12
	Assumed Obligations	 	40
	Breach	 	52
	Buyer	 	1
	Buyer's Environmental Review	 	16
	Casualty	 	48
	Casualty Loss	 	48
	CERCLA	 	18
	Claims	 	43
	Closing	 	34
	Closing Date	 	34
	Contracts	 	3
	Deposit	 	5
	Disclosure Information	 	32
	Documents	 	49
	Effective Time	 	7
	Environmental Defect	 	18
	Environmental Defect Value	 	19
	Environmental Information	 	18
	Environmental Laws	 	18
	Environmental Obligations	 	42
	Equipment	 	2
	Examination Period	 	8
	Excluded Assets	 	3
	Expiration Date	 	45
	Facilities	 	2
	Final Settlement Date	 	36
	Final Settlement Statement	 	36
	Governmental Authority	 	18
	Harrell	 	1
	Hydrocarbons	 	2
	includes and including	 	51
	Independent Expert	 	21
	Information	 	26
	Interim Operating Expenses	 	35
	knowledge or knowingly	 	52
	Lands	 	1
	Laws	 	13
	Lease and Leases	 	1
	Marketable Title	 	8
	material	 	52
	Material Adverse Effect	 	52
	NORM	 	47
	Notice of Disagreement	 	36
	OPA	 	19
	Overhead Fee	 	31

v

 

	Parties	 	1
	Party	 	1
	PDNP	 	6
	Permits	 	2
	Permitted Encumbrances	 	12
	Plugging and Abandonment Obligations	 	42
	Post-Closing Production Month	 	31
	Probable and/or Possible Locations	 	6
	Production Imbalances	 	7
	PUD Locations	 	6
	Purchase Price	 	5
	Purchase Price Allocations and Adjustments	 	36
	RCRA	 	18
	Records	 	3
	Representatives	 	44
	Retained Obligations	 	41
	Seismic License	 	3
	Seller	 	1
	Smith	 	1
	St. Mary	 	1
	Statement	 	36
	Subject Interests	 	2
	Surface Agreements	 	2
	Tax	 	52
	Title Benefit	 	16
	Title Benefit Value	 	16
	Title Claim Date	 	9
	Title Defect	 	8
	Title Defect Value	 	9
	Wachovia Liens	 	14
	Wells	 	2

vi

  PURCHASE AND SALE AGREEMENT  

        This Purchase and Sale Agreement (this "Agreement") is made and entered into this 11TH day of
December, 2007, by and between ST. MARY LAND & EXPLORATION COMPANY, a Delaware corporation ("St. Mary"), Ralph H. Smith Restated Revocable
Trust Dated 8/14/97, Ralph H. Smith Trustee ("Smith"), and Kent J. Harrell, Trustee of the Kent J. Harrell Revocable Trust Dated January 19, 1995
("Harrell") (who are collectively referred to herein as "Seller"), and ABRAXAS OPERATING, LLC, a
Texas limited liability company ("Buyer"). Buyer and Seller are collectively referred to herein as the
"Parties", and are sometimes referred to individually as a "Party." 

R E C I T A L S:  

        WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Assets (as defined below), all upon the terms and conditions hereinafter
set forth; 

        NOW,
THEREFORE, in consideration of Ten Dollars ($10.00) cash in hand paid and of the mutual benefits derived and to be derived from this Agreement by each Party, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows: 

ARTICLE 1  

 ASSETS  

        Section 1.01    Agreement to Sell and Purchase.    Subject to and in accordance with
the terms and conditions of this Agreement, Buyer agrees to purchase the Assets from Seller, and Seller agrees to sell the Assets to Buyer. 

        Section 1.02    Assets.    Subject to  Section 1.03, the term "Assets" shall mean all of Seller's right, title and interest in and to:
 

        (a)   The
oil, gas and other mineral leases described on Exhibit A (collectively, the
"Leases" and singularly a "Lease") and any overriding royalty interests, royalty interests,
non-working or carried interests, mineral fee interests, operating rights and other rights and interests described in Exhibit A,
together with the lands covered thereby or pooled or unitized therewith (the "Lands"), together with (i) all right, title and interest of Seller
in and to any other mineral interests of any nature (A) located in, on, or under the Lands, or (B) which are attributable to the proration unit or designated pooled unit for any of the
Wells (as hereinafter defined), in each case whether or not described in or omitted from Exhibit A, but the Assets shall, except as affected by
the provisions of Section 1.02(d), not include any portion of the Leases regarding lands covered by any such Lease which lands are not
specifically described in Exhibit A hereto, it being understood that in some instances the Leases cover lands which are not being sold by Seller
to Buyer even though other portions of the Leases are intended to be transferred from Seller to Buyer, (ii) all rights with respect to any pooled, communitized or unitized interest by virtue of
any Leases and Lands or the interests described in clause (i) above being a part thereof, and (iii) all production of oil, gas, associated liquids and other hydrocarbons (collectively
"Hydrocarbons") after the Effective Time from the Leases and the Lands, and from any such pooled, communitized, or unitized interest and allocated to
any such Leases and Lands or the interests described in clause (i) above (the Leases, the Lands, and the rights described in clauses (i) and (ii) above, and the Hydrocarbons
described in clause (iii) above, being collectively referred to as the "Subject Interests" or, singularly, a "Subject
Interest"); 

        (b)   all
easements, rights-of-way, servitudes, surface leases, surface use agreements and other rights or agreements related to the use of the surface
and subsurface (the "Surface Agreements"), in each case to the extent used in connection with the operation of the Subject Interests, including those
recorded Surface Agreements described in Exhibit A, except, that as to any easement or right-of-way which affects a Lease
that includes both the Lands and lands being retained by Seller, Seller shall grant a use right only with regard to such easement or right-of-way, which use rights 

 

shall
be limited to the portion of the Lease and the Lands to be transferred to Buyer and any necessary transit rights to enjoy such use rights; 

        (c)   to
the extent assignable or transferable, all permits, licenses, franchises, consents, approvals and other similar rights and privileges (the
"Permits"), in each case to the extent used in connection with the operation of the Subject Interests; 

        (d)   all
equipment, machinery, fixtures, spare parts, inventory and other personal property (including Seller's leasehold interests therein subject to any necessary consents
to assignment) used in connection with the operation of the Subject Interests or in connection with the production, treatment, compression, gathering, transportation, sale, or disposal of Hydrocarbons
produced from or attributable to the Subject Interests (collectively, "Equipment"), and any water, byproducts or waste produced therefrom or therewith
or otherwise attributable thereto, including all wells (whether producing, shut in or abandoned, and whether for production, produced water injection or disposal, or otherwise) described in  Exhibit B (collectively, the "Wells") together with all of Seller's interests within the spacing,
producing, proration, federal exploratory, enhanced recovery, or governmentally prescribed unit attended to the described Wells, wellhead equipment, pumps, pumping units, flowlines, gathering systems,
pipe, tanks, treatment facilities, injection facilities, disposal facilities, compression facilities and other materials, supplies, buildings, trailers and offices used in connection with the Subject
Interests and the other matters described in this definition of Assets (the "Facilities"); 

        (e)   to
the extent assignable or transferable, (i) all contracts, agreements, drilling contracts, equipment leases, production sales and marketing contracts,
farm-out and farm-in agreements, operating agreements, service agreements, unit agreements, gas gathering and transportation agreements and other contracts, agreements and
arrangements, relating to the Subject Interests and the other matters described in this definition of Assets, and subject to, and in accordance with, any limitations set forth in such agreements, and
(ii) equipment leases and rental contracts, service agreements, supply agreements and other contracts, agreements and arrangements relating to the Subject Interests and the other matters
described in this definition of Assets, (the agreements identified in clauses (i) and (ii) above being, collectively, the "Contracts"); 

        (f)    all
files, records and data relating to the items described in Sections 1.02(a) through  (e) maintained by Seller including, without limitation, the
following, if and to the extent that such files exist: all books, records, reports, manuals,
files, title documents, including correspondence, records of production and maintenance, revenue, sales, expenses, warranties, lease files, land files, well files, division order files, abstracts,
title opinions, assignments, reports, property records, contract files, operations files, copies of tax and accounting records (but excluding Federal and state income tax returns and records) and
files, maps, core data, hydrocarbon analysis, well logs, mud logs, field studies together with other files, contracts and other records and data including all geologic and geophysical data and maps,
but excluding from the foregoing those files, records and data subject to written unaffiliated third party contractual restrictions on disclosure or transfer (the
"Records"). Unless proscribed by the terms of any existing written unaffiliated third party contract, Seller shall, to the extent it may do so, grant a
perpetual, royalty-free license to Buyer of Seller's seismic data that covers the Subject Interests (the "Seismic License"). To the extent
that any of the Records contain interpretations of Seller, Buyer agrees to rely on such interpretations at its sole risk and without any duty on the part of Seller regarding such interpretations; 

        (g)   all
Production Imbalances, including those set forth on Schedule 1.02(g) as of the Effective Time; and 

        (h)   all
right, title and interest in and to all surface rights and the plant pertaining to the Buck Peak property located in Moffat County, Colorado, as well as all of
Seller's right, title and interest in that certain North Dakota fee property both as described on Schedule 1.02(h). 

2

 

        Section 1.03    Excluded Assets.    Notwithstanding the foregoing, the Assets shall not
include, and there is excepted, reserved and excluded from the sale, transfer and assignment contemplated hereby the following excluded properties, rights and interests (collectively, the
"Excluded Assets"): 

        (a)   those
assets, interests, rights and properties described in Exhibit C; 

        (b)   all
trade credits and all accounts, instruments and general intangibles attributable to the Assets with respect to any period of time prior to the Effective Time; 

        (c)   except
for those Claims or rights against a third party for which Buyer has agreed to indemnify Seller pursuant to the terms of this Agreement, all Claims of Seller, 

          (i)  arising
from acts, omissions or events, or damage to or destruction of property, occurring prior to the Effective Time, 

         (ii)  arising
under or with respect to any of the Contracts that are attributable to periods of time prior to the Effective Time (including claims for adjustments or
refunds), or 

        (iii)  with
respect to any of the other Excluded Assets; 

        (d)   all
rights and interests of Seller, 

          (i)  under
any policy or agreement of insurance or indemnity, 

         (ii)  under
any bond, or 

        (iii)  to
any insurance or condemnation proceeds or awards arising in each case from acts, omissions or events, or damage to or destruction of property, occurring prior to
the Effective Time; 

        (e)   all
Hydrocarbons produced from or otherwise attributable to the Subject Interests with respect to all periods prior to the Effective Time, excluding those Hydrocarbons
referenced in Section 1.02(g) together with all proceeds from the sale of such Hydrocarbons, and all Tax credits attributable thereto; 

        (f)    all
Claims of Seller for refunds of or loss carry forwards with respect to 

          (i)  ad
valorem, severance, production or any other Taxes attributable to any period prior to the Effective Time, 

         (ii)  income,
gross margin or franchise Taxes, 

        (iii)  any
Taxes attributable to the other Excluded Assets, and such other refunds, and rights thereto, for amounts paid in connection with the Assets and attributable to the
period prior to the Effective Time, including refunds of amounts paid under any gas gathering or transportation agreement; 

        (g)   all
amounts due or payable to Seller as adjustments to insurance premiums related to the Assets with respect to any period prior to the Effective Time; 

        (h)   all
proceeds, income or revenues (and any security or other deposits made) attributable to the Assets for any period prior to the Effective Time, or any other Excluded
Assets; 

        (i)    subject
to Section 1.02(f), all of Seller's proprietary technology and improvements, computer software, patents,
trade secrets, copyrights, names, trademarks, logos and other intellectual property; 

        (j)    all
documents and instruments of Seller that may be protected by an attorney-client or other privilege; 

3

 

        (k)   data,
information and other property, rights or interests that cannot be disclosed or assigned to Buyer as a result of confidentiality or similar arrangements; 

        (l)    all
audit rights arising under any of the Contracts or otherwise with respect to any period prior to the Effective Time or to any of the other Excluded Assets; 

        (m)  all
computers, printers and other electronic equipment located in any buildings, offices or trailers that may belong to Seller and that may constitute part of the
Assets, including, all software and electronic data relating in any way to such electronic equipment; 

        (n)   All
corporate, income tax and financial records of Seller not included in the Records; and 

        (o)   all
agreements providing for options, swaps, floors, caps, collars, forward sales or forward purchases involving commodities or commodity prices, or indexes based on any
of the foregoing and all other similar agreements and arrangements. 

ARTICLE 2  

 PURCHASE PRICE  

        Section 2.01    Purchase Price.    The total consideration for the purchase, sale and
conveyance of the Assets to Buyer and Buyer's assumption of the Assumed Obligations and all other liabilities provided for in this Agreement, is Buyer's payment to Seller of the sum of One Hundred and
Forty Million Dollars ($140,000,000) (the "Purchase Price"), as adjusted in accordance with the provisions of this Agreement. 

        Section 2.02    Deposit.    

        (a)   Concurrently
with the execution of this Agreement by Buyer and Seller, Buyer shall deliver to Seller in immediately available funds a performance guarantee deposit in an
amount equal to Ten Million Dollars ($10,000,000) (the "Deposit") in accordance with wire transfer instructions provided by Seller to Buyer. 

        (b)   Subject
to the proviso set forth in Section 11.01, if this Agreement is terminated by Seller pursuant to  Section 11.01(b) and Seller does not waive the
non-satisfaction of any conditions to Closing set forth in  Article 8, Seller shall retain the Deposit as liquidated damages, which remedy shall be the sole and exclusive remedy available to Seller
for
Buyer's failure to perform its obligations under this Agreement. Buyer and Seller acknowledge and agree that (i) Seller's actual damages upon the event of such a termination are difficult to
ascertain with any certainty, (ii) the Deposit is a reasonable estimate of such actual damages, and (iii) such liquidated damages do not constitute a penalty. 

        (c)   Subject
to the proviso set forth in Section 11.01, if this Agreement is terminated (i) by Buyer pursuant to  Section 11.01(c) and Buyer does not
waive the non-satisfaction of any conditions to Closing set forth in  Article 9 or (ii) by Buyer or Seller pursuant to Section 11.01(a),
 Section 11.01(d), Section 11.01(e),
Section 11.01(f), Section 11.01(g),  Section 11.01(h) or Section 13.03(c), then Seller shall promptly return the Deposit to
Buyer in immediately available funds pursuant to wire transfer instructions to be provided timely by Buyer to Seller within three (3) business days after the event giving rise to such return
obligation. Buyer and Seller shall thereupon have the rights and obligations set forth elsewhere herein. 

        (d)   If
all conditions precedent to the obligations of Seller set forth in Article 8 have been met, then
notwithstanding any provision in this Section 2.02 to the contrary, if Closing does not occur because Seller wrongfully fails to tender
performance at Closing or otherwise Breaches this Agreement in any respect prior to Closing, and Buyer is ready and otherwise able to close, at Buyer's sole election, either (i) Seller shall
return the Deposit to Buyer within three (3) business 

4

 

days
after the determination that the Closing will not occur, or (ii) Buyer shall have the right to pursue specific performance of this Agreement, provided that Buyer must file an action for
specific performance within 21 days of Seller's Breach. If Buyer elects to pursue specific performance, Buyer must pursue specific performance as its sole and exclusive remedy in lieu of all
other legal and equitable remedies. If such action for specific performance is not filed within 21 days of Seller's Breach or if Buyer is unsuccessful for any reason other than a Breach of this
Agreement by Buyer, Buyer shall be deemed to have waived all legal and equitable remedies and its sole remedy for Seller's Breach of this Agreement shall be limited to the prompt return of the
Deposit. 

        Section 2.03    Allocated Values.    The Purchase Price is allocated among the Assets
(including the Wells, PUD Locations, PDNP, and Probable and/or Possible Locations) as set forth in Exhibit D (the
"Allocated Values"). In no event shall the aggregate of the Allocated Values of any Wells, PUD Locations, PDNP, and Probable and/or Possible Locations
exceed the unadjusted Purchase Price. The term "PUD Locations" means those Proved Undeveloped potential well locations specifically identified in  Exhibit D. The term "PDNP" means Proved Developed Not Producing intervals as specifically
identified on Exhibit D. The term "Probable and/or Possible Locations" means those locations
specifically identified and designated as such on Exhibit D. Seller and Buyer agree that the Allocated Values shall be used to compute any
adjustments to the Purchase Price pursuant to the provisions of Article 4. Any adjustment to the Purchase Price hereunder shall be reflected in
the allocation set forth in Exhibit D consistent with Treasury Regulation Section 1.1060-IT (f). For tax purposes, the Parties agree
to report the transactions contemplated by this Agreement in a manner consistent with the terms of this
Agreement, including the allocations set forth above as of the Closing Date, and that neither Party will take any position inconsistent therewith, including in any tax return, in any refund claim, in
any litigation or arbitration or otherwise. 

