Document:

exv10w27

 

EXHIBIT 10.27

 

SECURITY AGREEMENT

BETWEEN

PRIME OFFSHORE L.L.C.

(DEBTOR)

AND

GUARANTY BANK, FSB, AS AGENT

(SECURED PARTY)

JUNE 29, 2006

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 
	ARTICLE I	DEFINITIONS AND INTERPRETATION	 	 	1	 
	 
	 	1.1	 	Terms Defined Above	 	 	1	 
	 
	 	1.2	 	Terms Defined in Credit Agreement	 	 	1	 
	 
	 	1.3	 	Additional Defined Terms	 	 	1	 
	 
	 	1.4	 	Undefined Financial Accounting Terms	 	 	3	 
	 
	 	1.5	 	References	 	 	3	 
	 
	 	1.6	 	Articles and Sections	 	 	3	 
	 
	 	1.7	 	Number and Gender	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II	GRANT OF SECURITY INTEREST	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III	REPRESENTATIONS AND WARRANTIES	 	 	4	 
	 
	 	3.1	 	Validity, Perfection and Priority	 	 	4	 
	 
	 	3.2	 	No Liens; Other Financing Statements	 	 	5	 
	 
	 	3.3	 	Location of Debtor and Collateral	 	 	5	 
	 
	 	3.4	 	Accounts	 	 	5	 
	 
	 	3.5	 	Tradenames; Prior Names	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV	COVENANTS	 	 	5	 
	 
	 	4.1	 	Further Assurances	 	 	5	 
	 
	 	4.2	 	Change of Chief Executive Office	 	 	6	 
	 
	 	4.3	 	Change of Name or Limited Liability Company Structure	 	 	6	 
	 
	 	4.4	 	Maintain Records and Accounts	 	 	7	 
	 
	 	4.5	 	Right of Inspection	 	 	7	 
	 
	 	4.6	 	Possession of Collateral	 	 	7	 
	 
	 	4.7	 	Financing Statement Filings; Notifications	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V	ACCOUNTS	 	 	7	 
	 
	 	5.1	 	Debtor Remains Liable under Accounts	 	 	7	 
	 
	 	5.2	 	Collections on Accounts	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VI	POWER OF ATTORNEY	 	 	8	 
	 
	 	6.1	 	Appointment as Attorney-in-Fact	 	 	8	 
	 
	 	6.2	 	No Duty on the Part of Secured Party	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VII	REMEDIES; RIGHTS UPON DEFAULT	 	 	10	 
	 
	 	7.1	 	Rights and Remedies Generally	 	 	10	 
	 
	 	7.2	 	Proceeds	 	 	10	 
	 
	 	7.3	 	Collection of Accounts	 	 	10	 
	 
	 	7.4	 	Disposition of Collateral	 	 	10	 
	 
	 	7.5	 	Debtor’s Accounts	 	 	11	 
	 
	 	7.6	 	Possession of Collateral	 	 	11	 

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	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 
	 
	 	7.7	 	Disposition of the Collateral	 	 	11	 
	 
	 	7.8	 	Recourse	 	 	12	 
	 
	 	7.9	 	Expenses; Attorneys’ Fees	 	 	12	 
	 
	 	7.10	 	Application of Proceeds	 	 	12	 
	 
	 	7.11	 	Limitation on Duties Regarding Preservation of Collateral	 	 	13	 
	 
	 	7.12	 	Waiver of Claims	 	 	13	 
	 
	 	7 .13	 	Discontinuance of Proceedings 	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VIII	INDEMNITY	 	 	14	 
	 
	 	8.1	 	INDEMNITY	 	 	14	 
	 
	 	8.2	 	Indemnity Obligations Secured by Collateral; Survival	 	 	15	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IX	MISCELLANEOUS	 	 	15	 
	 
	 	9.1	 	No Waiver; Remedies Cumulative	 	 	15	 
	 
	 	9.2	 	Termination; Release	 	 	15	 
	 
	 	9.3	 	Counterparts	 	 	15	 
	 
	 	9.4	 	Marshalling	 	 	16	 
	 
	 	9.5	 	Severability	 	 	16	 
	 
	 	9.6	 	Financing Statement Filing	 	 	16	 
	 
	 	9.7	 	Notices and Other Communications	 	 	16	 
	 
	 	9.8	 	Parties in Interest	 	 	16	 
	 
	 	9.9	 	Amendments	 	 	16	 
	 
	 	9.10	 	ENTIRE AGREEMENT	 	 	16	 
	 
	 	9.11	 	GOVERNING LAW	 	 	17	 
	 
	 	9.12	 	JURISDICTION AND VENUE	 	 	17	 

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SECURITY AGREEMENT

     This
SECURITY AGREEMENT (this “Agreement”), dated as of June 29, 2006, is by and between
PRIME OFFSHORE L.L.C., a Delaware limited liability company
(the “Debtor”) and GUARANTY BANK, FSB,
a federal savings bank, as Agent (“Secured Party”).

W
I T N E S S E
T H:

     WHEREAS, pursuant to the terms and conditions of the Credit Agreement dated June 29,
2006, by and among Debtor and the Secured Party (as amended, restated, or supplemented from time
to time, the “Credit Agreement”), the Secured Party has agreed to extend credit to or for the
benefit of Debtor; and

     WHEREAS, pursuant to the Credit Agreement and as an inducement to the Secured Party to extend
credit to or for the benefit of the Debtor pursuant to the Credit Agreement, Debtor has agreed to
execute this Agreement in favor of the Secured Party;

     NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

     1.1
Terms Defined Above. As used herein, each of the terms
“Agreement.” “Credit
Agreement,” “Debtor,” and “Secured
Party” shall have the meaning assigned to such term hereinabove.

     1.2
Terms Defined in Credit Agreement. Each capitalized term used but not defined
herein shall have the meaning assigned to such term in the Credit Agreement.

     1.3
Additional Defined Terms. As used herein, each of the following terms shall have
the following meanings:

     “Accounts” shall mean all accounts receivable, book debts, notes, drafts,
instruments, documents, acceptances, and other forms of obligations now owned or
hereafter received or acquired by or belonging or owing to Debtor (including,
without limitation, under any trade names, styles, or divisions thereto), whether
arising from the sale or lease of goods or the rendition of services or any other
transaction (including, without limitation, any such obligation which might be
characterized as an account, general intangible, other than contract rights under
contracts containing prohibitions against assignment of or the granting of a
security interest in the rights of a party thereunder, or chattel paper under the
Uniform Commercial Code in effect in any jurisdiction), and all rights of Debtor in,
to, and under all purchase orders now owned or hereafter received or acquired by it
for goods or services, and all rights of Debtor to any goods the sale or lease

 

 

of which gave rise to any of the foregoing (including, without limitation, returned or repossessed
goods and rights of unpaid sellers), and all moneys due or to become due to Debtor under all
contracts for the sale or lease of goods or the performance of services (whether or not earned by
performance) or in connection with any other transaction, now in existence or hereafter arising,
including, without limitation, all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.

     “Account Debtor” shall mean each Person obligated on an Account, Chattel Paper, or
General Intangible.

     “Account Records” shall mean (a) all original copies of all documents, instruments, or
other writings evidencing the Accounts, (b) all books, correspondence, credit or other files,
records, ledger sheets or cards, invoices, and other papers relating to the Accounts, including,
without limitation, all tapes, cards, computer tapes, computer discs, computer runs, record keeping
systems, and other papers and documents relating to the Accounts, whether in the possession or
under the control of Debtor or any computer bureau or agent from time to time acting for or on
behalf of Debtor or otherwise, (c) all evidences of the filing of financing statements and the
registration of other instruments in connection therewith and amendments, supplements, or other
modifications thereto, notices to other creditors or secured parties, and certificates,
acknowledgements, or other writings, including, without limitation, lien search reports, from
filing or other registration offices, (d) all credit information, reports, and memoranda relating
thereto, and (e) all other written or non-written forms of information related in any way to the
foregoing or any Account.

     “Chattel Paper” shall mean all chattel paper (as such term is defined in Section 9-105(a)(2)
of the UCC) of the Debtor.

     “Collateral” shall have the meaning assigned to it in Article II.

     “Commodity Hedge Agreement” shall mean any agreement, device or arrangement entered
into by one Person with another Person providing for payments which are related to fluctuations in
the price of petroleum (or any fraction thereof), natural gas, or natural gas liquids (including,
but not limited to, swaps, caps, collars, options, puts, calls, futures and forward contracts).

     “General Intangibles” shall mean all general intangibles (as such term is defined in
Section 9-106 of the UCC) of Debtor, including, without limitation, rights to the payment of money
(other than Accounts), net profit interests, contracts, farmout agreements, licenses, and
franchises (excluding licenses and franchises which prohibit the assignment or grant of a security
interest by Debtor), federal income tax refunds, trade names, distributions on certificated
securities (as defined in §8-102(a)(l) of the UCC) and uncertificated securities (as defined in
§8-102(a)(2) of the UCC), computer programs and other computer software, inventions, designs,
trade secrets, goodwill, proprietary rights, customer

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lists, supplier contracts, sale orders, correspondence, advertising
materials, payments due in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any property, reversionary interests in
pension and profit-sharing plans and reversionary, beneficial and residual
interests in trusts, credits with and other claims against any Person, together
with any collateral for any of the foregoing and the rights under any security
agreement granting a security interest in such collateral.

     “Indemnitees” shall mean the Secured Party and its shareholders, officers,
directors, employees, agents, attorneys-in-fact, and affiliates.

     “Proceeds”
shall mean proceeds (as such term is defined in Section 9-306(a) of
the UCC).

     “Rate Management Transaction” shall mean any transaction (including an
agreement with respect thereto) now existing or hereafter entered into between
Borrower and Lenders which is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or equity
index option, bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, forward transaction, currency
swap transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of these
transactions) or any combination thereof, whether linked to on or more interest
rates, foreign currencies, commodity prices, equity prices or other financial
measures.

     “Secured Obligations” shall mean the Obligations.

     “UCC” shall mean the Uniform Commercial Code as in effect from time to time in
the State of Texas.

     1.4
Undefined Financial Accounting Terms. Undefined financial accounting terms used
in this Agreement shall have the meanings assigned to such terms according to GAAP.

     1.5
References. The words “hereby,” “herein,” “hereinabove,” “hereinafter,”
“hereinbelow,” “hereof,” “hereunder,” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular Article, Section, or provision of this
Agreement. References in this Agreement to Articles, Sections, or Exhibits are to such Articles,
Sections, or Exhibits of this Agreement unless otherwise specified.