        Section 2.04    Section 1031 Like-Kind Exchange.    Seller and Buyer
hereby agree that Seller shall have the right at any time prior to completion of all the transactions that are to occur at Closing to assign all or a portion of its rights under this Agreement to a
Qualified Intermediary (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) in order to accomplish the transaction in a manner that will comply,
either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. Likewise, Buyer shall have the
right at any time prior to completion of all the transactions that are to occur at Closing to assign all or a portion of its rights under this Agreement to a Qualified Intermediary for the same
purpose. If Seller assigns all or any of its rights under this Agreement for this purpose, Buyer agrees to (a) consent to Seller's assignment of its rights in this Agreement, which assignment
shall be in a form reasonably acceptable to Buyer, and (b) pay the Purchase Price (or a designated portion thereof as specified by Seller) into a qualified escrow or qualified trust account at
Closing as directed in writing. If Buyer assigns all or any of its rights under this Agreement for this purpose, Seller agrees to (i) consent to Buyer's assignment of its rights in this
Agreement, which assignment shall be in a form reasonably acceptable to Seller, (ii) accept the Purchase Price from the qualified escrow or qualified trust account at Closing, and
(iii) at Closing, convey and assign directly to Buyer the Assets (or any portion thereof) as directed by Buyer. Seller and Buyer acknowledge and agree that any assignment of this Agreement (or
any rights hereunder) to a Qualified Intermediary shall not release any Party from any of its respective liabilities and obligations hereunder, and that neither Party represents to the other Party
that any particular tax treatment will be given to any Party as a result thereof. The Party electing to assign all or any of its rights under this Agreement pursuant to this  Section 2.04 shall
defend, indemnify and hold harmless the other Party and its Affiliates from all Claims relating to such election. 

5

 
ARTICLE 3  

 EFFECTIVE TIME  

        Section 3.01    Ownership of Assets.    If the transactions contemplated hereby are
consummated in accordance with the terms and provisions hereof, the ownership of the Assets shall be transferred from Seller to Buyer on the Closing Date, but effective for all purposes as of
7:00 a.m. local time at the location of the Assets on December 1, 2007 (the "Effective Time"). 

        Section 3.02    Production Imbalances.    Upon Closing, Buyer shall assume the
positions of Seller with respect to all gas imbalances and make-up obligations related to the Assets regardless of whether such imbalances or make-up obligations arise before
or after the Effective Time, at the wellhead, pipeline, gathering system or other location, and regardless of whether the same arise under contract or otherwise ("Production
Imbalances"). As a result of such assumption, Buyer shall (a) be entitled to receive any and all benefits which Seller would have been entitled to receive by virtue of
its position, including rights to produce and receive volumes of production in excess of volumes which it would otherwise have been entitled to produce and to receive cash gas balancing by virtue of
ownership of the Assets, (b) be obligated to suffer any detriments or losses which Seller would have been obligated to suffer by virtue of such position, including the obligation to deliver to
others production volumes which would have otherwise been attributable to its ownership of the Assets, to deliver production to purchasers thereof without Buyer receiving full payment therefor, or to
make cash balancing payments or to repay any take or pay payments, and (c) be responsible for any and all royalty obligations and other burdens with respect to such Production Imbalances;
provided however, nothing in this subsection (c) of Section 3.02 shall relieve Seller from any
royalty obligation affecting production Seller has actually received, or which has been credited to Seller's interest in the Assets. 

ARTICLE 4  

 TITLE AND ENVIRONMENTAL MATTERS  

        Section 4.01    Examination Period.    Until 5:00 p.m. MST on the date which is
seven (7) days prior to the Closing Date (the "Examination Period"), Seller shall permit Buyer and/or its representatives to examine during
normal business days and hours at a location designated by Seller, all abstracts of title, title opinions, title files, ownership maps, lease, Well and division order files, assignments, operating and
accounting records and all Surface Agreements, Permits, Contracts and other agreements, data, analyses and information pertaining to the Assets insofar as same may now be in existence and in the
possession of Seller, subject to such restrictions upon disclosure as may exist under confidentiality or other agreements binding upon Seller and relating to such data. 

        Section 4.02    Title Defects.    The term "Title
Defect" means (a) any encumbrance on, encroachment on, irregularity in, defect in or objection to Seller's ownership of the Assets (excluding Permitted Encumbrances)
that causes Seller not to have Marketable Title to a Well, a PUD Location, a PDNP or a Probable and/or Possible Location as described in  Exhibit D; or (b) any default by Seller under a lease,
farm-out agreement or other contract or agreement that would
(i) have a material and adverse effect on the operation, value or use of such Asset, (ii) prevent Seller from receiving the proceeds of production attributable to Seller's interest
therein, or (iii) result in cancellation of all or a portion of Seller's interest therein. The term "Marketable Title" means such ownership by
Seller in the Assets that, subject to and except for the Permitted Encumbrances: 

        (a)   entitles
Seller to receive not less than the percentage set forth in Exhibit D as Seller's Net Revenue Interest of
all Hydrocarbons produced, saved and marketed from such Well, PUD Location, PDNP, or Probable and/or Possible Locations described in such exhibit, all without reduction, suspension or termination of
such interest throughout the productive life of such Well, except as specifically set forth in such exhibit; 

6

 

        (b)   obligates
Seller to bear not greater than the percentage set forth in Exhibit D as Seller's Working Interest of
the costs and expenses relating to the maintenance, development and operation of such Well, PUD Location, PDNP, or Probable and/or Possible Locations, all without increase throughout the productive
life of such Well, except as specifically set forth in either of such exhibit; and 

        (c)   is
free and clear of all liens, encumbrances and defects in title. 

        Subject
to the limitations of Section 4.14, Breaches of Seller's representations and warranties contained in  Section 5.07 through Section 5.24 discovered prior to the Closing shall be treated as
Title Defects for purposes of making pre-Closing adjustments to the Purchase Price. 

        Section 4.03    Notice of Title Defects.    Buyer shall provide Seller notice of all
Title Defects no later than 5:00 p.m. MST on the date which is seven (7) days prior to the Closing Date (the "Title Claim Date"). To be
effective, such notice must (a) be in writing, (b) be received by Seller on or prior to the Title Claim Date, (c) describe the Title Defect in reasonable detail (including any
alleged variance in the Net Revenue Interest or Working Interest), (d) identify the specific Asset or Assets affected by such Title Defect, (e) include the Title Defect Value, as
reasonably determined by Buyer in good faith, and (f) comply with the limitations and Title Defect Value qualifications set forth in  Section 4.14. Any matters identified by Buyer during the
Examination Period that constitute Title Defects, but of which Seller has not been
specifically notified by Buyer in accordance with the foregoing, shall be deemed to have been waived by Buyer for all purposes and shall constitute Permitted Encumbrances and Assumed Obligations
hereunder. Upon receipt of notices of Title Defects, the Parties shall meet and determine upon which of the Title Defects, Title Defect Values and methods of cure the Parties have reached agreement.
Upon the receipt of such notice from Buyer, Seller shall have the option, but not the obligation, for a period ending ninety (90) days after the Closing to cure such defect. If Seller should
not elect to cure a Title Defect, and no aspect of such defect is reasonably in dispute, the Purchase Price shall be adjusted for such defect by the amount of the Title Defect Value. 

        (a)   The
value attributable to each Title Defect (the "Title Defect Value") that is asserted by Buyer in the Title Defect
notices shall be determined based upon the criteria set forth below: 

          (i)  If
the Title Defect is a lien upon any Asset, the Title Defect Value is the amount necessary to be paid to remove the lien from the affected Asset; 

         (ii)  If
the Title Defect asserted is that the Net Revenue Interest attributable to any Well, PUD Location, PDNP, or Probable and/or Possible Locations is less than that
stated in Exhibit D, then the Title Defect Value shall be the absolute value of the number determined by the following formula: 

Title
Defect Value = A × (1-[B/C]) 

A =
Allocated Value for the affected Asset

B =
Correct Net Revenue Interest for the affected Asset 

C =
Net Revenue Interest for the affected Asset as set forth on Exhibit D. 

        (iii)  If
the Title Defect represents an obligation, encumbrance, burden or charge upon the affected Asset (including any increase in Working Interest for which there is not
a proportionate increase in Net Revenue Interest) for which the economic detriment to Buyer is unliquidated, the amount of the Title Defect Value shall be determined by taking into account the
Allocated Value of the affected Asset, the portion of the Asset affected by the Title Defect, the legal effect of the Title Defect, the potential discounted economic effect of the Title Defect over
the life of the affected Asset, and the Title Defect Values placed upon the Title Defect by Buyer and Seller; 

7

 

 

        (iv)  If
a Title Defect is not in effect or does not adversely affect an Asset throughout the entire post Effective Time productive life of such Asset, such fact shall be
taken into account in determining the Title Defect Value; 

         (v)  The
Title Defect Value of a Title Defect shall be determined without duplication of any costs or losses included in another Title Defect Value hereunder; 

        (vi)  Notwithstanding
anything herein to the contrary, in no event shall a Title Defect Value exceed the Allocated Value of the Wells, PUD Locations, PDNP, Probable and/or
Possible Locations, or other Assets affected thereby; 

       (vii)  If
the Title Defect Value of an Asset is equal to the Allocated Value of such Asset, the affected Asset shall be excluded from the purchase and sale contemplated by
this Agreement, and the Purchase Price shall be adjusted accordingly; 

      (viii)  Notwithstanding
the provisions of this Section 4.03 to the contrary, the Title Defect Value of any Title Defect
comprising a required consent not obtained (other than consents customarily obtained after Closing) shall be determined subject to any accommodation implemented pursuant to  Section 4.07; and

        (ix)  Such
other factors as are reasonably necessary to make a proper evaluation. 

        (b)   The
term Title Defect shall not include: 

          (i)  Defects
based solely on an assertion that Seller's files lack information, provided that any missing material information can be obtained by the reasonable efforts of
Buyer; 

         (ii)  Defects
in the early chain of title consisting of the failure to recite marital status in a document or omissions of successors of heirship or estate proceedings,
unless Buyer provides a reasonable basis for the assertion that such failure or omission has resulted in a third party's actual and superior claim of title to the affected Asset; 

        (iii)  Defects
arising out of lack of survey; 

        (iv)  Defects
arising out of lack of corporate or other entity authorization unless Buyer provides a reasonable basis for the assertion that the action was not authorized and
that such lack of authorization has resulted in a third party's actual and superior claim of title to the affected Asset; 

         (v)  Defects
that are defensible by possession under applicable statutes of limitations for adverse possession or for prescription; provided that the mere passage of time in
and of itself shall not establish any presumption of the applicability of the provisions of this Section 4.03(b)(v); 

        (vi)  Defects
asserting a change in an applicable Working Interest or Net Revenue Interest based on a change in drilling and spacing units, tract allocation or other changes
in pooling or unit participation occurring after the date of this Agreement; and 

       (vii)  Title
requirements customarily considered as advisory or which can be waived as a matter of prudent business judgment. 

        Section 4.04    Remedies for Title Defects.    

        (a)   For
any Title Defect noticed pursuant to Section 4.03 that has not been cured at or prior to Closing, the Purchase
Price shall, subject to the provisions of Section 4.14, be decreased at Closing by either (i) the amount the Parties acting reasonably and
in good faith agree in lieu of a cure of the asserted Title Defect, or (ii) with respect to any Title Defect for which the Parties have not yet agreed as to the validity of the Title Defect,
the Title Defect Value, or the manner of cure, 

8

 

then
by the amount of the Title Defect Value asserted by Buyer for such uncured or unadjusted Title Defect. 

        (b)   Notwithstanding
anything to the contrary in this Section 4.04, if any Title Defect is in the nature of a consent
to assignment that is not obtained or other restriction on assignment, the provisions of Section 4.07 shall apply. 

        (c)   If
at the expiration of thirty (30) days after Closing, the Parties have not agreed upon the validity of any asserted Title Defect, the appropriate cure of the
same, or the Title Defect Value attributable thereto, either Party shall have the right to elect to have any such dispute determined by an Independent Expert pursuant to  Section 4.13. 

        (d)   Once
a Title Defect is cured by Seller at its sole cost and expense to Buyer's reasonable satisfaction, or the existence or value of the Title Defect is determined with
finality either by agreement between the affected Parties or in accordance with Section 4.13, Buyer shall promptly pay to Seller (i) in
the case of a Title Defect which is cured, the amount the Purchase Price was decreased at Closing as a result of this previously uncured Title Defect or (ii) in the case of an Asset affected by
an unresolved Title Defect and for which the validity of the Title Defect or the Title Defect Value is determined with finality whether by agreement or in accordance with  Section 4.13, the
difference, if any, between the amount the Purchase Price was decreased at Closing as a consequence of such asserted and
unresolved Title Defect and the amount determined with finality. 

        Section 4.05    Special Warranty of Title.    The documents to be executed and
delivered by Seller to Buyer, transferring title to the Assets as required hereby, including the Assignment and Bill of Sale the form of which (subject to modification to meet state recording statute
requirements) is attached hereto as Exhibit E (the "Assignment"), shall provide for a special
warranty of title, by, through and under Seller severally as to their respective interests in and to the Assets and subject to the Permitted Encumbrances and the terms of this Agreement. The term
"Permitted Encumbrances" shall mean any of the following matters to the extent the same are valid and subsisting and affect the Assets: 

        (a)   any
(i) undetermined or inchoate liens or charges constituting or securing the payment of expenses that were incurred incidental to the maintenance, development,
production or operation of the Assets or for the purpose of developing, producing or processing Hydrocarbons therefrom or therein, and (ii) materialman's, mechanics', repairman's, employees',
contractors', operators' liens or other similar liens or charges for liquidated amounts arising in the ordinary course of business (A) that Seller has agreed to retain or pay pursuant to the
terms hereof, or (B) for which Seller is responsible for paying or releasing at the Closing; 

        (b)   any
liens for Taxes and assessments not yet delinquent or, if delinquent, that are being contested in good faith in the ordinary course of business and for which Seller
has agreed to pay pursuant to the terms hereof or which have been prorated pursuant to the terms hereof; 

        (c)   the
terms, conditions, restrictions, exceptions, reservations, limitations and other matters contained in (including any liens or security interests created by law or
reserved in oil and gas leases for royalty, bonus or rental, or created to secure compliance with the terms of) the Contracts, Surface Agreements, the Leases and any other agreements, instruments,
documents and other matters described or referred to in any Exhibit or Schedule hereto, or other terms in such instruments that create or reserve to Seller its interest in the Assets; provided, that,
such matters do not operate to (i) reduce the Net Revenue Interest of Seller in any Well, PUD Location, PDNP, or Probable and/or Possible Locations as reflected in  Exhibit D, or
(ii) increase the proportionate share of costs and expenses of leasehold operations attributable to or to be borne by the
Working Interest of Seller with respect to any Well, PUD Location, PDNP, or Probable and/or 

9

 

Possible
Locations as reflected in Exhibit D, unless there is a proportionate increase in Seller's applicable Net Revenue Interest; 

        (d)   any
obligations or duties affecting the Assets to any Governmental Authority with respect to any franchise, grant, license or permit, and all applicable federal, state
and local laws, rules, regulations, guidances, ordinances, decrees ("Laws") and orders of any Governmental Authority; 

        (e)   any
(i) easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations, pipelines,
grazing, hunting, lodging, canals, ditches, reservoirs or the like, and (ii) easements for streets, alleys, highways, pipelines, telephone lines, power lines, railways and other similar
rights-of-way on, over or in respect of property owned or leased by Seller or over which Seller owns rights-of-way, easements, permits or licenses; 

        (f)    all
royalties, overriding royalties, net profits interests, carried interests, production payments, reversionary interests and other burdens on or deductions from the
proceeds of production created or in existence as of the Effective Time, whether recorded or unrecorded, that do not (i) reduce the Net Revenue Interest of Seller in any Well, PUD Location,
PDNP, or Probable and/or Possible Locations and as reflected in Exhibit D, or (ii) increase the proportionate share of costs and expenses
of leasehold operations attributable to or to be borne by the Working Interest of Seller with respect to any Well, PUD Location, PDNP, or Probable and/or Possible Locations as reflected in  Exhibit D, unless there is a proportionate increase in Seller's applicable Net Revenue Interest; 