     1.6
Articles and Sections. This Agreement, for convenience only, has been divided
into Articles and Sections; and it is understood that the rights and other legal relations of the
parties hereto shall be determined from this instrument as an entirety and without regard to the
aforesaid division into Articles and Sections and without regard to headings prefixed to such
Articles or Sections.

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     1.7
Number and Gender. Whenever the context requires, reference herein made to
the single number shall be understood to include the plural; and likewise, the plural shall be
understood to include the singular. Words denoting sex shall be construed to include the
masculine, feminine and neuter, when such construction is appropriate; and specific enumeration
shall not exclude the general but shall be construed as cumulative. Definitions of terms defined
in the singular or plural shall be equally applicable to the plural or singular, as the case may
be, unless otherwise indicated.

ARTICLE
II 

GRANT OF SECURITY INTEREST

     As security for the prompt and complete payment and performance in full of all Secured
Obligations, Debtor hereby assigns and transfers for the purpose of security and pledges to the
Secured Party and grants to the Secured Party a security interest in and continuing lien on all
right, title, and interest of Debtor in, to, and under the following, in each case, whether now
owned or existing or hereafter acquired or arising, and wherever located (all of which is herein
collectively called the “Collateral”):

	 	(a)	 	all Accounts;
	 
	 	(b)	 	all Account Records;
	 
	 	(c)	 	all Chattel Paper;
	 
	 	(d)	 	all General Intangibles;
	 
	 	(e)	 	all Commodity Hedge Agreements;
	 
	 	(f)	 	all Rate Management Transactions; and
	 
	 	(g)	 	all accessions and additions to any or all of the foregoing, all
substitutions and replacements for any or all of the foregoing, and all Proceeds
and products of any or all of the foregoing.

ARTICLE
III

 REPRESENTATIONS AND WARRANTIES

     Debtor hereby represents and warrants to the Secured Party, which representations and
warranties shall survive execution and delivery of this Agreement, as follows:

     3.1
Validity, Perfection and Priority. The security interests in the Collateral
granted to the Secured Party hereunder constitute valid and continuing security interests in the
Collateral. Upon the filing of financing statements, naming Debtor as “debtor” and the Secured
Party as “secured party” and describing the Collateral, in the filing offices set forth on Exhibit
A, the security interests granted to the Secured Party hereunder will constitute valid
first-priority

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perfected security interests in all Collateral with respect to which a security interest can be
perfected by the filing of a financing statement, subject only to Permitted Liens.

     3.2
No Liens; Other Financing Statements. (a) Except for the Lien granted to the
Secured Party hereunder and Permitted Liens, Debtor owns each item of the Collateral free and clear
of any and all Liens, rights, or claims of all other Persons, and Debtor shall defend the
Collateral against all claims and demands of all Persons at any time claiming the same or any
interest therein adverse to the Secured Party.

          (b) No financing statement or other evidence of Lien covering or purporting to cover any of
the Collateral is on file in any public office other than (i) financing statements in favor of the
Secured Party, (ii) financing statements for which proper termination statements have been
delivered to the Secured Party for filing, and (iii) financing statements filed in connection with
Permitted Liens.

     3.3
Location of Debtor and Collateral. The chief executive office of Debtor is located
at 9821 Katy Freeway, Suite 1050, Houston, Texas 77024. The primary copies of the Account Records
are located at, and all Accounts and General Intangibles are maintained at, and controlled and
directed (including, without limitation, for general accounting purposes) from, such chief
executive office.

     3.4
Accounts. (a) Each Account (i) is and will be, in all material respects, the
genuine, legal, valid, and binding obligation of the Account Debtor in respect thereof,
representing an unsatisfied obligation of such Account Debtor, (ii) is and will be, in all material
respects, enforceable in accordance with its terms, (iii) is not and will not be subject to any
setoffs, defenses, taxes, counterclaims (except (A) with respect to refunds, returns, and
allowances in the ordinary course of business, and (B) to the extent that such Account may not yet
have been earned by performance), and (iv) is and will be, in all material respects, in compliance
with all applicable laws, whether federal, state, local, or foreign.

(b) No Accounts which are evidenced by Chattel Paper require the consent of the Account Debtor
in respect thereof in connection with their assignment hereunder.

     3.5
Tradenames; Prior Names. Debtor has not conducted business under any name other
than F-W Oil Exploration L.L.C. and its current name during the last five years.

ARTICLE IV

 COVENANTS

     Debtor covenants and agrees with the Secured Party that from and after the date of this
Agreement:

     4.1
Further Assurances. At any time and from time to time, upon the request of the
Secured Party, and at the sole expense of Debtor, Debtor will promptly and duly execute and
deliver any and all such further instruments, endorsements, powers of attorney, and other
documents, make such filings, give such notices, and take such further action as the Secured

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Party may reasonably deem desirable in obtaining the full benefits of this Agreement and the
rights, remedies, and powers herein granted, including, without limitation, the following:

     (a) the filing of financing statements, in form acceptable to the Secured Party
under the Uniform Commercial Code in effect in any jurisdiction with respect to the
liens and security interests granted hereby;

     (b) the performance of all searches of public records deemed necessary
by the Secured Party to establish and determine the priority of the security interests
of the Secured Party or to determine the presence or priority of other secured parties;
and

     (c) the furnishing to the Secured Party from time to time of reports and schedules
in connection with the Collateral as required pursuant to the Credit Agreement, all in
reasonable detail and in form reasonably satisfactory to the Secured Party.