        (g)   preferential
rights to purchase or similar agreements (i) with respect to which (A) waivers or consents are obtained from the appropriate parties for the
transaction contemplated hereby, or (B) required notices have been given for the transaction contemplated hereby to the holders of such rights and the appropriate period for asserting such
rights has expired without an exercise of such rights, or (ii) not exercised prior to Closing, subject to Section 4.06; 

        (h)   required
third party consents to assignments or similar agreements with respect to which (i) waivers or consents have been obtained from the appropriate parties
for the transaction contemplated hereby, or (ii) required notices have been given for the transaction contemplated hereby to the holders of such rights and the appropriate period for asserting
such rights has expired without an exercise of such rights; 

        (i)    all
rights to consent by, required notices to, filings with, or other actions by, Governmental Authorities in connection with the sale, transfer or conveyance of the
Assets that are customarily obtained subsequent to such sale or conveyance; 

        (j)    production
sales contracts; division orders; contracts for sale, purchase, exchange, refining or processing of hydrocarbons; unitization and pooling designations,
declarations, orders and agreements; operating agreements; agreements of development; area of mutual interest agreements; gas balancing or deferred production agreements; processing agreements; plant
agreements; pipeline, gathering and transportation agreements; injection, repressuring and recycling agreements; water or other disposal agreements; seismic or geophysical permits or agreements; and
any and all other agreements that are ordinary and customary to the oil, gas and other mineral exploration, development, processing or extraction business or in the business of processing of gas and
gas condensate production for the extraction of products therefrom; provided, that, such matters do not (i) reduce the Net Revenue Interest of Seller in any Well, PUD Location, PDNP, or
Probable and/or Possible Locations as reflected in Exhibit D or (ii) increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the Working Interest of Seller with respect to any Well, PUD Location, PDNP, or Probable and/or Possible Locations as reflected in  Exhibit D, unless
there is a proportionate increase in Seller's applicable Net Revenue Interest; 

10

 

        (k)   rights
reserved to or vested in any Governmental Authority to control or regulate any of the Wells or units included in the Assets and the applicable laws, rules, and
regulations of such Governmental Authorities; 

        (l)    all
defects and irregularities affecting the Assets which individually or in the aggregate do not (i) reduce the Net Revenue Interest of Seller in any Well, PUD
Location, PDNP, or Probable and/or Possible Locations as reflected in Exhibit D, (ii) increase the proportionate share of costs and
expenses of leasehold operations attributable to or to be borne by the Working Interests of Seller with respect to any Well, PUD Location, PDNP, or Probable and/or Possible Locations as reflected on  Exhibit D unless there is a proportionate increase in Seller's applicable Net Revenue Interest, or (iii) otherwise result in a material
and adverse interference with the operation, value or use of the Assets; 

        (m)  conventional
rights of reassignment arising upon decision to surrender or abandon an interest; and 

        (n)   all
deeds of trust and other security interests burdening the Assets granted by Seller in connection with its credit facilities under which Wachovia Bank serves as
administrative agent (the "Wachovia Liens"), it being understood that the release of the Wachovia Liens is a condition to the Closing as provided in  Section 9.04. 

        Section 4.06    Preferential Rights to Purchase.    

        (a)   After
consultation with Buyer, Seller shall use its reasonable efforts, but without any obligation to incur anything but reasonable costs and expenses in connection
therewith, to comply with all preferential right to purchase provisions relative to any Asset prior to the Closing, including those rights of preferential purchase identified on  Schedule 4.06.

        (b)   Prior
to the Closing, Seller shall promptly notify Buyer if any of such preferential purchase rights are exercised or if the requisite period has elapsed without such
rights having been exercised. 

        (c)   If
a third party who has been offered an interest in any Asset pursuant to a preferential right to purchase elects prior to the Closing to purchase all or part of such
Assets, and the closing of such transaction does occur on or before the Closing Date, then the interest or part thereof so affected will be eliminated from the Assets and the Purchase Price shall be
reduced by the Allocated Value of such Assets. If any such third party has elected to purchase all or a part of an interest in any Asset subject to a preferential right to purchase, but has failed to
close the transaction by the Closing Date, then all of the Assets will be conveyed to Buyer at Closing, without adjustment to the Purchase Price, and on the Closing Date Buyer shall, as an Assumed
Obligation, assume all duties, obligations and liabilities, of any kind or nature, arising from, out of, or in connection with, any enforceable preferential right to purchase that is outstanding, and,
if exercised, Buyer shall receive the payment therefor and shall assign the affected portion of the Assets to the holder of such exercised preferential right to purchase. In addition, in the event an
interest is offered by Seller pursuant to a preferential right to purchase for which notice has been given but the time period for response by the holder of such right extends beyond Closing, such
interest shall be conveyed to Buyer at the Closing, without reduction to the Purchase Price, and shall be subject to such preferential right of purchase. 

        Section 4.07    Consents to Assignment.    If any Asset is subject to a Title Defect as
a result of a consent to assignment not having been obtained, including those consents to assignment set forth on 

11

 

 Schedule 4.07, or, of the existence of other restrictions on assignment or conveyance, the following provisions shall apply: 

        (a)   Buyer
and Seller shall cooperate in any reasonable and lawful arrangement proposed to provide Buyer with the benefits of ownership of the affected Asset without
breaching the consent requirement or restriction comprising such Title Defect; and 

        (b)   If
such arrangement involves Seller retaining actual title with beneficial title being assigned to Buyer at the Closing, then: 

          (i)  only
such beneficial title shall be assigned to Buyer at the Closing, without any adjustment to the Purchase Price for such Title Defect; and 

         (ii)  if
such consent is obtained or such restriction eliminated following the Closing, then Seller shall execute and deliver to Buyer an assignment of Seller's retained
title and any related obligations consistent with the terms of this Agreement. 

        Section 4.08    Remedies for Title Benefits.    

        (a)   If
Buyer discovers any Title Benefit affecting the Assets, it shall promptly notify Seller in writing thereof. Subject to  Section 4.14, Seller shall be entitled to an upward adjustment to the Purchase
Price with respect to all Title Benefits in an amount (the
"Title Benefit Value") determined in accordance with the formula provided for in this  Section 4.08(a). The term "Title
Benefit" shall mean Seller's Net Revenue Interest in any Well,
PUD Location, PDNP, or Probable and/or Possible Locations that is greater than or in addition to the Net Revenue Interest set forth in Exhibit D,
or Seller's Working Interest in any Well, PUD Location, PDNP, or Probable and/or Possible Locations that is less than the Working Interest set forth in  Exhibit D (without a proportionate decrease
in the Net Revenue Interest). The Title Benefit Value shall be the absolute value of the number
determined by the following formula: 

Title
Benefit Value = [A × (B/C)]-A

A =
Allocated Value for the affected Asset

B =
Correct Net Revenue Interest for the affected Asset 

C =
Net Revenue Interest for the affected Asset as set forth on Exhibit D. 

        (b)   If
the Title Benefit represents a decrease in Working Interest for which there is not a proportionate decrease in Net Revenue Interest, the amount of the Title Benefit
Value shall be determined by taking into account the Allocated Value of the affected Asset, the portion of the Asset affected by the Title Benefit, the legal effect of the Title Benefit, the potential
discounted economic effect of the Title Benefit over the life of the affected Asset, and the Title Benefit Values placed upon the Title Benefit by Buyer and Seller. 

        (c)   If
the Parties have not agreed on the amount of the Title Benefit Value of a Title Benefit by the expiration of thirty (30) days after Closing, Seller or Buyer
shall have the right to elect to have such Title Benefit Value determined by an Independent Expert pursuant to Section 4.13. If the Title Benefit
Value is not determined pursuant to this Agreement by the Closing, the Purchase Price paid at Closing shall be increased, subject to  Section 4.14, by the Title Benefit Value determined by Buyer,
acting reasonably and in good faith, and, subject to  Section 4.14. Upon the final determination of Title Benefit Value either by mutual agreement of the Parties or by the Independent Expert,
(i) Seller shall refund to Buyer the amount, if any, by which the amount so paid by Buyer at Closing exceeds such Title Benefit Value, or (ii) Buyer shall pay to Seller the amount, if
any, by which such Title Benefit Value exceeds the amount so paid by Buyer at Closing. 

12

 

  
        Section 4.09    Environmental Review.    Buyer may conduct an environmental
assessment
of the Assets prior to the expiration of the Title Claim Date, subject to the following: 

        (a)   Buyer
shall have the right to conduct a Phase I (as that term is defined by the American Society for Testing and Materials) environmental review of the Assets
prior to the expiration of the Examination Period ("Buyer's Environmental Review") and Seller shall provide to Buyer a copy of any environmental review
Seller has in its possession subject to the same terms of confidentiality subsequently set forth herein; 

          (i)  The
cost and expense of Buyer's Environmental Review shall be borne solely by Buyer; 

         (ii)  All
inspections must be coordinated through a designated representative of Seller who may accompany Buyer during the course of Buyer's inspection of the Assets; 

        (iii)  All
environmental assessments shall be conducted by an independent environmental consultant engaged by Buyer at Buyer's expense; 

        (iv)  Buyer
shall give Seller notice not more than seven (7) days and not less than forty eight (48) hours before any visits by Buyer and/or its consultant to
the Assets, and Buyer shall seek and obtain Seller's prior consent (which shall not be unreasonably withheld) before either it or its consultant enters the Assets; 

         (v)  Buyer
shall provide Seller a copy of the Phase I report affecting the Assets promptly after Buyer's receipt of the same; 

        (vi)  Buyer
shall give Seller prompt written notice and obtain Seller's prior written consent (not to be unreasonably withheld) if Buyer desires to conduct a Phase II
(as that term is defined by the American Society for Testing and Materials) study based on the recommendations of Buyer's independent environmental consultant (acting reasonably) with respect to the
Assets. With respect to any samples
taken in connection with Buyer's Environmental Review, Buyer shall take split samples, providing one of each such sample, properly labeled and identified, to Seller; 

       (vii)  Buyer
and/or its consultant shall perform all such work in a safe and workmanlike manner, shall not unreasonably interfere with Seller's operations, and shall comply
with all Laws of applicable Governmental Authorities; 

      (viii)  Buyer
shall be solely responsible for obtaining any third party consents that are required in order to perform any work comprising Buyer's Environmental Review, and
Buyer shall consult with Seller prior to requesting each such third party consent; and 

        (ix)  Buyer
hereby agrees to release and defend, indemnify and hold harmless Seller and Seller's Representatives from and against all Claims made by (or attributable to the
acts or omissions of) Buyer or Buyer's Representatives (INCLUDING THOSE RESULTING FROM THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER'S REPRESENTATIVES) arising out of or relating to Buyer's Environmental Review. The release and
indemnity provisions of this Section 4.09 shall survive termination or Closing of this Agreement notwithstanding anything to the contrary
provided for in this Agreement. 

        (b)   Unless
otherwise required by applicable Laws, Buyer shall treat any matters revealed by Buyer's Environmental Review and any environmental review provided by Seller to
Buyer, including any analyses, compilations, studies, documents, reports or data prepared or generated from such review (the "Environmental
Information"), as confidential, and, except as provided 

13

 

below,
Buyer shall not disclose any Environmental Information to any Governmental Authority or other third party without the prior written consent of Seller. Buyer may use the Environmental
Information only in connection with the transactions contemplated by this Agreement. The Environmental Information shall be disclosed by Buyer to only those persons who need to know the Environmental
Information for purposes of evaluating the transaction contemplated by this Agreement, and who agree to be bound by the terms of this  Section 4.09. If Buyer or any third party to whom Buyer has
provided any Environmental Information is requested, compelled or required to
disclose any of the Environmental Information, Buyer shall provide Seller with prompt notice sufficiently prior to any such disclosure so as to allow Seller to file for any protective order, or seek
any other remedy, as it deems appropriate under the circumstances. If this Agreement is terminated prior to the Closing, upon Seller's request Buyer shall deliver the Environmental Information, and
all copies thereof and works based thereon, to Seller, which Environmental Information shall become the sole property of Seller. Upon request Buyer shall provide copies of the Environmental
Information to Seller without charge. The terms and provisions of this Section 4.09(b) shall survive any such termination of this Agreement,
notwithstanding anything to the contrary. 

        Section 4.10    Definitions Used in Article 4 and in this Agreement.    

        (a)    Environmental Defects.    The term "Environmental Defect" shall
mean, with respect to any given Asset, a violation of Environmental Laws in effect as of the Effective Time in the jurisdiction in which such Asset is located. 

        (b)    Governmental Authority.    The term "Governmental Authority"
shall mean the United States and any state, county, city and political subdivisions that exercises jurisdiction, and any agency, department, board, commission or other instrumentality thereof. 

        (c)    Environmental Laws.    The term "Environmental Laws" shall mean
any and all laws, statutes, ordinances, rules, regulations or orders of any Governmental Authority pertaining to health and natural resources (but excluding laws, orders, rules, and regulations that
pertain to the prevention of waste or the protection of correlative rights) and the protection of wildlife or the environment including, without limitation, the Clean Air Act, as amended, the Clean
Water Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), the Federal Water
Pollution Control Act, as amended, the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the Safe Drinking Water Act, as amended, the
Toxic Substances Control Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, the Oil Pollution Act of 1990 ("OPA"), any state laws implementing the foregoing federal laws, and any state
laws pertaining to the handling of oil and gas exploration and production wastes or the use, maintenance and closure of pits and impoundments, and all other environmental conservation or protection
laws in effect as of the date hereof which are applicable to the Assets. For purposes of this Agreement, the terms "hazardous substance," "release," and "disposal" have the meanings specified in the
applicable Environmental Laws as in effect as of the date hereof. 

        (d)    Environmental Defect Value.    For purposes of this Agreement, the term "Environmental
Defect Value" shall mean, with respect to any Environmental Defect, the estimated costs and expenses net to Seller's interest in the affected portion of the Assets to correct
and/or remediate such Environmental Defect in the most cost effective manner reasonably available, consistent with Environmental Laws, taking into account that non-permanent remedies (such
as, by way of example but not by limitation or similarity, mechanisms to contain or stabilize hazardous materials, including monitoring site conditions, natural attenuation, risk-based
corrective action, institutional 

14

 

controls
or other appropriate restrictions on the use of property, caps, dikes, encapsulation, leachate collection systems, etc.) may be the most cost effective manner reasonably available. 

        Section 4.11    Notice of Environmental Defects.    Buyer shall provide Seller notice
of all Environmental Defects no later than 5:00 p.m. MST on the date which is seven (7) days prior to the Closing Date. To be effective, such notice must (a) be in writing,
(b) be received by Seller prior to the expiration of the
Examination Period, (c) describe the Environmental Defect in reasonable detail, including the written conclusion of Buyer that an Environmental Defect exists, which conclusion shall be
reasonably substantiated by the factual data gathered in Buyer's Environmental Review, (d) identify the specific Assets affected by such Environmental Defect, (e) set forth the
procedures recommended to correct the Environmental Defect, (f) set forth Buyer's reasonable good faith estimate of the Environmental Defect Value, including the basis for such estimate, and
(g) comply with the Environmental Defect Value provisions of Section 4.14. Any matters that may otherwise constitute Environmental
Defects, but of which Seller has not been specifically notified by Buyer in accordance with the foregoing, together with any environmental matter that does not constitute an Environmental Defect,
shall be deemed to have been waived by Buyer for all purposes and constitute an Assumed Obligation. Upon receipt of notices of Environmental Defects, the Parties shall meet and determine upon which of
the Environmental Defects, Environmental Defect Values and methods of correction the Parties have reached agreement. Upon the receipt of such effective notice from Buyer, Seller shall have the option,
but not the obligation, to attempt to correct such Environmental Defect during a period expiring ninety (90) days after Closing. If Seller should not elect to correct an Environmental Defect,
and no aspect of such defect is in dispute, the Purchase Price shall be adjusted for such defect by the amount of the Environmental Defect Value. 

        Section 4.12    Remedies for Environmental Defects.    

        (a)   If,
as of the Closing Date, the Assets are affected by an uncured or otherwise unresolved Environmental Defect noticed pursuant to the provisions of  Section 4.11, the affected portion of the Assets
shall not be sold, transferred or conveyed to Buyer at Closing, and the Purchase Price shall,
subject to the terms of Section 4.14, be decreased by the Allocated Value of the portion of the Assets so affected. Thereafter, Buyer and
St. Mary shall act reasonably and in good faith either (i) to agree (y) as to the manner of cure for such Environmental Defect or (z) the value of such Environmental Defect
and adjust the Final Settlement Statement in the amount thereof net of any Purchase Price adjustment made at Closing, in which event the affected portion of the Assets shall be conveyed to Buyer;
provided that if option (y) is agreed to, no assignment of the affected portion of the Assets shall be made as between Seller and Buyer until such agreed cure is accomplished to Buyer's
reasonable satisfaction whereupon the Allocated Value previously deducted from the Purchase Price shall be paid to Seller, or (ii) with respect to any Environmental Defect as to which the
Parties are unable to agree within 30 days of Closing as to the validity of the Environmental Defect, the Environmental Defect Value, or the manner of correction, submit such matter to be
determined by an Independent Expert pursuant to Section 4.13. 

        (b)   With
respect to any Asset which is not sold, transferred or conveyed to Buyer at the Closing pursuant to the terms of  Section 4.12(a), after the Closing and at such time as any Environmental Defect
Value or the manner of correction for an Environmental Defect is
determined and, in either event, the amount thereof is determined to be less than the Allocated Value for the affected portion of the Assets, Seller shall have the right (i) in the case of an
Environmental Defect Value determination, to have the Purchase Price reduced by only the Environmental Defect Value as so determined or (ii) in the case of the cure determination, to elect to
cure the Environmental Defect to Buyer's reasonable satisfaction. The consequence of (i) shall be that Buyer will pay to Seller an amount equal to the Allocated Value for the affected Assets
minus the Environmental Defect Value and the affected portion of the Assets previously retained by Seller shall be conveyed to Buyer. The consequence of (ii) shall be that upon achieving 

15

 

Buyer's
written acknowledgement that the Environmental Defect has been cured to its reasonable satisfaction, the Allocated Value for such previously retained Asset shall be paid to Seller and the
affected portion of the Assets shall be conveyed to Buyer. If no Environmental Defect is determined to exist, Buyer shall pay the Allocated Value attributable to the affected portion of the Assets to
Seller, and Seller shall convey the previously retained portion of the Assets to Buyer. If the Environmental Defect Value or the cost to cure an Environmental Defect is determined to be greater than
the Allocated Value of the affected portion of the Assets, Seller shall retain the affected portion of the Assets, and the Purchase Price shall be reduced by the Allocated Value attributable to such
portion of the Assets. 

        Section 4.13    Independent Experts.    

        (a)   Any
disputes regarding Title Defects, Title Benefits, Environmental Defects, Title Defect Value, Title Benefit Value, Environmental Defect Value, appropriate cure of any
Title Defects or correction of any Environmental Defects, and the calculation of the Statement or the Final Settlement Statement, or revisions thereto, may, subject to the provisions of  Section 4.04, Section 4.12 and  Section 4.14, be submitted by a Party, with written notice to the other Party, to an independent expert (the
"Independent
Expert"), who shall serve as the sole and exclusive arbitrator of any such dispute. The Independent Expert shall be selected by the Parties (acting reasonably and in good
faith) within fifteen (15) days following the effective date of said notice. The Independent Expert shall be a person who is independent, impartial, and knowledgeable in the subject matter and
substantive laws involved. For example, but not by way of limitation, in the case of a dispute concerning an alleged Environmental Defect, Environmental Defect Value or cure of the same, the
Independent Expert shall have expertise in both the applicable Environmental Laws and environmental science relating to the oil and gas industry. 

        (b)   The
Parties shall determine, acting in good faith, the procedures to be followed to facilitate the decision of the Independent Expert. Such procedures shall include the
following scenario: 

          (i)  If
the dispute involves the method or adequacy of cure or correction of a Title Defect or Environmental Defect, the Independent Expert shall provide in writing the
particulars necessary to cure
or correct or to remedy any deficient cure or correction, and shall provide Seller sixty (60) days (or such additional time as reasonable and necessary under the circumstances, but not to
exceed 90 days unless specifically agreed to in writing by Seller and Buyer) to effect such cure or correction; and 

         (ii)  In
the event of circumstances described in clause (i) above, Seller at its option may at any time during the sixty (60) day cure period pursuant to
clause (i) (as such period may be extended pursuant to such clause) decline to cure or correct the applicable defect. 

        (c)   If
the Parties fail to select an Independent Expert within the 15-day period referred to in Section 4.13(a) above, within three (3) days
thereafter, each of Buyer and Seller shall choose an Independent Expert meeting the qualifications set forth above, and such experts shall promptly choose a third Independent Expert (meeting the
qualifications provided for herein) who alone shall resolve the disputes between the Parties. Each Party shall bear its own costs and expenses incurred in connection with any such proceeding, and
one-half (1/2) of the costs and expenses of the Independent Expert. 

        (d)   Disputes
to be resolved by an Independent Expert shall be resolved in accordance with mutually agreed procedures and rules and failing such agreement, in accordance with
the rules and procedures for non-administered arbitration set forth in the commercial arbitration rules of the American Arbitration Association. The Independent Expert shall be instructed
by the Parties to resolve such dispute as soon as reasonably practicable in light of the circumstances using the terms 

16

 

and
provisions of this Agreement with respect to title and environmental matters. The decision and award of the Independent Expert shall be binding upon the Parties and final and nonappealable to the
maximum extent permitted by Laws or Environmental Laws, as applicable, and judgment thereon may be entered in a court of competent jurisdiction and enforced by any Party as a final judgment of such
court. 

        (e)   All
proceedings under this Section 4.13 shall be conducted at a mutually agreed location, or if Buyer and Seller
acting reasonably do not mutually agree upon a location for such proceeding, the proceeding shall be conducted in Denver, Colorado. 

        Section 4.14    Limitation of Remedies For Title Benefits, Title Defects and Environmental
Defects.    Notwithstanding anything to the contrary contained in this Agreement, 

        (a)   if
the Title Defect Value for a given Title Defect, or the Title Benefit Value of a given Title Benefit, in each case as determined pursuant to this  Article 4 does not exceed Twenty Thousand Dollars
($20,000), or if the Environmental Defect Value for a given Environmental Defect, as determined
pursuant to this Article 4 does not exceed Twenty Thousand Dollars ($20,000), such Title Defect, Title
Benefit, or Environmental Defect shall not qualify for either a Purchase Price adjustment, cure, or correction of such defect; 

        (b)   if
the aggregate net value of all Title Defects and Title Benefits does not exceed Five Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto), then no
adjustment of the Purchase Price shall be made therefor; 

        (c)   if
the aggregate net value of all Title Defects and Title Benefits exceeds Five Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto), then the Purchase
Price shall be adjusted by the entire amount of such aggregate net value, it being understood that this amount is a threshold and not a deductible; 

        (d)   if
the aggregate value of all Environmental Defects does not exceed Five Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto), then no adjustment of
the Purchase Price shall be made therefor; and 

        (e)   if
the aggregate value of all Environmental Defects exceeds Five Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto), then the Purchase Price shall be
adjusted by the entire amount of such aggregate value, it being understood that this amount is a threshold and not a deductible. 

        All
Title Defects and Environmental Defects asserted by Buyer pursuant to this Article 4 after being resolved in accordance with
this Article 4 shall thereafter constitute Permitted Encumbrances and Assumed Obligations, whether or not an adjustment to the Purchase Price is
made with respect thereto in accordance with this Article 4. 

        Section 4.15    DISCLAIMER AND WAIVER.    EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER
DOES NOT MAKE ANY, AND EXPRESSLY DISCLAIMS ALL REPRESENTATIONS OR WARRANTIES, AND BUYER EXPRESSLY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTIES, AS TO THE ACCURACY OR COMPLETENESS OF ANY FILE AND/OR
OTHER INFORMATION, INCLUDING, PRINTOUTS, EXTRAPOLATIONS, PROJECTIONS, DOCUMENTATION, MAPS, GRAPHS, CHARTS OR TABLES WHICH REFLECT, DEPICT, PRESENT, PORTRAY OR WHICH ARE BASED UPON OR DERIVED FROM ANY
SUCH INFORMATION AND/OR FILES, INCLUDING MATTERS OF GEOLOGICAL, GEOPHYSICAL, ENGINEERING OR OTHER SCIENTIFIC INFORMATION THAT MAY BE PROVIDED TO BUYER BY SELLER OR BY OTHERS ON BEHALF OF SELLER. BUYER
EXPRESSLY AGREES THAT ANY CONCLUSIONS DRAWN FROM REVIEW 

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OF
SUCH INFORMATION AND/OR FILES SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT. 

ARTICLE 5  

 REPRESENTATIONS AND WARRANTIES OF SELLER  

        Each Party comprising Seller severally as to its or his respective ownership interest in the Assets represents and warrants to Buyer that: 

        Section 5.01    Existence.    St. Mary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Smith is a trust organized, validly existing, and in good standing under the laws of the State of Oklahoma. Harrell is an
individual. Each Party comprising Seller has full legal power, right and authority to carry on its business as such is now being conducted and as contemplated to be conducted hereby. Each Party
comprising Seller is authorized to do business, and in good standing, in the State or States in which the Assets are located with regard to the Assets in which any of the Parties comprising Seller has
an interest. 

        Section 5.02    Legal Power.    Seller has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The consummation of the transactions contemplated by this Agreement will not violate, or be in conflict with: 

        (a)   any
provision of Seller's articles of incorporation, bylaws, and other governing documents; 

        (b)   except
for provisions customarily contained in oil and gas agreements relating to maintenance of uniform interest, preferential purchase rights and consents to
assignment, any material agreement or instrument to which Seller is a party or by which Seller or the Assets are bound; or 

        (c)   any
judgment, order, ruling or decree applicable to Seller as a party in interest or any law, rule or regulation applicable to Seller. 

        Section 5.03    Execution.    The execution, delivery and performance of this Agreement
and the transactions contemplated hereby are duly and validly authorized by all requisite corporate action on the part of Seller as required under its formation documents. This Agreement constitutes
the legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or other laws relating to or affecting the
rights of creditors generally, and by general equitable principles. 

        Section 5.04    Brokers.    No broker or finder is entitled to any brokerage or
finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Seller or any affiliate of Seller for which Buyer has or will have any
liabilities or obligations (contingent or otherwise). 

        Section 5.05    Bankruptcy.    There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or to the knowledge of Seller threatened against Seller. Seller is not "insolvent" as such term is defined under the Federal Bankruptcy Code or any
fraudulent transfer or fraudulent conveyance statute applicable to the transactions contemplated by this Agreement. 

        Section 5.06    Suits and Claims.    Except as set forth in  Schedule 5.06, there is no
litigation or Claims that have been filed by any person or entity or by any administrative agency or Governmental
Authority in any legal, administrative or arbitration proceeding or, to Seller's knowledge, threatened against Seller or the Assets that would impede Seller's ability to consummate the transactions
contemplated herein or would have a material and adverse effect on the Assets. 

18

 

  
        Section 5.07    Taxes.    During the period of Seller's ownership of the Assets up
to
and including the Effective Time, Seller has caused to be timely filed all material Tax returns relating to the Assets. Seller has paid or caused to be paid all ad valorem, property, production,
severance, mineral documentary and similar Taxes based upon or measured by its ownership of or the production of Hydrocarbons from the Assets. Seller has not received written notice of any pending
Claim against Seller from any applicable taxing authority for assessment of Taxes with respect to the Assets. There are no audits of Seller by any applicable taxing authority with respect to Taxes
attributable to the Assets. Except for statutory liens for property Taxes and ad valorem Taxes, there are no tax liens on or with respect to the Assets. 

        Section 5.08    AFEs.    Except as set forth on  Schedule 5.08, there are no outstanding
authorizations for expenditures or other capital commitments which are binding on the Assets and which
individually would require the owner of the Assets after the Effective Time to expend monies in excess of Fifty Thousand Dollars ($50,000). 

        Section 5.09    Compliance with Laws.    Seller's operation
(i.e., where Seller is operator of record) of the Assets has been in compliance with Laws where noncompliance with such Laws would have a
Material Adverse Effect on the Assets. 

        Section 5.10    Contracts.    Seller is not in Breach of any of the Contracts and to
Seller's knowledge, the Contracts are in full force and effect in accordance with their terms, and, to the knowledge of Seller, no other party to any of the Contracts is in Breach thereof. 

        Section 5.11    Production Imbalances.    Except as set forth in  Schedule 1.02(g), to
Seller's knowledge, there are no material Production Imbalances as of the Effective Time as to any of the Subject Interests. 

        Section 5.12    Royalties; Payments for Production.    Seller has not been and is not
in Breach of any payment obligations under any of the Leases. Seller is not obligated by virtue of a take or pay payment, call, advance payment, production payment or other similar payment or
obligation (other than royalties, overriding royalties and similar arrangements that do not cause Seller's NRI to be less than that set forth on  Exhibit D), to deliver Hydrocarbons, or proceeds
from the sale thereof, attributable to the Leases at some future time without receiving payment
therefor at or after the time of delivery at the then market price, and no take or pay credits must be provided before natural gas can be transported through any interstate carrier under FERC Order
500, et al, and there are no obligations on the Assets under FERC Order 451. 

        Section 5.13    Insurance.    Seller maintains, and through the Closing will maintain,
with respect to the Assets, the insurance coverage described on Schedule 5.13. 

        Section 5.14    Plugging Obligations.    Except for wells listed in  Schedule 5.14, there
are no dry holes, or shut in or otherwise inactive wells, located on the Assets or lands pooled or unitized therewith that
Seller has either the obligation to plug and abandon in accordance with an applicable operating agreement or Law or as to Wells for which Seller is not the operator, received a written proposal to
plug and abandon. 

        Section 5.15    Personal Property and Equipment.    Seller is the owner of the
Equipment free and clear of all liens and encumbrances other than those to be released at Closing. Other than in connection with normal and customary prudent operations, Seller has not removed any
personal property, equipment or fixtures from the Wells, unless it has been replaced with personal property, equipment or fixtures of similar grade and utility. Unless removed, repaired or replaced
(a) with personal property, equipment and fixtures of similar grade and utility or (b) in connection with normal and customary prudent operations, the personal property, equipment and
fixtures currently attendant to the Wells was the equipment historically used by Seller on the Wells to produce the Hydrocarbons prior to the execution of this Agreement. 

19

 

        Section 5.16    No Alienation.    Within 120 days of the date hereof, Seller has
not voluntarily or involuntarily sold, assigned, conveyed, or transferred or contracted to sell, assign, convey or transfer any right or title to, or interest in, the Assets other than
(i) production sold in the ordinary course of Seller's business and (ii) equipment which was worthless, obsolete or replaced by equipment of equal suitability and value. 

        Section 5.17    Hydrocarbon Sales Contracts.    Except for the Hydrocarbon Sales
Contracts listed in Schedule 5.17, no Hydrocarbons are subject to a sales contract (other than division orders or spot sales agreements
terminable on no more than 30 days notice) and no person has any call upon, option to purchase or similar rights with respect to the production from the Assets. Proceeds from the sale of oil,
condensate, and gas from the Assets are being received in all respects by Seller in a timely manner and are not being held in suspense for any reason. 

        Section 5.18    Area of Mutual Interest and Other Agreements.    To Seller's knowledge,
no Asset is subject to (or has related to it) any area of mutual interest agreements not disclosed in the Contracts or any farm-out or farm-in agreement under which any party
thereto is entitled
to receive assignments not yet made, or could earn additional assignments after the Effective Time other than the Wells listed on Exhibit B as
having an after payout NRI. 

        Section 5.19    Leases.    Seller has not received a written notice of termination of
any of the Leases and Seller is not in Breach or violation of any of the Leases; provided, however, that Buyer's remedy for Seller's Breach of this representation and warranty shall be the Title
Defect mechanism set forth in Article 4. 

        Section 5.20    Property Expenses.    In the ordinary course of business, Seller has
paid all property expenses attributable to the period of time prior to the Effective Time as such property expenses become due, and such property expenses are being paid in a timely manner before the
same become delinquent, except such property expenses as are disputed in good faith by Seller in a timely manner and for which Seller shall retain responsibility. 

        Section 5.21    Governmental Permits.    Except as set forth on  Schedule 5.21, Seller has
all Permits (including, without limitation, permits, licenses, approval registrations, notifications, exemptions and
any other authorizations pursuant to Law) necessary or appropriate to own and operate the Assets as presently being owned and operated. The Permits are in full force and effect and the Assets have
been operated in accordance with the terms thereof in all material respects. Seller has not received written notice of any violations in respect of any of the Permits that remain uncured. 

        Section 5.22    No Adverse Change.    With respect to the Assets for which Seller is
the operator and, to Seller's knowledge with respect to the Assets for which Seller is not the operator, since September 1, 2007, the Assets have been operated in the ordinary course of
business consistent with past practices and there has been no event or series of events that have either individually or in combination had a Material Adverse Effect on the Assets. 