     4.2
Change of Chief Executive Office. Debtor will not move its chief executive
office except to such new location as Debtor may establish in accordance with the last sentence of
this Section. The originals of all Account Records and General Intangibles will be kept at such
chief executive office or at the locations referred to in Section 3.3, or at such new locations as
Debtor may establish in accordance with the last sentence of this Section. All Accounts, Account
Records, and General Intangibles of Debtor will be maintained at and controlled and directed
(including, without limitation, for general accounting purposes) from the locations referred to in
Section 3.3 or such new locations as the Debtor may establish in accordance with the last sentence
of this Section. With respect to any new location, promptly upon the request of the Secured Party,
Debtor shall take all such action as the Secured Party may request to maintain the security
interest of the Secured Party in the Collateral granted hereby at all times fully perfected with
the same or better priority and in full force and effect. Debtor shall not establish a new location
for its chief executive office or such activities (or move any such activities from the locations
referred to in Section 3.3) until it shall have given to the Secured Party not less than ten days’
prior written notice of its intention to do so, clearly describing such new location and providing
such other information in connection therewith as the Secured Party may reasonably request.

     4.3
Change of Name or Limited Liability Company Structure. Debtor shall not change
its name or limited liability company structure or conduct business under any name other than its
current name without giving notice thereof to the Secured Party within ten days thereafter, clearly
describing such new name, or limited liability company structure or such new tradename and
providing such other information in connection therewith as the Secured Party may reasonably
request. With respect to such new name, limited liability company structure, or tradename, promptly
upon the request of the Secured Party, Debtor shall take all such action as the Secured Party may
reasonably request to maintain the security interest of the Secured Party in the Collateral granted
hereby at all times fully perfected with the same or better priority and in full force and effect.

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     4.4
Maintain Records and Accounts. Debtor will keep and maintain, or cause to be kept
and maintained, at its own cost and expense satisfactory and complete records of the Collateral,
including, but not limited to, the originals of all documentation with respect to all Accounts and
General Intangibles and records of all payments received and all credits granted on the Accounts,
all merchandise returned, and all other dealings therewith.

     4.5
Right of Inspection. The Secured Party shall upon reasonable notice to Debtor
have full and free access during normal business hours of Debtor to all the books,
correspondence, and records of Debtor; and the Secured Party and its representatives may examine
the same, take extracts therefrom, and make photocopies thereof.

     4.6
Possession of Collateral. The Secured Party shall be deemed to have possession of
any of the Collateral in transit to it or set apart for it. Otherwise the Collateral shall remain
in Debtor’s constructive possession and control at all times, at Debtor’s risk of loss, and shall
(except for sales permitted by Section 6.4 of the Credit Agreement) be kept at the locations
represented in Section 3.3.

     4.7
Financing Statement Filings; Notifications. Debtor recognizes that financing
statements pertaining to the Collateral have been or will be filed with the offices of the
Secretary of State for the States listed in Exhibit A hereto. Debtor will immediately notify the
Secured Party of any condition or event that may change the proper location for the filing of any
financing statement or other public notice or recording for the purpose of perfecting a security
interest in the Collateral. Without limiting the generality of the foregoing, Debtor will (a)
notify the Secured Party within a reasonable period of time in advance of any change to a
jurisdiction other than as represented in Section 3.3 hereof, (i) in the location of Debtor’s chief
place of business, (ii) in the location of the office where Debtor keeps its records concerning the
Accounts and the General Intangibles and the original of all the Accounts Records, or (iii) in the
“location” of Debtor within the meaning of Section 9-103(c) of the UCC, and (b) immediately notify
Secured Party of any change in Debtor’s name. In any notice furnished pursuant to this Section,
Debtor will expressly state that the notice is required by this Agreement and contains facts that
will or may require additional filings of financing statements or other notices for the purpose of
continuing perfection of the Secured Party’s security interest in the Collateral.

ARTICLE V

 ACCOUNTS

     5.1
Debtor Remains Liable under Accounts. Anything herein to the contrary
notwithstanding (including, without limitation, the grant of any rights to the Secured Party),
Debtor shall remain liable under each of the Accounts to observe and perform all the conditions
and obligations to be observed and performed by it thereunder, all in accordance with the terms of
any agreement giving rise to each such Account. The Secured Party shall have no obligation or
liability under any Account (or any agreement giving rise thereto) by reason of or arising out of
this Agreement or the receipt by the Secured Party of any payment relating to such Account
pursuant hereto, nor shall the Secured Party be obligated in any manner to perform any of the
obligations of Debtor under or pursuant to any Account (or any agreement giving rise thereto), to
make any payment, to make any inquiry as to the nature or the sufficiency of any payment

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received by it or as to the sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto), to present or file any claim, to take any action to enforce any
performance, or to collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.

     5.2
Collections on Accounts. Prior to the occurrence of an Event of Default, the
Secured Party hereby authorizes Debtor to collect the Accounts. At any time following and during
the continuance of any Event of Default, the Secured Party may curtail or terminate said authority
at any time and itself, or by its agents, collect all Accounts, and any payments of Accounts
collected by Debtor shall be held by Debtor in trust for the Secured Party, segregated from other
funds of Debtor. All Proceeds, while held by the Secured Party (or by Debtor in trust for the
Secured Party) shall continue to be Collateral securing all of the Secured Obligations and shall
not constitute payment thereof until applied as hereinafter provided.

ARTICLE VI

POWER OF ATTORNEY

     6.1
Appointment as Attorney-in-Fact. Debtor hereby irrevocably constitutes and
appoints the Secured Party and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and
stead of Debtor and in the name of Debtor or in its own name, from time to time in the discretion
of the Secured Party, for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of
the foregoing, Debtor hereby gives the Secured Party the power and right, on behalf of Debtor,
without notice to or assent by the Debtor, to do the following:

     (a) in the case of any Account, at any time when the authority of Debtor to
collect the Accounts has been curtailed or terminated pursuant hereto, or in the case
of any other Collateral, at any time when any Event of Default shall have occurred and
be continuing, in the name of Debtor or its own name, or otherwise, to take possession
of and indorse and collect any checks, drafts, notes, acceptances, or other instruments
for the payment of moneys due under, or with respect to, any Collateral; in the name of
Debtor or otherwise to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due thereunder
directly to the Secured Party or as the Secured Party shall direct; to ask or demand
for, collect, receive payment of, and receipt for, any and all moneys, claims, and
other amounts due or to become due at any time in respect of or arising out of any
Collateral;

     (b) at any time when an Event of Default shall have occurred and be continuing, to
prepare, sign, and file financing statements and amendments thereto in the name of
Debtor;

     (c) at any time when an Event of Default shall have occurred and be continuing, to
take or cause to be taken all actions necessary to perform or comply

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or cause performance or compliance with the terms of this Agreement, including,
without limitation, actions to pay or discharge taxes and Liens levied or placed on
or threatened against the Collateral, to effect any repairs or obtain any insurance
called for by the terms of this Agreement, and to pay all or any part of the
premiums therefor and the costs thereof;

     (d) upon the occurrence and during the continuance of any Event of Default, (i)
to sign and indorse any invoices, freight or express bills, bills of lading, storage
or warehouse receipts, drafts against debtor, assignments, verifications,
notices, and other documents in connection with any of the Collateral, (ii) to
commence and prosecute any suits, actions, or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any portion thereof and
to enforce any other right in respect of any Collateral, (iii) to defend any suit,
action, or proceeding brought against Debtor with respect to any Collateral, (iv) to
settle, compromise, or adjust any suit, action, or proceeding described in the
preceding clause and, in connection therewith, to give such discharges or releases as
the Secured Party may deem appropriate, and (v) generally, to sell or transfer and
make any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Secured Party were the absolute owner thereof for
all purposes, and to do, at the option of the Secured Party and the expense of Debtor,
at any time, or from time to time, all acts and things which the Secured Party deems
necessary to protect, preserve, or realize upon the Collateral and the Liens of the
Secured Party thereon and to effect the intent of this Agreement, all as fully and
effectively as Debtor might do; and

     (e) at any time when an Event of Default shall have occurred and be continuing,
to execute, in connection with any foreclosure, any endorsements, assignments, or
other instruments of conveyance or transfer with respect to the Collateral.

     Debtor hereby ratifies all that said attorneys shall lawfully do or cause to be done by
virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable
so long as any Obligation remains outstanding or any Commitment exists.

     6.2
No Duty on the Part of Secured Party. The powers conferred on the Secured Party
hereunder are solely to protect the interests of the Secured Party in the Collateral and shall not
impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be
accountable only for amounts that it actually receives as a result of the exercise of such powers,
and, except for its willful misconduct and/or own gross negligence, neither it nor any of its
officers, directors, employees, or agents shall be responsible to the Debtor for any act or failure
to act hereunder.

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ARTICLE VII

 REMEDIES; RIGHTS UPON DEFAULT

     7.1
Rights and Remedies Generally. If an Event of Default shall occur and be
continuing, then and in every such case, the Secured Party shall have all the rights of a secured
party under the UCC, all rights now or hereafter existing under all other applicable laws, and,
subject to any mandatory requirements of applicable law then in effect, all rights set forth in
this Agreement and the other Loan Documents. No enumeration of rights in this Section or
elsewhere in this Agreement or in any other Loan Document or other agreement shall be deemed to in
any way limit the rights of the Secured Party as described in this Section.

     7.2
Proceeds. If an Event of Default shall occur and be continuing, in addition to the
rights of the Secured Party specified with respect to the payment of Accounts, (a) all Proceeds
received by Debtor consisting of cash, checks, and other near-cash items shall be held by Debtor in
trust for the Secured Party, segregated from other funds of Debtor, and shall forthwith upon
receipt by Debtor, be turned over to the Secured Party, in the same form received by Debtor
(appropriately indorsed or assigned by the Debtor to the order of the Secured Party or in such
other manner as shall be satisfactory to the Secured Party), and (b) any and all such Proceeds
received by the Secured Party (whether from Debtor or otherwise), or any part thereof, shall be
applied by the Secured Party as provided in Section 7.10 hereof.

     7.3
Collection of Accounts. If an Event of Default shall occur and be continuing:

     (a) the Secured Party may instruct the obligor or obligors on any obligation owing
or purporting to be owed to Debtor constituting the Collateral (including, without
limitation, the Accounts) to make any payment required by the terms of such obligation
directly to the Secured Party;

     (b) the Secured Party shall have the right from time to time to modify (including,
without limitation, to extend the time for payment or arrange for payment in
installments) or waive rights under any such obligation and to compromise or settle
counterclaims or setoffs with the obligor under any such obligation; and

     (c) any and all of such proceeds of such collections paid to the Secured Party, or
any part thereof, (after deduction of the Secured Party’s expenses of collection,
including, without limitation, reasonable attorneys’ fees and disbursements), shall be
applied by the Secured Party as provided in Section 7.10 hereof.