        Section 5.23    Information.    The information pertaining to revenue and expenses
attributable to the Assets that Seller has furnished to Buyer (the "Information") is (a) accurate in all material respects to the extent relating
to the period of Seller's ownership of the Assets and (b) to the knowledge of Seller, accurate in all material respects to the extent relating to any period of ownership of the Assets prior to
the time owned by Seller reflected in the Information. Seller has no data in its possession that it has failed to furnish that would cause the Information to be materially inaccurate. Except as
specifically set forth in this Section 5.23, Seller makes no representations regarding the accuracy of any of the Records; provided, however,
Seller does represent that (i) all of the Records are files, or copies thereof, that Seller has used in the ordinary course of operating and owning the Assets, (ii) Seller has not
intentionally withheld any material information from the Records, and (iii) Seller has not knowingly misrepresented any material information in the Records. Except as set froth in this  Section 5.23, no 

20

 

representation
or warranty of any kind is made by Seller as to the Information or with respect to the Assets to which the Information relates and Buyer expressly agrees that any conclusions drawn
therefrom shall be the result of its own independent review and judgment. The representations and warranties contained in this paragraph shall apply only to matters of fact, and shall not apply to any
information, data, printouts, extrapolations, projections, documentation, maps, graphs, charts, or tables which reflect, depict, present, portray, or represent, or which are based upon or derived
from, in whole or in part, interpretation of the Information including, but not limited to, matters of geological, geophysical, engineering, or scientific interpretation. 

        Section 5.24    Representations and Warranties Exclusive.    All representations and
warranties contained in this Article 5 are exclusive, and are given in lieu of all other representations and warranties, express, implied or
statutory. 

ARTICLE 6  

 REPRESENTATIONS AND WARRANTIES OF BUYER  

        Buyer represents and warrants to Seller that: 

        Section 6.01    Existence.    Buyer is a limited liability company duly formed,
organized, validly existing and in good standing under the laws of the state of its formation. Buyer has full legal power, right and authority to carry on its business as such is now being conducted.
As of the Closing Date, Buyer will be authorized to do business as a foreign limited liability company and in good standing in the State or States in which the Assets are located. 

        Section 6.02    Legal Power.    Buyer has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The consummation of the transactions contemplated by this Agreement does not and will not violate, or be in conflict with: 

        (a)   any
provision of Buyer's formation documents or other governing documents; 

        (b)   any
material agreement or instrument to which Buyer is a party or by which Buyer or its assets are bound; or 

        (c)   any
judgment, order, ruling or decree applicable to Buyer as a party in interest or any law, rule or regulation applicable to Buyer. 

        Section 6.03    Execution.    The execution, delivery and performance of this Agreement
and the transactions contemplated hereby are duly and validly authorized by all requisite organizational action on the part of Buyer. This Agreement constitutes the legal, valid and binding obligation
of Buyer enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or other laws relating to or affecting the rights of creditors generally, and by general
equitable principles. 

        Section 6.04    Brokers.    No broker or finder is entitled to any brokerage or
finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Buyer or any affiliate of Buyer for which Seller has or will have any
liabilities or obligations (contingent or otherwise). 

        Section 6.05    Bankruptcy.    There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or to the knowledge of Buyer threatened against Buyer or any affiliate of Buyer. 

        Section 6.06    Suits and Claims.    There is no Claim by any person or entity or by
any administrative agency or Governmental Authority and no legal, administrative or arbitration proceeding pending or, to Buyer's knowledge, threatened against Buyer or any affiliate of Buyer that is
reasonably likely to have a material effect on Buyer's ability to consummate the transactions contemplated herein. 

21

 

        Section 6.07    Independent Evaluation.    Buyer acknowledges that it is an experienced
and knowledgeable investor in the oil and gas business, and the business of purchasing, owning, developing and operating oil and gas properties such as the Assets. If Closing occurs, Buyer represents,
warrants and acknowledges to Seller that it has had full access to the Assets, the officers, and employees of Seller, and to the books, records and files of Seller relating to the Assets. In making
the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer has relied solely upon the representations, warranties, covenants and agreements of Buyer and
Seller set forth in this Agreement and Buyer's own independent due diligence and investigation of the Assets, and has been advised by and has relied solely on its own expertise and its own legal, tax,
operations, environmental, reservoir engineering and other professional counsel and advisors concerning this transaction, the Assets and the value thereof. In addition, Buyer acknowledges and agrees
that Buyer will be or has been advised by and relies solely on its own expertise, and its legal counsel and any advisors or experts concerning matters relating to Title Defects, Title Benefits and
Environmental Defects. 

        Section 6.08    Qualification.    As of the Closing, the Buyer shall be, and thereafter
shall continue to be, qualified with all applicable Governmental Authorities to own and operate the Assets, including meeting all bonding requirements. 

        Section 6.09    Securities Laws.    Buyer is acquiring the Assets for its own account
or that of its affiliates and not with a view to, or for offer of resale in connection with, a distribution thereof, within the meaning of the Securities Act of 1933, 15 U.S.C.
§ 77a et seq., and any other rules, regulations, and laws pertaining to the distribution of securities. Buyer has not sought or
solicited, nor is Buyer participating with, investors, partners or other third parties other than its lenders in order to fund the Purchase Price and to close this transaction, and all funds to be
used by Buyer in connection with this transaction are Buyer's own funds or those borrowed from its lenders. 

        Section 6.10    No Investment Company.    Buyer is not (a) an investment company
or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (b) subject in any respect to the provisions of that Act. 

        Section 6.11    Funds.    Buyer has arranged to have available by the Closing Date
immediately available funds to enable Buyer to pay in full the Purchase Price as herein provided and otherwise to perform its obligations under this Agreement. 

        Section 6.12    Notice of Changes.    Promptly upon its discovery or identification of
same, but in any event prior to Closing, Buyer shall provide to Seller written notice of any matter it so identifies that has a material effect on any of Seller's representations or warranties under
this Agreement, or rendering any such warranty or representation untrue or inaccurate. 

        Section 6.13    Representations and Warranties Exclusive.    All representations and
warranties contained in this Agreement and the documents delivered in connection herewith, are exclusive, and are given in lieu of all other representations and warranties, express, implied or
statutory. 

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  ARTICLE 7  

 OPERATION OF THE ASSETS  

        Section 7.01    Operation of the Assets.    

        (a)   From
and after the date of execution of this Agreement, and subject to the provisions of applicable operating and other agreements, Seller shall (i) use its
reasonable efforts during the period prior to the Closing, to operate and administer the Assets in a manner consistent with its past practices, (ii) make payment of all costs and expenses
attributable to the ownership or operation of the Assets and relating to the period prior to the transfer of operations to Buyer, and shall carry on its business with respect to the Assets in
substantially the same manner as before execution of this Agreement, (iii) not, without Buyer's express written consent, commit to participate in the drilling of any well, or make or enter into
any other commitments reasonably anticipated to require future capital expenditures by Buyer in excess of $50,000 net to Seller's interest for each proposed operation, or terminate, materially amend,
or extend any Contracts affecting the Assets, or enter into or commit to enter into any new material contract or agreement relating to the Assets, or settle, compromise or waive any material right
relating to the Assets, (iv) maintain insurance coverage on the Assets in the amounts and of the types presently in force, (v) maintain in full force and effect the Leases, the Surface
Agreements and other Assets, and pay all costs and expenses and perform all material obligations of the owner of the Assets promptly when due, (vi) maintain all Permits, (vii) not
transfer, sell, hypothecate, encumber, or otherwise dispose of any Assets except for sales and dispositions of Hydrocarbons made in the ordinary course of business consistent with Seller's past
practices, (viii) not grant or create any preferential right to purchase, right of first opportunity or other transfer restriction or requirement with respect to the Assets except in connection
with the renewal or extension of Assets after the Effective Time if granting or creating such right or requirement is a condition of such renewal or extension and then with prompt written notice of
such action to Buyer, (ix) not elect to become a nonconsenting party in any operation proposed by any other Person with respect to the Assets unless requested to do so in writing by Buyer,
(x) maintain the Equipment in at least as good a condition as it is on the date hereof, ordinary wear and tear excepted, (xi) not make any change in any method of accounting or
accounting practice or policy with respect to the Assets, and (xii) not agree to extend any statute of limitations with respect to Taxes or any extension of time with respect to a Tax
assessment or deficiency for any Taxes, or make any change in any Tax elections with respect to the Assets. 

        (b)   Buyer
acknowledges that Seller owns undivided interests in some or all of the Assets, and Buyer agrees that the acts or omissions of the other working interests owners
shall not constitute a violation of the provisions of this Article 7, nor shall any action required by a vote of working interest owners
constitute such a violation so long as Seller has voted its interests in a manner that complies with the provisions of this Article 7. Seller
will, without penalty for the failure to do so except to the extent that the failure to give Buyer such notice has a Material Adverse Effect, notify Buyer of the occurrence of such event to the extent
of Seller's knowledge. 

        (c)   Promptly
upon its discovery or identification of same, but in any event prior to Closing, Seller shall provide Buyer written notice of any matter Seller identifies that
has a material adverse effect on or that constitutes a Breach of Seller's representations or warranties under this Agreement. 

        Section 7.02    Buyer's Qualification.    At Closing, Buyer shall be qualified and
shall meet all requirements, including bonding requirements, to be designated operator of that portion of the Assets for which Seller serves as operator. 

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        Section 7.03    Operation of the Assets after the Closing.    

        (a)   Seller
shall not be obligated to continue operating any of the Assets following the Closing, and, subject to Seller's retention of the Retained Liabilities, Buyer hereby
assumes full responsibility for operating (or causing the operation of) all Assets following the Closing for which Seller is the operator prior to the Closing Date. Seller shall make its employees and
contractors available to Buyer prior to the Closing as may be reasonably necessary to assist in the transition if Buyer becomes the operator. Seller does not warrant or guarantee that Buyer will
become the operator of the Assets or any portion thereof, as such matter will be controlled by the applicable joint operating agreement(s) and other applicable agreement(s). Without implying any
obligation on Seller's part to continue operating any Assets after the Closing, if Seller elects, at its sole option, to continue to operate any Assets following the Closing at the request of Buyer,
or by any third party working interest owner due to constraints of applicable joint operating agreement(s) and other applicable agreement(s), failure of a successor operator to take over operations,
or for other reasonable cause, such continued operation by Seller shall be for the account of Buyer, and at the sole risk, cost and expense of Buyer. Buyer agrees to release and defend, indemnify and
hold Seller and its Representatives harmless from Claims, including any Claims of Buyer or its affiliates or successors and assigns relating in any manner directly or indirectly to the operation of
the Assets after Closing (INCLUDING THOSE CLAIMS RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR
OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER'S REPRESENTATIVES).

        (b)   In
consideration of any conduct of operations of the Assets by Seller on behalf of Buyer after Closing, Buyer shall pay Seller a fee equal to Two Hundred Dollars
($200.00) per month per Well, including all other wells, such as, by way of example and not limitation, salt water disposal wells, wells that are temporarily abandoned and wells that are otherwise
inactive, as reimbursement for all general and administrative overhead ("Overhead Fee") incurred by Seller in connection with the conduct of operations
of the Assets. In the event Seller transfers operations to Buyer or its designee between the first and last day of a calendar month, Seller shall be paid such amount of the Overhead Fee prorated over
the number of days in which Seller conducted operations for such month. The amount of the Overhead Fee owing to Seller by Buyer shall be paid upon the Final Settlement Date. 

        Section 7.04    Post Closing Accounting by Seller.    In the event Seller agrees to
operate the Assets after Closing, Seller shall perform the following accounting tasks subject to the limitations provide for herein: 

        (a)   Seller
will continue to pay royalties and severance, production and similar Taxes for sales through the production month following the month in which Closing occurs
("Post-Closing Production Month"). If any revenue is received by Seller for later months, it will be credited to Buyer in the Final
Settlement Statement; provided however, Seller shall not be obligated to and will not pay any royalties and severance, production and similar Taxes, if applicable, with respect to Hydrocarbons
produced after the Post-Closing Production Month. 

        (b)   Seller
will continue to pay or bill joint interest owners for expenses through the Post-Closing Production Month. All later expenses will be either
accumulated or charged to Buyer in the Final Settlement Statement, or the invoices will be returned to the vendor for rebilling to Buyer. Seller will continue to pay to the operator of any Assets not
operated by Seller for joint billings for the billing month after the month in which Closing occurs. All subsequent bills will either be returned to the applicable operator for rebilling to Buyer or
forwarded to Buyer for payment, or if already paid by Seller, will be charged against Buyer in the Final Settlement Statement. Seller will continue to prepare all regulatory and other monthly
production reports 

24

 

through
the Post-Closing Production Month. Copies of such reports attributable to the period after the Effective Time will be provided to Buyer, along with the final ending inventory
balance. 

        (c)   Seller
will continue to pay all shut-in royalties, minimum royalties, delay rentals and other lease payment obligations through the Post-Closing
Production Month. 

        (d)   Seller
shall market and nominate all Hydrocarbons in the same manner as Seller has been marketing and nominating Hydrocarbons. 

        Section 7.05    Limitations on Liability of Operator.    Notwithstanding anything
herein to the contrary, in the event Seller or an affiliate of Seller should assume any accounting functions on behalf of Buyer from and after Closing, notwithstanding anything to the contrary
provided herein, Seller shall have no liability to Buyer for, and Buyer hereby agrees to release and defend, indemnify and hold harmless Seller and Seller's Representatives harmless from, the
incorrect payment of expenses, Taxes, billings, delay rentals, royalties, minimum royalties, payments required by any of the Leases, shut-in royalties or similar payments, or for any
failure to pay any such payments through mistake or oversight (INCLUDING THOSE RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER'S REPRESENTATIVES) from and after the Effective Time, except to the extent of any amounts included
in the upward Purchase Price Allocations and Adjustment made pursuant to Section 10.02. In no event shall Buyer's remedy for Breach of
obligations by Seller (or any of its Representatives) under this Article 7 exceed the Allocated Value of the Subject Interest affected by such
Breach. 

        Section 7.06    Public Announcements.    Prior to the Closing, neither Party shall make
any press release or other public announcement regarding the existence of this Agreement, the contents hereof or the transactions contemplated hereby other than the Press Releases set forth on  Exhibit F-1 and F-2; provided, however, the foregoing shall not restrict
disclosures by Buyer or Seller which are required by applicable securities or other Laws or the applicable rules of any stock exchange having jurisdiction over the disclosing party or its Affiliates.
Following Closing, the Parties shall issue a Press Release in form and substance to be agreed upon by the Parties prior to the Closing. 

        Section 7.07    Disclosure Information.    Seller agrees (i) to provide Buyer
with Disclosure Information (as defined below) necessary for Buyer to comply with the disclosure requirements of the Securities Exchange Act of 1934, as amended, and Regulation S-X
under the Securities Act of 1933, as amended, no later than thirty (30) days following the Closing Date and (ii) reasonably to cooperate with and assist Buyer in an audit of the Assets.
As used herein, "Disclosure Information" means, as to the Assets, the net revenues, direct operating expenses (including production, property and
similar Taxes), exploratory and development costs, production volumes, information necessary for the preparation of the disclosures required under Statement of Financial Accounting Standards
No. 69, and balance sheet and other income statement data associated directly with the Assets that Buyer reasonably believes are required to be included in any report filed by Buyer or any of
its Affiliates with the Securities and Exchange Commission ("SEC"). If Seller shall fail to furnish Buyer with a set of the Disclosure Information
within the 30 day period set forth in this Section 7.07 which Seller reasonably believes in its good faith judgment allows Buyer to
substantially comply with the rules and regulations of the SEC and such compliance reasonably requires Buyer's reliance on the Disclosure Information, Seller shall pay to Buyer the sum of One Hundred
Thousand Dollars ($100,000) as liquidated damages for this failure to provide the Disclosure Information to Buyer as required by this  Section 7.07. If Seller shall fail to furnish Buyer with a set
of the Disclosure Information which Seller reasonably believes in its good faith
judgment allows Buyer to substantially comply with the rules and regulations of the SEC and such compliance reasonably requires Buyer's reliance on the Disclosure Information, for an additional period
of 30 days beyond the previously stated 30-day period, Seller shall pay to Buyer the additional sum of Five Hundred Thousand Dollars ($500,000) as liquidated damages for such
Breach. 

25

 

The
Parties agree that the damages attributable to any Breach as described in this Section 7.07 would be difficult, if not impossible to
ascertain, and that the amounts set forth herein are reasonable under the circumstances and do not constitute a penalty. 