     7.4
Disposition of Collateral. If an Event of Default shall occur and be continuing:

     (a) the Secured Party may direct Debtor to sell, assign, or otherwise liquidate
or dispose of all or from time to time any portion of the Collateral, and Debtor
shall do so, and the Secured Party may take possession of the Proceeds of such
Collateral. The Secured Party may direct Debtor to direct that all Proceeds

- 10 -

 

of such Collateral be paid directly to the Secured Party or may permit the
Proceeds of such Collateral to be paid to Debtor and all such Proceeds consisting of
cash, checks, or near-cash items shall be held by Debtor in trust for the Secured
Party, segregated from other funds of Debtor in a separate deposit account
containing only Proceeds and shall forthwith upon receipt by Debtor, be turned over
to the Secured Party, in the same form received by Debtor (appropriately indorsed or
assigned by Debtor to the order of the Secured Party or in such other manner as
shall be satisfactory to the Secured Party); and

     (b) any and all such Proceeds received by the Secured Party (whether from
Debtor or otherwise), shall be applied by the Secured Party as provided in Section
7.10 hereof.

     7.5 Debtor’s Accounts. If an Event of Default shall occur and be continuing, the
Secured Party may liquidate any securities held in any accounts of Debtor and apply the proceeds
thereof and any other amounts held in any accounts of Debtor as provided in Section 7.10 hereof.

     7.6 Possession of Collateral. If an Event of Default shall occur and be continuing,
(a) the Secured Party may, personally or by agents or attorneys, immediately retake possession of
the Collateral (including the originals of all or any Accounts and Account Records) or any part
thereof, from Debtor or any other Person which then has possession of any part thereof with or
without notice or judicial process, and for that purpose may enter upon Debtor’s premises where any
of the Collateral is located and remove the same and may make reasonable use in connection with
such removal of any and all services, supplies, aids, and other facilities of Debtor, and (b) upon
three days’ notice to Debtor, Debtor shall, at its own expense, assemble the Collateral, including,
without limitation, the originals of all Account Records (or from time to time any portion thereof)
and make it available to the Secured Party by delivery to the Secured Party at any location
designated by the Secured Party which is reasonably convenient to both parties, whether at the
premises of Debtor or the Secured Party or elsewhere. Debtor shall, at its sole expense, store and
keep any Collateral so assembled at such place or places pending further action by the Secured
Party and while the Collateral shall be so stored and kept, provide such guards and maintenance
services as shall be reasonably necessary to protect the same and to preserve and maintain the
Collateral in good condition. Debtor’s obligation to so assemble and deliver the Collateral is of
the essence of this Agreement and, accordingly, upon application to a court of equity having
jurisdiction, the Secured Party shall be entitled to a decree requiring specific performance by the
Debtor of such obligation.

     7.7 Disposition of the Collateral. If an Event of Default shall occur and be
continuing, the Secured Party may sell, assign, lease, give an option or options to purchase, or
otherwise dispose of the Collateral (or contract to do any of the foregoing) under one or more
contracts or as an entirety, and, to the extent permitted by applicable law, without the necessity
of gathering at the place of sale the property to be sold, at public or private sale or sales,
conducted by any officer, nominee or agent of, or auctioneer or attorney for the Secured Party at
any location of any third party conducting or otherwise involved in such sale or any office of the
Secured Party or elsewhere and in general in such manner, at such time or times and upon such terms
and conditions and at such price as may be commercially reasonable, for cash or on credit

- 11 -

 

or for future delivery without assumption of any credit risk. Any of the Collateral may be
sold, leased, assigned, or options or contracts entered to do so, or otherwise disposed of, in the
condition in which the same existed when taken by the Secured Party or after any overhaul or repair
which may be commercially reasonable. Any such disposition which shall be a private sale or other
private proceeding shall be made upon not less than ten days’ written notice to Debtor specifying
the time after which such disposition is to be made and the intended sale price or other
consideration therefor. Any such disposition which shall be a public sale shall be made upon not
less than ten days’ written notice to Debtor (which Debtor agrees to be commercially reasonable)
specifying the time and place of such sale and, in the absence of applicable requirements of law to
the contrary, shall be by public auction (which may, at the option or the Secured Party, be subject
to reserve), after publication of commercially reasonable notice of such auction. To the extent
permitted by applicable law, the Secured Party may bid for and become the purchaser of the
Collateral or any item thereof, offered for sale in accordance with this Section without
accountability to Debtor (except to the extent of surplus money received) as provided below. In the
payment of the purchase price of the Collateral, the purchaser shall be entitled to have credit on
account of the purchase price thereof of amounts owing to such purchaser on account of any of the
Secured Obligations and any such purchaser may deliver notes, claims for interest, or claims for
other payment with respect to such Secured Obligations in lieu of cash up to the amount which
would, upon distribution of the net proceeds of such sale, be payable thereon. Such notes, if the
amount payable hereunder shall be less than the amount due thereon, shall be returned to the holder
thereof after being appropriately stamped to show partial payment. Notwithstanding the foregoing,
if the Collateral or any portion thereof is perishable or threatens to decline speedily in value or
is of a type customarily sold in a recognized market only such notice as shall be reasonably
practicable shall be required.