        The
fact that the SEC subjects any filing by Buyer to review or supplementation shall not create any presumption of a Breach by Seller of its obligations as contained in this  Section 7.07. Seller shall
have no liability to Buyer whatsoever with regard to either (i) any registration rights agreement or obligation
involving Buyer, or (ii) the pricing, salability, market response, or any other matter relating to the issuance or sale of any security by or on behalf of Buyer. 

ARTICLE 8  

 CONDITIONS TO OBLIGATIONS OF SELLER  

        The obligations of Seller to consummate the transactions provided for herein are subject, at the option of Seller, to the fulfillment on or prior to the Closing
Date of each of the following conditions: 

        Section 8.01    Representations.    The representations and warranties of Buyer herein
contained shall be true and correct in all material respects on the Closing Date as though made on and as of such date; 

        Section 8.02    Performance.    Buyer shall have performed all material obligations,
covenants and agreements contained in this Agreement to be performed or complied with by it at or prior to the Closing and shall have taken the actions set forth in  Section 10.08; and 

        Section 8.03    Pending Matters.    No suit, action or other proceeding shall be
pending or threatened that seeks to, or could reasonably result in a judicial order, judgment or decree that would, restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement. 

ARTICLE 9  

 CONDITIONS TO OBLIGATIONS OF BUYER  

        The obligations of Buyer to consummate the transaction provided for herein are subject, at the option of Buyer, to the fulfillment on or prior to the Closing Date
of each of the following conditions: 

        Section 9.01    Representations.    (a) The representations and warranties of Seller
contained in Section 5.02 through Section 5.06, inclusive, shall be true and correct in
all material respects on the Closing Date as though made on and as of such date, and (b) no action or omission of Seller or event shall have occurred during the period of time commencing upon
the expiration of the Title Claim Date and ending on the Closing Date which shall have caused any of the representations and warranties of Seller contained in  Section 5.07 through Section 5.23, inclusive, not to be true and correct in all material
respects on the Closing Date as though made on and as of such date; 

        Section 9.02    Performance.    Seller shall have performed all material obligations,
covenants and agreements contained in this Agreement to be performed or complied with by it at or prior to the Closing and shall have taken the actions set forth in  Section 10.07; 

        Section 9.03    Pending Matters.    No suit, action or other proceeding shall be
pending or threatened that seeks to, or could reasonably result in a judicial order, judgment or decree that would, restrain, enjoin, or otherwise prohibit the consummation of the transactions
contemplated by this Agreement; and 

        Section 9.04    Wachovia Liens.    Seller shall have delivered to Buyer releases of all
Wachovia Liens and any other liens, charges or encumbrances on the Assets other than Permitted Encumbrances in form
suitable for recording or filing (as applicable) and such releases shall be reasonably satisfactory to Buyer. 

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ARTICLE 10  

 THE CLOSING  

        Section 10.01    Time and Place of the Closing.    If the conditions referred to in  Article 8 and Article 9 have been satisfied or waived in writing, the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices of Seller at 9:00 a.m. MST on January 31, 2008 (the
"Closing Date"). 

        Section 10.02    Allocation of Costs and Expenses and Adjustments to Purchase Price at the
Closing.    

        (a)   At
the Closing, the Purchase Price shall be increased by the following amounts: 

          (i)  the
amount of all (A) paid ad valorem, property or similar Taxes and assessments based upon or measured by the ownership of the Assets, insofar as such Taxes
relate to periods of time from and after the Effective Time, and (B) paid charges, and costs and expenses of any kind or nature that are attributable to the Assets and the period from and after
Effective Time; 

         (ii)  all
expenses, including operating and capital expenditures, incurred and paid by or on behalf of Seller in connection with ownership, operation and use of the Assets
attributable to the period from and after the Effective Time, and including the costs incurred in connection with the AFEs described on  Schedule 5.08 which costs shall be the responsibility of
Buyer notwithstanding that they may have accrued prior to the Effective Time; 

        (iii)  all
royalties, rentals, insurance premiums (including property and business interruption coverage) and other charges attributable to the Assets for the period of, from
and after the Effective Time to the extent paid by or on behalf of Seller; 

        (iv)  expenses
incurred under applicable operating agreements including any overhead charges allowable under the applicable operating procedure (COPAS) where Seller is
non-operator attributable to the Assets for the period of from and after the Effective Time to the extent paid by or on behalf of Seller (the costs and expenses for which Seller shall
receive an upward adjustment to the Purchase Price pursuant to clauses (i) through (iv) inclusive, shall be referred to as the "Interim Operating
Expenses"); 

         (v)  all
upward Purchase Price adjustments for Title Benefits determined in accordance with Article 4; 

        (vi)  the
value of all oil, gas and natural gas liquids in storage or in the pipelines as of the Effective Time that is credited to the Assets, such value (A) for
purposes of the Statement, to be the actual price received for such oil, gas or natural gas liquids upon the first unaffiliated third party sale thereof, if available, and upon such estimates as are
reasonably agreed upon by the Parties, to the extent actual amounts are not known at Closing, and (B) for purposes of the Final Settlement Statement, to be based upon actual amounts; and 

       (vii)  any
other amount provided for in this Agreement or agreed upon in writing by Buyer and Seller. 

        (b)   At
the Closing, the Purchase Price shall be decreased by the following amounts: 

          (i)  the
Deposit; 

         (ii)  an
amount equal to the sales price paid to Seller by the first purchaser of the Hydrocarbons produced, saved and sold from the Subject Interests from the Effective Time
to the Closing Date (without deductions of any kind or nature, including, but not limited to, royalties and any Taxes based on production), which shall (A) for purposes of the Statement, be
based upon actual amounts, if available, and upon such estimates as are reasonably agreed 

27

 

upon
by the Parties, to the extent actual amounts are not known at Closing, and (B) for purposes of the Final Settlement Statement, be based upon actual amounts; 

        (iii)  an
amount equal to all cash in, or attributable to, suspense accounts held by Seller relating to the Assets for which Buyer has assumed responsibility under  Section 12.01; 

        (iv)  the
Allocated Value of any Asset sold prior to the Closing to the holder of a preferential right pursuant to  Section 4.06; 

         (v)  the
Allocated Value of any Asset excluded from the purchase and sale contemplated herein pursuant to the provisions of  Article 4;

        (vi)  all
downward Purchase Price Adjustments for Title Defects and Environmental Defects determined in accordance with  Article 4; and 

       (vii)  any
other amount provided for in this Agreement or agreed upon in writing by Buyer and Seller. 

        (c)   The
allocations of costs and expenses and/or adjustments described in Section 10.02(a) and  Section 10.02(b) are referred to herein as the
"Purchase Price Allocations and Adjustments." 

        Section 10.03    Closing Adjustments and Allocations Statement.    Not later than three
(3) business days prior to the Closing Date, Seller shall prepare and deliver to Buyer a statement of the estimated Purchase Price Allocations and Adjustments with appropriate support (the
"Statement"), which Statement shall be based upon the then most currently available data and information in order to make the adjustments as provided in  Section 10.02. 

        Section 10.04    Post-Closing Allocations and Adjustments to Purchase
Price.    

        (a)   On
or before 120 days after the Closing Date, Seller shall prepare and deliver to Buyer a revised Statement ("Final Settlement
Statement") setting forth the actual Purchase Price Allocations and Adjustments. Each Party shall provide the other such data and information as may be reasonably requested to
permit Seller to prepare the Final Settlement Statement or to permit Buyer to perform or cause to be performed an audit of the Final Settlement Statement. The Final Settlement Statement shall become
final and binding upon the parties on the thirtieth (30th) day following receipt thereof by Buyer (the "Final Settlement Date") unless Buyer gives
written notice of its disagreement (a "Notice of Disagreement") to Seller prior to such date. Any Notice of Disagreement shall specify in reasonable
detail the dollar amount and the nature and basis of any disagreement so asserted. If a Notice of Disagreement is received by Seller in a timely manner, then the Parties shall resolve the dispute
evidenced by the Notice of Disagreement by mutual agreement, or otherwise in accordance with Section 4.13. 

        (b)   If
the amount of the adjusted Purchase Price as set forth on the Final Settlement Statement exceeds the amount of the estimated Purchase Price paid at the Closing, then
Buyer shall pay in immediately
available funds to Seller the amount by which the Purchase Price as set forth on the Final Settlement Statement exceeds the amount of the estimated Purchase Price paid at the Closing within five
(5) business days after the Final Settlement Date. If the amount of the adjusted Purchase Price as set forth on the Final Settlement Statement is less than the amount of the estimated Purchase
Price paid at the Closing, then Seller shall pay in immediately available funds to Buyer the amount by which the Purchase Price as set forth on the Final Settlement Statement is less than the amount
of the estimated Purchase Price paid at the Closing within five (5) business days after the Final Settlement Date. 

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        (c)   Pursuant
to Section 10.02(b), the Purchase Price is to be reduced by the value of Hydrocarbons produced during the
period from the Effective Time to the Closing Date. If Buyer shall receive any revenues attributable to such Hydrocarbons for any reason for which Buyer has received a reduction in the Purchase Price
pursuant to this Section 10.04(c), Buyer shall promptly remit same in immediately available funds to Seller. Likewise, if Seller shall for any
reason receive any of the proceeds of sale of Hydrocarbons produced and saved from the Subject Interests and attributable to the period from and after the Closing Date or any other revenues
attributable to the ownership or operation of the Assets from and after the Effective Time, Seller shall promptly remit same in immediately available funds to Buyer. 

        (d)   Except
as otherwise provided in this Agreement, any costs and expenses, including Taxes (other than income taxes) relating to the Assets which are not reflected in the
Final Settlement Statement shall be treated as follows: 

          (i)  All
costs and expenses relating to the Assets for the period of time prior to the Effective Time shall be the sole obligation of Seller and Seller shall promptly pay,
or if paid by Buyer, promptly reimburse Buyer in immediately available funds for and indemnify, defend, and hold Buyer harmless from and against the same; and 

         (ii)  All
costs and expenses relating to the Assets for which Buyer is responsible (being those incurred on or after the Effective Time) shall be the sole obligation of Buyer
and Buyer shall promptly pay, or if paid by Seller, promptly reimburse Seller in immediately available funds for and indemnify, defend and hold Seller harmless from and against the same. 

        (e)   Purchase
Price adjustments, if any, with respect to Title Defects or Environmental Defects the cure or correction of which or a dispute with respect to the same remains
pending on the Final Settlement Date shall be made on a date mutually agreed by the Parties, both acting reasonably. 

        Section 10.05    Transfer Taxes.    All sales, use, documentary, recording, stamp,
transfer and other taxes (other than taxes on gross income, net income or gross receipts) and duties, levies, assessments, fees or other governmental charges incurred by or imposed with respect to the
property transfers undertaken pursuant to this Agreement shall be the responsibility of, and shall be paid by, Buyer. The Parties will reasonably cooperate to eliminate or reduce the assessment of
sales or use taxes to the extent permitted by applicable Law. If Seller (not Buyer) is required by applicable Law to appeal or protest
the assessment of sales or use taxes, Seller shall protest the assessment of those taxes if Buyer requests Seller in writing to make such appeal or protest, and, in such event, Buyer will reimburse
Seller all out-of-pocket expenses authorized by Buyer and incurred by Seller in connection with such appeal or protest. 

        Section 10.06    Ad Valorem and Similar Taxes.    All ad valorem, property, production,
severance and similar Taxes attributable to any period prior to the Effective Time will be paid by the Seller. All ad valorem, property, production, severance and similar Taxes attributable to any
period on or after the Effective Time shall be paid by Buyer. Notwithstanding anything to the contrary set forth in this Agreement, for all purposes of this Agreement, Taxes based on or measured by
production of Hydrocarbons or the value thereof shall be deemed attributable to the period during which such production occurred regardless of the year when such Taxes are assessed. Seller shall
provide written evidence to Buyer that it has paid all Taxes for periods prior to the Effective Time that are payable after the Effective Time including ad valorem Taxes in the state of Colorado and
production Taxes in the state of Wyoming payable in 2009 provided such Taxes are based on production occurring prior to the Effective Time. 

29

 

        Section 10.07    Actions of Seller at the Closing.    At the Closing, Seller shall: 

        (a)   execute,
acknowledge and deliver to Buyer the Assignment in the form of Exhibit E, effective as of the Effective
Time, and such other conveyances, assignments, transfers, bills of sale and other instruments (in form and substance mutually agreed upon by Buyer and Seller) as may be necessary or desirable to
convey the Assets to Buyer; 

        (b)   execute,
acknowledge and deliver to Buyer such letters in lieu of transfer or division orders as may be reasonably requested by Buyer no less than five
(5) business days prior to the Closing Date directing all purchasers of production from the Subject Interests to make payment of proceeds attributable to such production to Buyer from and after
the later of the Closing Date or the date operations and accounting functions are transferred to Buyer; 

        (c)   deliver
to Buyer possession of the Assets (excluding the Records); 

        (d)   execute
and deliver to Buyer an affidavit attesting to its non-foreign status; 

        (e)   execute
and deliver the Seismic License in form and substance reasonably satisfactory to Buyer; 

        (f)    execute,
acknowledge and deliver any other agreements provided for herein or necessary or desirable to effectuate the transactions contemplated hereby; and 

        (g)   execute
and deliver any documents or instruments required by any Governmental Authority in order to transfer the operatorship of the Assets being operated by Seller to
Buyer. 

        Section 10.08    Actions of Buyer at the Closing.    At the Closing, Buyer shall: 

        (a)   pay
the Purchase Price (as adjusted pursuant to the provisions hereof) in immediately available funds pursuant to wire transfer instructions to be provided by Seller to
Buyer; 

        (b)   take
possession of the Assets; and 

        (c)   execute,
acknowledge and deliver the Assignment and any other agreements provided for herein or necessary or desirable to effectuate the transactions contemplated
hereby. 

        Section 10.09    Recordation; Further Assurances.    

        (a)   Promptly
following the Closing, Buyer shall cause the documents identified in Section 9.04 and  Section 10.07(a) to be recorded or filed in the appropriate
real property and other applicable records, in the order reasonably agreed upon by
the Parties, and Buyer shall promptly provide Seller copies of all such recorded or filed instruments. 

        (b)   Subject
to such additional period of time that Seller reasonably requires to use the Records in the conduct of operations after Closing, Seller shall make the Records
available to be picked up by Buyer at the offices of Seller during normal business hours within thirty (30) days after the Closing, to the extent the Records are in the possession of Seller and
are not subject to contractual restrictions on transferability. Seller shall have the right at its sole expense to make and retain copies of any of the Records. 

        (c)   After
the Closing Date, each Party, at the request of the other Party and without additional consideration, shall execute and deliver, or shall cause to be executed and
delivered, from time to time such further instruments of conveyance and transfer and shall take such other action as the other Party may reasonably request to convey and deliver the Assets to Buyer
and to accomplish the orderly
transfer of the Assets to Buyer in the manner contemplated by this Agreement. After the Closing, the Parties will cooperate to have all proceeds received attributable to the Assets to be paid to the
proper Party hereunder and to have all expenditures to be made with respect to the Assets be made by the proper Party hereunder. 

30

 
ARTICLE 11  

 TERMINATION  

        Section 11.01    Right of Termination.    This Agreement may be terminated at any time
at or prior to the Closing: 

        (a)   by
mutual written consent of the Parties; 

        (b)   by
Seller on the Closing Date if the conditions set forth in Article 8 have not been satisfied in all material
respects by Buyer or waived by Seller in writing by the Closing Date; 

        (c)   by
Buyer on the Closing Date if the conditions set forth in Article 9 have not been satisfied in all material
respects by Seller or waived by Buyer in writing by the Closing Date; 

        (d)   by
either Buyer or St. Mary if the Closing shall not have occurred by February 15, 2008; 

        (e)   by
either Buyer or St. Mary if any Governmental Authority shall have issued a final and non-appealable order, judgment or decree or taken any other
final and non-appealable action challenging, restraining, enjoining, prohibiting or invalidating the consummation of any of the transactions contemplated herein; 

        (f)    by
either Buyer or St. Mary if (i) the aggregate amount of the Title Defect Values with respect to all Title Defects asserted by Buyer reasonably and in
good faith (net of the aggregate amount of the Purchase Price Adjustments for all Title Benefits) plus (ii) the aggregate amount of the
Environmental Defect Values with respect to all Environmental Defects asserted by Buyer reasonably and in good faith plus (iii) the aggregate
amount of all Casualty Losses exceeds twenty percent (20%) of the unadjusted Purchase Price; 

        (g)   by
either Buyer or St. Mary if between execution of this Agreement and Closing, an event should occur having a Material Adverse Effect on the ownership, operation
or value of the Assets; or 

        (h)   as
otherwise provided herein. 

provided,
however, that no Party shall have the right to terminate this Agreement pursuant to clause (b),  (c), or (d)
above if such Party is at such time in Breach of any provision of this Agreement, or such
Party instigates a proceeding of the nature described in Section 8.03 or Section 9.03. 