     7.8 Recourse. Debtor shall remain liable for any deficiency if the proceeds of any
sale or other disposition of the Collateral are insufficient to satisfy the Secured Obligations.
Debtor shall also be liable for all reasonable expenses of the Secured Party incurred in connection
with collecting such deficiency, including, without limitation, the reasonable fees and
disbursements of any attorneys employed by the Secured Party to collect such deficiency.

     7.9 Expenses; Attorneys’ Fees. Debtor shall reimburse the Secured Party for all its
reasonable expenses in connection with the exercise of its rights and remedies hereunder,
including, without limitation, reasonable attorneys’ fees and legal expenses incurred by the
Secured Party.

     7.10 Application of Proceeds. The proceeds of any disposition of Collateral shall be
applied as follows:

     (a) to the payment of any and all reasonable expenses and fees (including
attorneys’ fees and disbursements) incurred by the Secured Party in connection with
the exercise of its rights and remedies hereunder, including, without limitation,
reasonable expenses and fees in connection with obtaining, taking possession of,
removing, holding, insuring, repairing, preparing for sale or lease, storing and
disposing of Collateral;

- 12 -

 

     (b) to the satisfaction of the Secured Obligations in such order as the
Secured Party may elect; and

     (c) after the indefeasible payment in full in cash of all Secured Obligations, to
Debtor or to whomever may lawfully be entitled to receive the same or as a court of
competent jurisdiction may direct.

     7.11 Limitation on Duties Regarding Preservation of Collateral. The Secured Party’s
sole duty with respect to the custody, safekeeping, and physical preservation of the Collateral in
its possession, under Section 9.207 of the UCC or otherwise, shall be to deal with it in the same
manner as the Secured Party deals with similar property for its own account. The Secured Party
shall have no obligation to take any steps to preserve rights against prior parties to any
Collateral. Except for matters constituting willful misconduct and/or gross negligence, neither
the Secured Party nor any of its directors, officers, employees, or agents shall be liable for
failure to demand, collect, or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Debtor or otherwise.

     7.12 Waiver of Claims. Except as otherwise provided in this Agreement, Debtor hereby
waives, to the extent permitted by applicable law, notice of and judicial hearing in connection
with the Secured Party’s taking possession or the Secured Party’s disposition of any of the
Collateral in accordance herewith, including, without limitation, any and all prior notice and
hearing for any prejudgment remedy or remedies and any such right which the Debtor would otherwise
have under the constitution or any statute of the United States or any state, and Debtor hereby
further waives, to the extent permitted by law:

     (a) all damages occasioned by such taking of possession except any damages which
are the direct result of the willful misconduct and/or gross negligence of the Secured
Party;

     (b) all other requirements as to the time, place, and terms of sale or other
requirements with respect to the enforcement of the rights of the Secured Party
hereunder;

     (c) demand of performance or other demand, notice of intent to demand or
accelerate, notice of acceleration, presentment, protest, advertisement, or notice of
any kind to or upon Debtor or any other Person, except as may be required by the Credit
Agreement; and

     (d) all rights of redemption, appraisement, valuation, diligence, stay, extension,
or moratorium now or hereafter in force under any applicable law in order to stay or
delay the enforcement of this Agreement, including the absolute sale of the Collateral
or any portion thereof, and Debtor, for itself and all who may claim under it, insofar
as it or they now or hereafter lawfully may, hereby waives the benefit of all such
laws.

- 13 -

 

     7.13 Discontinuance of Proceedings. In case the Secured Party shall have
instituted any proceeding to enforce any right, power, or remedy under this Agreement by
foreclosure, sale, entry, or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason, then and in every such case, Debtor and the Secured Party shall be
returned to their former positions and rights hereunder with respect to the Collateral subject to
the security interest created under this Agreement, and all rights, remedies, and powers of the
Secured Party shall continue as if no such proceeding had been instituted.

ARTICLE VIII

 INDEMNITY

     8.1
INDEMNITY. (a) DEBTOR AGREES TO INDEMNIFY, REIMBURSE, AND HOLD THE INDEMNITEES
HARMLESS FROM ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, ACTIONS,
JUDGMENTS, SUITS, REASONABLE COSTS, REASONABLE EXPENSES, OR REASONABLE DISBURSEMENTS (INCLUDING
REASONABLE ATTORNEYS’ FEES AND EXPENSES) (FOR THE PURPOSES OF THIS SECTION ALL OF THE FOREGOING
ARE COLLECTIVELY CALLED “EXPENSES”) OF WHATSOEVER KIND OR NATURE WHICH MAY BE IMPOSED ON, ASSERTED
AGAINST, OR INCURRED BY ANY OF SUCH INDEMNITEES IN ANY WAY RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR IN ANY OTHER WAY CONNECTED WITH THE
ADMINISTRATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ENFORCEMENT OF ANY OF THE TERMS OF
OR THE PRESERVATION OF ANY RIGHTS HEREUNDER, INCLUDING, WITHOUT LIMITATION, THOSE ARISING FROM THE
NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF ANY INDEMNITEE; PROVIDED THAT NO SUCH INDEMNITEE SHALL
BE INDEMNIFIED PURSUANT TO THIS SECTION FOR EXPENSES TO THE EXTENT ARISING FROM THE WILLFUL
MISCONDUCT AND/OR GROSS NEGLIGENCE OF SUCH INDEMNITEE.