        Section 11.02    Effect of Termination.    In the event that the Closing does not occur
as a result of any Party exercising its right to terminate pursuant to Section 11.01, then except as set forth in  Section 2.02, this Agreement
shall be null and void and no Party shall have any further rights or obligations under this Agreement; provided,
that, nothing herein shall relieve any Party from any liability for any Breach hereof or any liability that has accrued prior to the date of such termination, which liability, and the applicable terms
and provisions of this Agreement, shall survive such termination. 

        Section 11.03    Attorneys' Fees, Etc.    If either Party to this Agreement resorts to
legal proceedings to enforce this Agreement, the prevailing Party in such proceedings shall be entitled to recover all costs incurred by such Party, including reasonable attorneys' fees, in addition
to any other relief to which such Party may be entitled. 

ARTICLE 12  

 ASSUMPTION AND INDEMNIFICATION  

        Section 12.01    Buyer's Obligations after Closing.    Upon and after Closing, except
to the extent reflected in an upward Purchase Price Allocations and Adjustments, Buyer will assume and perform all 

31

 

the
obligations, liabilities and duties relating or with respect to the ownership and/or operation of the Assets that are attributable to periods on or after the Effective Time, together with the
Plugging and Abandonment Obligations, the Environmental Obligations, and all other obligations assumed by Buyer under this Agreement (collectively, the "Assumed
Obligations"). Without limiting the generality of the foregoing, the Assumed Obligations shall also specifically include: 

        (a)   Responsibility
for the performance of all express and implied obligations under the instruments described in  Exhibit A, together with all other instruments in the chain of title to such Assets, the Leases, the
Contracts, the Surface Agreements, the
Permits and all other orders, contracts and agreements to which the Assets are subject, including the payment of royalties and overriding royalties, in each case to the extent attributable to the
periods on or after the Effective Time; 

        (b)   Responsibility
for payment of all amounts held in suspense accounts by Seller as of the Closing Date, and for which the Purchase Price is adjusted pursuant to  Section 10.02(b), without regard to whether such
suspense amounts relate to periods before or after the Effective Time. Seller covenants and
agrees to provide to Buyer with the Records, the owner name, number and tax identification number (if known by Seller), the reason such amounts are in suspense, the amount of suspense funds for each
such owner making up the total of such funds, and all other information with respect thereto required to be provided to the owner or to the state under the laws, rules and regulations of the affected
jurisdiction. To the extent practicable, Seller shall provide such information in the electronic or computer sensible form maintained by Seller. Seller shall remain responsible for the payment of any
statutory interest and penalties which may have accrued prior to the Effective Time with respect to such suspense amounts, whether payable to the interest owner or to any state agency in connection
with unclaimed property laws, to the extent such interest and penalties are not included in the amount deducted from the Purchase Price pursuant to  Section 10.02(b); 

        (c)   Responsibility
for compliance with all Laws now or hereafter in effect pertaining to the Assets, and the procurement and maintenance of all permits, consents and
authorizations of or required by Governmental Authorities in connection with the Assets, attributable to periods on or after the Effective Time; and 

        (d)   Responsibility
for all obligations with respect to Production Imbalances attributable to the Assets, whether attributable to periods before or after the Effective Time. 

        Section 12.02    Seller's Obligations after Closing.    After Closing, each Party
comprising Seller will severally, and not jointly, retain responsibility for (a) the payment of all operating expenses and capital expenditures related to the Assets and attributable to
Seller's ownership and/or operation of the Assets prior to the Effective Time, but not including the AFEs set forth in Schedule 5.08,
(b) severance, ad
valorem, production, property, personal property and similar Taxes measured by the value of the Assets or measured by the production of Hydrocarbons attributable to all periods from and after the
effective date of Seller's ownership of the Assets and prior to the Effective Time, (c) the payment of all broker's and finder's fees in connection with the transactions contemplated by this
Agreement, (d) the obligations, liabilities and duties of Seller relating or with respect to the ownership and/or operation of the Assets that are attributable to periods prior to the Effective
Time other than the Plugging and Abandonment Obligations and the Environmental Obligations, and (e) Seller's proportionate share of any third party Claims with respect to payments of lease
royalties in respect of the Leases during Seller's period of ownership of such Leases (collectively the "Retained Obligations"). 

        Section 12.03    Plugging and Abandonment Obligations.    

        (a)    Buyer's Obligations.    Provided Closing occurs and to the extent not otherwise addressed by the express
provisions of this Agreement, Buyer assumes full responsibility and liability for the 

32

 

following
plugging and abandonment obligations related to the Assets (the "Plugging and Abandonment Obligations"), regardless of whether they are
attributable to the ownership or operation of the Assets before or after the Effective Time: 

          (i)  The
necessary and proper plugging, replugging and abandonment of all wells on the Assets, whether plugged and abandoned before or after the Effective Time in compliance
with applicable Laws and the terms of the Leases; 

         (ii)  The
necessary and proper decommissioning, removal, abandonment, and disposal of all structures, pipelines, facilities, equipment, abandoned Assets, junk and other
personal property located on or comprising any part of the Assets in compliance with applicable Laws and the terms of the Leases; 

        (iii)  The
necessary and proper capping and burying of all associated flow lines located on or comprising any part of the Assets, to the extent required by applicable Laws,
the Leases, the Contracts, or other agreements; 

        (iv)  The
necessary and proper restoration of the Assets, both surface and subsurface, in compliance with any applicable Laws, the Leases, the Surface Agreements, the
Contracts, or any other applicable agreements; 

         (v)  To
the extent not addressed by operation of Article 4, any necessary clean-up or disposal of any part
of the Assets contaminated by NORM, asbestos containing materials, lead based
paint or any other substances or materials considered to be hazardous under Laws, including Environmental Laws, and Laws relating to the protection of natural resources; 

        (vi)  All
obligations arising from contractual requirements and demands made by Governmental Authorities or parties claiming a vested interest in any part of the Assets; and 

       (vii)  Obtaining
and maintaining all bonds and securities, including supplemental or additional bonds or other securities, that may be required by contract or by Governmental
Authorities. 

        (b)    Standard of Operations.    Buyer shall conduct all Plugging and Abandonment Obligations and all other
operations with respect to the Assets in a good and workmanlike manner and in compliance with all Laws, including Environmental Laws and Laws (now or hereafter in effect) relating to the protection of
natural resources. 

        Section 12.04    Environmental Obligations.    Provided Closing occurs and to the
extent not otherwise addressed by the express provisions of this Agreement, Buyer assumes full responsibility and liability for the following occurrences, events, conditions and activities on, or
related to, or attributable to Seller's ownership or operation of the Assets (the "Environmental Obligations") regardless of whether arising from
Seller's ownership or operation of, or relating to, the Assets before or after the Effective Time, and regardless of whether resulting from any acts or omissions of Seller or
its Representatives (INCLUDING THOSE ARISING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF SELLER OR ANY OF
SELLER'S REPRESENTATIVES) or the condition, including the environmental condition of the Assets when acquired: 

        (a)   Environmental
pollution or contamination, including pollution or contamination of the soil, groundwater or air by Hydrocarbons, drilling fluid and other chemicals,
brine, produced water, NORM, asbestos containing materials, lead based paint, mercury or any other substance, and any other violation of Environmental Laws or Laws now or hereafter in effect relating
to the protection of natural resources; 

        (b)   Underground
injection activities and waste disposal; 

33

 

 

        (c)   Clean-up
responses, and the cost of remediation, control, assessment or compliance with respect to surface and subsurface pollution caused by spills, pits,
ponds, lagoons or storage tanks; 

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

        (e)   Disposal
on the Assets of any hazardous substances, wastes, materials and products generated by or used in connection with the ownership, development, operation or
abandonment of any part of the Assets; and 

        (f)    Non-compliance
with Environmental Laws (now or hereafter in effect). 

        Section 12.05    Definition of Claims.    Except as expressly provided in  Section 4.09(a)(ix) and Section 7.03(a) that specifically operate to include Buyer, the
term "Claims" means any and all direct or indirect, demands, claims, notices of violation, notices of probable violation, filings, investigations,
administrative proceedings, actions, causes of action, suits, other legal proceedings, judgments, assessments, damages, deficiencies, Taxes, penalties, fines, obligations, responsibilities,
liabilities, payments, charges, losses, costs, and expenses (including costs and expenses of operating the Assets) of any kind or character asserted by a third party (whether or not asserted prior to
Closing, and whether known or unknown, fixed or unfixed, conditional or unconditional, based on negligence, strict liability or otherwise, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent, or other legal theory), including penalties and interest on any amount payable as a result of any of the foregoing, any legal or other costs and expenses
incurred in connection with investigating or defending any Claim, and all amounts paid in settlement of Claims. Without limiting the generality of the foregoing, the term
"Claims" specifically includes any and all Claims arising from, attributable to or incurred in connection with any (a) breach of contract,
(b) loss or damage to property, injury to or death of persons, and other tortuous injury and (c) violations of applicable Laws, including Laws relating to the protection of natural
resources, Environmental Laws (each as now or hereafter in effect) and any other legal right or duty actionable at law or equity. 

        Section 12.06    Application of Indemnities.    

        (a)   All
indemnities set forth in this Agreement extend to the officers, directors, partners, managers, members, shareholders, agents, contractors, employees and affiliates
of the indemnified party ("Representatives"). 

        (b)   UNLESS THIS AGREEMENT EXPRESSLY PROVIDES TO THE CONTRARY, THE INDEMNITY AND RELEASE, AND WAIVER AND ASSUMPTION PROVISIONS SET FORTH IN THIS
AGREEMENT APPLY, REGARDLESS OF WHETHER THE INDEMNIFIED PARTY (OR ITS REPRESENTATIVES) CAUSES, IN WHOLE OR PART, AN INDEMNIFIED CLAIM, INCLUDING INDEMNIFIED CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE
OR IN PART, FROM, OUT OF OR IN CONNECTION WITH THE CONDITION OF THE ASSETS OR THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT SECURITIES FRAUD CLAIMS THAT REQUIRE SCIENTER OR KNOWLEDGE AS ONE
ELEMENT OF THE CAUSE OF ACTION, GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUD BY THE INDEMNIFIED PARTY), STRICT LIABILITY OR OTHER LEGAL FAULT OF THE INDEMNIFIED PARTY OR ANY OF ITS
REPRESENTATIVES.

        (c)   NEITHER BUYER NOR SELLER SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY, RESPECTIVELY, AND EACH PARTY RELEASES THE OTHER PARTY FROM AND
WAIVES, ANY LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING UNDER THIS AGREEMENT OR IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT ANY AMOUNT IN EXCESS OF THE ACTUAL
COMPENSATORY DAMAGES SUFFERED BY SUCH PARTY EXCEPT THAT IF THE DISPUTE BETWEEN SELLER AND BUYER IS BASED ON A FAILURE OF THE TRANSACTION  

34

 

 CONTEMPLATED HEREBY TO CLOSE, THE SOLE AND EXCLUSIVE REMEDIES SHALL BE THOSE PROVIDED FOR IN SECTION 2.02. BUYER AND SELLER WAIVE, AND RELEASE
EACH OTHER FROM ANY RIGHT TO RECOVER PUNITIVE, SPECIAL, EXEMPLARY AND CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT; PROVIDED,
HOWEVER, ANY SUCH DAMAGES RECOVERED BY A THIRD PARTY (OTHER THAN SUBSIDIARIES, AFFILIATES OR PARENTS OF A PARTY) FOR WHICH A PARTY OWES THE OTHER PARTY AN INDEMNITY UNDER THIS AGREEMENT SHALL NOT BE
WAIVED. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT IS CONSPICUOUS.

        (d)   The
indemnities of the indemnifying Party in this Agreement do not cover or include any amounts that the indemnified party may legally recoup from other third party
owners under applicable joint operating agreements or other agreements, and for which the indemnified party is reimbursed by any third party. The indemnifying Party will pay all costs incurred by the
indemnified party in obtaining reimbursement from third parties. There will be no upward or downward adjustment in the Purchase Price as a result of any matter for which Buyer or Seller is indemnified
under this Agreement. 

        Section 12.07    Buyer's Indemnity.    Buyer shall release and indemnify, defend and
hold Seller and its Representatives harmless from and against any and all Claims caused by, resulting from or incidental to
the Assumed Obligations, and any Claims caused by, resulting from or attributable to (a) any inaccuracy of any representation or warranty of Buyer set forth in this Agreement, or (b) any
Breach of, or failure to perform or satisfy any of the covenants and obligations of Buyer hereunder. 

        Section 12.08    Seller's Indemnity.    Subject to  Section 12.10, Seller shall release and
indemnify, defend and hold Buyer and its Representatives harmless from and against any and all Claims
caused by, resulting from or incidental to the Retained Obligations, and any Claims caused by or resulting from or attributable to (a) the Breach of any representation or warranty of Seller set
forth in Section 5.04 of this Agreement, and (b) any Breach of, or failure to perform or satisfy, any of the covenants and obligations of
Seller hereunder. 

        Section 12.09    Notices and Defense of Indemnified Claims.    Each Party shall
immediately notify the other Party of any Claim of which it becomes aware and for which it is entitled to indemnification from the other Party under this Agreement. The indemnifying Party shall be
obligated to defend, at the indemnifying Party's sole expense, any litigation or other administrative or adversarial proceeding against the indemnified Party relating to any Claim for which the
indemnifying Party has agreed to release and indemnify and hold the indemnified Party harmless under this Agreement; provided, however, that the failure to give such notice shall not relieve the
indemnifying Party from its obligations unless such failure to give notice actually prejudices the indemnifying Party and so long as the notice is given within the period set forth in  Section 12.10. The indemnified Party shall have the right to participate with the indemnifying Party in the defense of any such Claim at its own
expense. 

        Section 12.10    Survival.    Except as specifically provided in  Section 12.07 and
Section 12.08, the representations, warranties, covenants and agreements
of the Parties set forth herein shall not survive the Closing, and the consummation of the transactions contemplated hereby, and Buyer and Seller each covenant not to sue the other based upon any
alleged Breach of any such representations or warranties that do not survive the Closing. The indemnity of Seller as provided in Section 12.08
shall survive only for a period of twenty-four (24) months after the Closing. Notwithstanding anything to the contrary, Buyer shall not be entitled to make, and hereby waives the
right to assert, any claim for indemnity pursuant to the provisions of this Article 12 against Seller unless Buyer seeks indemnification for such
claim by a written notice received by Seller on or before the date that is twenty-four (24) months after the Closing Date (the "Expiration
Date"). Anything in this Agreement to the contrary notwithstanding, after the Expiration Date, all of the Retained Liabilities and all of Seller's other liabilities and 

35

 

obligations
with respect to the Assets (and all Claims with respect thereto) shall be deemed and constitute Assumed Obligations except to the extent of any Claims of which Buyer notifies Seller on or
before the Expiration Date in accordance with this Agreement. 

        Section 12.11    Exclusive Remedy.    The terms and provisions of this  Article 12 and those
provided in Article 2,  Article 4, Article 7, Article 8,  Article 9, Article 10, and  Article 11
shall be the sole and exclusive remedy of each of the Parties indemnified hereunder with respect to the representations, warranties,
covenants and agreements of the Parties set forth in this Agreement and the other documents executed and
delivered hereunder; provided, however, that the terms of this Section 12.11 shall not be applicable to the extent that a Party has committed
fraud, securities fraud (where one of the elements of the cause of action is scienter or knowledge), willful misconduct, or gross negligence. 

        Section 12.12    Defenses and Counterclaims.    Each Party that is required to assume
any obligation or liability of the other Party pursuant to this Agreement or that is required to release and defend, indemnify or hold the other Party harmless hereunder shall, notwithstanding any
other provision hereof to the contrary, be entitled to the use and benefit of all defenses (legal and equitable) and counterclaims of such other Party in defense of third party Claims arising out of
any such assumption or indemnification. 

        Section 12.13    Anti-Indemnity Statute.    Buyer and Seller agree that
with respect to any statutory limitations now or hereafter in effect affecting the validity or enforceability of the indemnities provided for in this Agreement, such indemnities shall be deemed
amended in order to comply with such limitations. This provision concerning statutory limitations shall not apply to indemnities for all liabilities of the indemnifying Party which are covered by such
Party's insurance. 

ARTICLE 13  

 DISCLAIMERS; CASUALTY LOSS AND CONDEMNATION  

        Section 13.01    Disclaimers of Representations and
Warranties.    The express representations and warranties of Seller contained in this Agreement are exclusive and are in lieu of all other
representations and warranties, express, implied, at common law or statutory. BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY EXPRESSLY
WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE, RELATING TO (a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, INFORMATION IN
RESPECT OF PRODUCTION IMBALANCES OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OR
SIGNIFICANCE OF ANY INFORMATION, DATA, GEOLOGICAL AND GEOPHYSICAL DATA (INCLUDING ANY INTERPRETATIONS OR DERIVATIVES BASED THEREON) OR OTHER MATERIALS (WRITTEN OR ORAL) CONSTITUTING PART OF THE
ASSETS, NOW, HERETOFORE OR HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF SELLER, (c) THE CONDITION, INCLUDING, THE ENVIRONMENTAL CONDITION OF THE ASSETS AND (d) THE COMPLIANCE OF
SELLER'S PAST PRACTICES WITH THE TERMS AND PROVISIONS OF ANY AGREEMENT IDENTIFIED IN EXHIBIT A, OR ANY SURFACE AGREEMENT, PERMIT OR CONTRACT OR
APPLICABLE LAWS, INCLUDING ENVIRONMENTAL LAWS AND LAWS RELATING TO THE PROTECTION OF NATURAL RESOURCES, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ARTICLE
5. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY, FIXTURES, BUILDINGS, OFFICES, TRAILERS, ROLLING STOCK, VEHICLES, AND GEOLOGICAL AND GEOPHYSICAL DATA (INCLUDING ANY INTERPRETATIONS OR DERIVATIVES BASED  

36

 

 THEREON) CONSTITUTING A PART OF THE ASSETS (i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,
(iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (iv) ANY IMPLIED OR EXPRESS WARRANTY THAT ANY DATA TRANSFERRED PURSUANT HERETO IS NONINFRINGING,
(v) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (vi) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM
DEFECTS, WHETHER KNOWN OR UNKNOWN, (vii) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAWS, AND (viii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, OR LAWS
RELATING TO THE PROTECTION OF THE ENVIRONMENT, HEALTH, SAFETY OR NATURAL RESOURCES OR RELATING TO THE RELEASE OF MATERIALS INTO THE ENVIRONMENT, INCLUDING ASBESTOS CONTAINING MATERIAL, LEAD BASED
PAINT OR MERCURY AND ANY OTHER HAZARDOUS SUBSTANCES OR WASTES, IT BEING THE EXPRESS INTENTION OF BUYER AND SELLER THAT THE ASSETS, INCLUDING ALL PERSONAL PROPERTY, EQUIPMENT, FACILITIES, INVENTORY,
MACHINERY, FIXTURES, BUILDINGS, OFFICES, TRAILERS, VEHICLES AND ROLLING STOCK INCLUDED IN THE ASSETS, SHALL BE CONVEYED TO BUYER, AND BUYER SHALL ACCEPT THE SAME, AS IS, WHERE IS, WITH ALL FAULTS AND
IN THEIR PRESENT CONDITION AND STATE OF REPAIR. BUYER REPRESENTS AND WARRANTS TO SELLER THAT BUYER WILL MAKE, OR CAUSE TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH ASSETS AS BUYER DEEMS
APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAWS (INCLUDING ENVIRONMENTAL LAWS AND LAWS RELATING TO THE PROTECTION OF NATURAL RESOURCES, HEALTH, SAFETY OR THE
ENVIRONMENT) TO BE EFFECTIVE, THE DISCLAIMERS OF THE WARRANTIES CONTAINED IN THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR ALL PURPOSES.  

        Section 13.02    NORM.    BUYER
ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND GAS PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL ("NORM"). SCALE
FORMATION OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON EQUIPMENT AND OTHER ASSETS. THE ASSETS SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND LEVELS, AND A HEALTH HAZARD
MAY EXIST IN CONNECTION WITH THE ASSETS BY REASON THEREOF. THEREFORE, BUYER MAY NEED TO AND SHALL FOLLOW SAFETY PROCEDURES WHEN HANDLING THE EQUIPMENT AND OTHER ASSETS.

        Section 13.03    Casualty Loss; Condemnation.    

        (a)   Except
as otherwise provided in this Agreement, Buyer shall assume all risk of loss with respect to, and any change in the condition of, the Assets from and after the
Effective Time, including with respect to the depletion of Hydrocarbons, the watering-out of any well, the collapse of casing, sand infiltration of wells, and the depreciation of personal
property. 

        (b)   Prior
to the Closing, there shall not have been a material adverse change in the Assets taken as a whole caused by an event of casualty (a "Casualty"), including but not
limited to, volcanic eruptions, acts of God, fire, explosion, earthquake, wind storm, flood, drought, condemnation, the exercise of any right of eminent domain, confiscation, seizure, but excepting
depletion due to normal production and depreciation or failure of equipment or casing. 

37

 

 

        (c)   If,
prior to the Closing, a Casualty occurs (or Casualties occur) which results in a reduction in the value of the Assets in excess of fifteen percent (15%) of the
Purchase Price ("Casualty Loss"), Buyer or Seller may elect to terminate this Agreement. If this Agreement is not so terminated, then this Agreement
shall remain in full force and effect notwithstanding any such Casualty Loss, and, at Buyer's sole option, (i) Seller shall retain such Asset subject to such Casualty and such Asset shall be
the subject of an adjustment to the Purchase Price in the same manner set forth in Section 4.03 hereof, or (ii) at the Closing, Seller
shall pay to Buyer all sums paid to Seller by reason of such Casualty Loss, provided, however, that the Purchase Price shall not be adjusted by reason of such payment, and Seller shall assign,
transfer and set over unto Buyer all of the right, title and interest of Seller in and to such Asset and any unpaid awards or other payments arising out of such Casualty Loss. 

        (d)   For
purpose of determining the value of a Casualty Loss, the Parties shall use the same methodology as applied in determining the value of a Title Defect as set forth in  Section 4.03(a). 

ARTICLE 14  

 MISCELLANEOUS  

        Section 14.01    Names.    As soon as reasonably possible after the Closing, but in no
event later than 45 days after the Closing, Buyer shall remove the names of Seller and its affiliates, and all variations thereof, from all of the Assets and make the requisite filings with,
and provide the requisite notices to, the appropriate Governmental Authorities to place the title or other indicia or responsibility of ownership, including operation of the Assets, in a name other
than the name of the Seller or any of its affiliates, or any variations thereof. 

        Section 14.02    Expenses.    Each Party shall be solely responsible for all expenses,
including due diligence expenses, incurred by it in connection with this transaction, and neither Party shall be entitled to any reimbursement for any such expenses from the other Party. 

        Section 14.03    Document Retention.    As used in this  Section 14.03, the term
"Documents" shall mean all files, documents, books, records and other
data delivered to Buyer by Seller pursuant to the provisions of this Agreement (other than those that Seller has retained either the original or a copy of), including financial and tax accounting
records; land, title and division order files; contracts; engineering and well files; and books and records related to the operation of the Assets prior to the Closing Date. Buyer shall retain and
preserve the Documents for a period of no less than seven (7) years following the Closing Date (or for such longer period as may be required by Laws of any Governmental Authority), and shall
allow Seller or its representatives to inspect the Documents at reasonable times and upon reasonable notice during regular business hours during such time period. Seller shall have the right during
such period to make copies of any of the Documents at its expense. 

        Section 14.04    Entire Agreement.    This Agreement, the documents to be executed and
delivered hereunder, and the Exhibits, Schedules and Appendices attached hereto constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof; provided, however, that this Agreement does not supersede
that certain Confidentiality Agreement dated October 15, 2007, by and between the St. Mary and Buyer, which agreement shall not survive the Closing. No supplement, amendment, alteration,
modification or waiver of this Agreement shall be binding unless executed in writing by each of the Parties and specifically referencing this Agreement. 

        Section 14.05    Waiver.    No waiver of any provision of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 

38

 

        Section 14.06    Construction.    The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. 

        Section 14.07    No Third Party Beneficiaries.    Except as provided in  Section 12.06(a),
nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of
action, remedy or right of any kind, it being the intent of the Parties that this Agreement shall otherwise not be construed as a third party beneficiary contract. 

        Section 14.08    Assignment.    Except as provided in  Section 2.04, neither Party may
assign or delegate any of its rights or duties hereunder to any individual or entity other than an affiliate of
such Party without the prior written consent of the other Party and any assignment made without such consent shall be void. Except as otherwise provided herein, this Agreement shall be binding upon
and inure to the benefit of the Parties and their respective permitted successors, assigns and legal representatives.
Notwithstanding any assignment to an affiliate, Buyer shall nevertheless remain liable to Seller in accordance with the terms of this Agreement. 

        Section 14.09    Governing Law; Venue.    This Agreement, the
other documents delivered pursuant hereto, and the legal relations between the Parties shall be governed and construed in accordance with the laws of the State of Colorado. Any litigation arising out
of this Agreement shall be brought before the Federal courts sitting in the City and County of Denver, Colorado, and the Parties irrevocably waive any right to choose or request any other venue.  

        Section 14.10    Notices.    Any notice, communication,
request, instruction or other document required or permitted hereunder (including notices of Title Defects and Environmental Defects) shall be given in writing and delivered in person or sent by U.S.
Mail postage prepaid, return receipt requested, overnight delivery service, electronically, or facsimile to the addresses of Seller and Buyer set forth below. Any such notice shall be effective and
deemed given only upon receipt. 

	Seller:	 	ST. MARY LAND & EXPLORATION COMPANY

1776 Lincoln Street, Suite 770

Denver, CO 80203

Attention:

Fax No.:

Tel. No.:

Email:
	 	
 With copy to:	
 	

ST. MARY LAND & EXPLORATION COMPANY

1776 Lincoln Street, Suite 770

Denver, CO 80203

Attention:

Fax No.:

Tel. No.:

Email:

39

 

	

Buyer:	
 	

ABRAXAS OPERATING, LLC

500 North Loop 1604 East

Suite 100

San Antonio, TX 78232

Attention: Barbara M. Stuckey

Fax No.: 210-490-8816

Tel. No.: 210-490-4788

Email: bstuckey@abraxaspetroleum.com
	 	
 With copy to:	
 	

JACKSON WALKER L.L.P.

112 East Pecan Street

Suite 2400

San Antonio, TX 78205

Attention: Steven R. Jacobs

Fax No.: 210-978-7790

Tel. No.: 210-978-7727

Email: sjacobs@jw.com

        Either
Party may, by written notice so delivered to the other Party, change its address for notice purposes hereunder. 

        Section 14.11    Severability.    If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect and the
Parties shall negotiate in good faith to modify this Agreement so as to effect their original intent as closely as possible in an acceptable manner to the end that the transactions contemplated hereby
are fulfilled to the extent possible. 

        Section 14.12    Interpretation.    This Agreement shall be deemed and considered for
all purposes to have been jointly prepared by the Parties, and shall not be construed against any one Party (nor shall any inference or presumption be made) on the basis of who drafted this Agreement
or any particular provision hereof, who supplied the form of Agreement, or any other event of the negotiation, drafting or execution of this Agreement. Each Party agrees that this Agreement has been
purposefully drawn and correctly reflects its understanding of the transaction that it contemplates. In construing this Agreement, the following principles will apply: 

        (a)   A
defined term has its defined meaning throughout this Agreement and each Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the
place where it is defined. 

        (b)   If
there is any conflict or inconsistency between the provisions of the main body of this Agreement and the provisions of any Exhibit or Schedule hereto, the provisions
of this Agreement shall take precedence. If there is any conflict between the provisions of any Assignment or other transaction documents attached to this Agreement as an Exhibit and the provisions of
any Assignment and other transaction documents actually executed by the parties, the provisions of the executed Assignment and other executed transaction documents shall take precedence. 

        (c)   Schedules
and Exhibits referred to herein are hereby incorporated and made a part of this Agreement for all purposes by such reference. 

        (d)   The
omission of certain provisions of this Agreement from the Assignment does not constitute a conflict or inconsistency between this Agreement and the Assignment, and
will not effect a merger of the omitted provisions. To the fullest extent permitted by Laws, all provisions of this Agreement are hereby deemed incorporated into the Assignment by reference. 

40

 

        (e)   The
words "includes" and "including" and their derivatives means
"includes, but not limited to" or "including, but not limited to," and corresponding derivative meanings. 

        (f)    The
Article, Section, Exhibit and Schedules references in this Agreement refer to the Articles, Sections, Exhibits and Schedules of this Agreement. The headings and
titles in this Agreement are for convenience only and shall have no significance in interpreting or otherwise affect the meaning of this Agreement. 

        (g)   The
terms "knowledge" or "knowingly," whether or not capitalized, shall
mean the actual knowledge of a Party's employees who, as of Closing are in a supervisory capacity responsible for the ownership and operation of the Assets and any material facts relating thereto,
after a due and diligent inquiry. 

        (h)   The
adjective, "material", whether or not capitalized, shall mean a situation, circumstance, consequence or concept whose
relevance to the transactions contemplated by this Agreement as a whole is of significance, and would not be considered a small or insignificant deviation from the terms of this Agreement. 

        (i)    The
term "Material Adverse Effect" shall mean any defect, condition, change or effect (other than with respect to which
an adjustment to the Purchase Price has been made) that when taken together with all other such defects, conditions, changes and effects significantly diminishes the value, use, operations or
development of the Assets, taken as a whole. Notwithstanding the foregoing, the following shall not be considered in determining whether a Material Adverse Effect has occurred: 

          (i)  Fluctuations
in commodity prices; 

         (ii)  Changes
in Laws or Environmental Laws; or 

        (iii)  Changes
in the oil and gas industry that do not have a disproportionate impact on the ownership and operation of the Assets. 

        (j)    "Breach" shall mean any breach of, or any falsity or inaccuracy in, any representation or warranty or any breach of, or
failure to perform or comply with, any covenant or obligation, in or of this Agreement or any other contract, agreement or instrument contemplated by this Agreement or any event which with the passing
of time or the giving or notice, of both, would constitute such a breach, inaccuracy, or failure; provided that to constitute a Breach, such breach, inaccuracy, or failure must be material to the
subject matter regarding which the Breach is asserted. 

        (k)   "Tax" means all taxes and any other assessments, duties, fees, levies or other charges imposed by a Governmental
Authority based on or measured by the value of the Assets,the production of Hydrocarbons,the receipt of proceeds with respect to such Assets or Hydrocarbons or otherwise related in any manner or
attributable to the Assets or the production of Hydrocarbons including any production tax, windfall profits tax, severance tax, personal property tax, real property tax or ad valorem tax, together
with any interest, fine or penalty thereon, or addition thereto. 

        (l)    The
plural shall be deemed to include the singular, and vice versa. 

        Section 14.13    Time of the Essence.    Time shall be of the essence with respect to
all time periods and notice periods set forth in this Agreement. 

        Section 14.14    Counterpart Execution.    This Agreement may be executed in any number
of counterparts, and each counterpart hereof shall be effective as to each Party that executes the same whether or not all of such parties execute the same counterpart. If counterparts of this
Agreement are executed, the signature pages from various counterparts may be combined into one composite instrument for all purposes. All counterparts together shall constitute only one Agreement, but
each 

41

 

counterpart
shall be considered an original. In the event that this Agreement is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format date file, such signature
shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page were an
original thereof. 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK] 

42

  
        IN WITNESS WHEREOF, Seller and Buyer have executed and delivered this Agreement as of the date first set forth above. 

	 	 	SELLER:
	

 	
 	
ST. MARY LAND & EXPLORATION COMPANY
	

 	
 	

By:	
 	
/s/ Milam Randolph Pharo
 Name: Milam Randolph Pharo

Title: Vice President—Land and Legal
	

 	
 	
RALPH H. SMITH RESTATED REVOCABLE TRUST DATED 8/14/97, RALPH H. SMITH TRUSTEE
	

 	
 	

By:	
 	
/s/ Ralph H. Smith
 Name: Ralph H. Smith

Title: Trustee
	

 	
 	
KENT J. HARRELL, TRUSTEE OF THE KENT J. HARRELL REVOCABLE TRUST DATED JANUARY 19, 1995
	

 	
 	

By:	
 	
/s/ Kent J. Harrell
 Name: Kent J. Harrell

Title: Trustee
	

 	
 	
BUYER:
	

 	
 	
ABRAXAS OPERATING, LLC
	

 	
 	

By:	
 	
/s/ Barbara M. Stuckey
 Name: Barbara M. Stuckey

Title: President & Chief Operating Officer

QuickLinks

Exhibit 10.13

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