     (b) Debtor agrees that upon written notice by any such Indemnitee of any assertion that
could give rise to an Expense, Debtor shall assume full responsibility for the defense thereof.
Without limiting the application of part (a) of this Section, Debtor agrees to pay or reimburse
such Indemnitee on demand for any and all reasonable fees, costs, and expenses of whatever kind or
nature incurred in connection with the creation, preservation, or protection of the Secured Party’s
Liens on, and security interests in, the Collateral, including, without limitation, all reasonable
fees and taxes in connection with the recording or filing of instruments and documents in public
offices, payment, or discharge of any taxes or Liens or security interests upon or in respect of
the Collateral, premiums for insurance with respect to the Collateral, all reasonable expenses
incurred in the custody, preservation, use, or operation of the Collateral when Collateral is in
the Secured Party’s possession, and all other reasonable fees, costs, and expenses in connection
with protecting, maintaining, or preserving the Collateral and the Secured Party’s interest
therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any
actions, suits, or proceedings arising out of or relating to the Collateral.

- 14 -

 

     (c) Without limiting the application of parts (a) or (b) of this Section, Debtor agrees
to pay, indemnify, and hold each Indemnitee harmless from and against any Expenses which such
Indemnitee may suffer, expend, or incur in consequence of or growing out of any misrepresentation
by any Debtor in this Agreement or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement.

     (d) If and to the extent that the obligations of Debtor under this Section are unenforceable
for any reason, Debtor hereby agrees to make the maximum contribution to the payment and
satisfaction of such obligations which is permissible under applicable law.

     8.2 Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any
Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Secured
Obligations secured by the Collateral. The indemnity obligations of the Debtor contained in this
Article VIII shall continue in full force and effect notwithstanding the full payment and
performance of the Secured Obligations and the termination of this Agreement.

ARTICLE IX

 MISCELLANEOUS

     9.1 No Waiver; Remedies Cumulative. No failure or delay on the part of the
Secured Party in exercising any right, power, or privilege hereunder and no course of dealing
between any Debtor and the Secured Party shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power, or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. A waiver by the Secured Party of
any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Secured Party would otherwise have on any future occasion. The rights and
remedies herein expressly provided are cumulative, may be exercised singly or concurrently and as
often and in such order as the Secured Party deems expedient, and are not exclusive of any rights
or remedies which the Secured Party would otherwise have whether by agreement or now or hereafter
existing under applicable law. No notice to or demand on Debtor in any case shall entitle Debtor to
any other or further notice or demand in similar or other circumstances or constitute a waiver of
the rights of the Secured Party to any other or further action in any circumstances without notice
or demand.

     9.2
Termination; Release. When the Secured Obligations have been indefeasibly paid and
performed in full and the Commitment has terminated, this Agreement shall terminate, and the
Secured Party, at the request and sole expense of Debtor, will execute and deliver to Debtor the
proper instruments (including Uniform Commercial Code termination statements)
acknowledging the termination of this Agreement, and will duly assign, transfer, and deliver to
Debtor, without recourse, representation, or warranty of any kind whatsoever, such of the
Collateral as may be in possession of the Secured Party and has not theretofore been disposed of,
applied, or released.

     9.3 Counterparts. This Agreement may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which when so executed and

- 15 -

 

delivered shall be an original, but all of which shall together constitute one and the same
instrument.

     9.4 Marshalling. The Secured Party shall not be under any obligation to marshall any
assets in favor of Debtor or any other Person or against or in payment of any or all of the Secured
Obligations.

     9.5
Severability. In case any provision in or obligation under this Agreement or the
Secured Obligations shall be invalid, illegal, or unenforceable in any jurisdiction, the validity,
legality, and enforceability of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

     9.6 Financing Statement Filing. A photocopy or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in lieu of the original to
the extent permitted by applicable law.

     9.7 Notices and Other Communications. Except as to oral notices expressly
authorized herein, all notices, requests, and communications under this Agreement shall be in
writing (including by telecopy). Unless otherwise expressly provided herein, any such notice,
request, or communication shall be deemed to have been duly given or made when provided in
accordance with the terms of the Credit Agreement.

     9.8 Parties in Interest. This Agreement shall be binding upon and inure to the benefit
of Debtor, the Secured Party, and their respective legal representatives, successors, and assigns.
No other Person shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in accordance with their
terms, and any or all of such provisions may be freely waived in whole or in part by the Secured
Party at any time if the Secured Party in its sole discretion deems it advisable to do so.

     9.9 Amendments. Neither this Agreement nor any provision hereof may be amended,
supplemented, modified, discharged, or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the amendment, supplement, modification, discharge,
or termination is sought.

     9.10 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY
PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT
HEREOF. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
AMONG SUCH PARTIES.

- 16 -

 

     9.11
GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAWS).

     9.12 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING
DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT TO WHICH ANY DEBTOR IS A PARTY MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION
OF THE SECURED PARTY, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. DEBTOR HEREBY
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN
HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE SECURED PARTY IN ACCORDANCE
WITH THIS SECTION.

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

	 	 	 	 	 
	 	DEBTOR: 

PRIME OFFSHORE L.L.C.

 	 
	 	By:  	/s/     Jim R. Brock
 	 
	 	 	Jim R. Brock 	 
	 	 	President and Chief Financial Officer 	 

- 17 -

 

	 	 	 	 	 

	 	 	 	 	 
	 	SECURED PARTY:

GUARANTY BANK, FSB, AS AGENT 

 	 
	 	By:  	/s/      Kelly L. Elmore, III
 	 
	 	 	Kelly L. Elmore, III 	 
	 	 	Senior Vice President 	 

- 18 -

 

	 	 	 	 	 

EXHIBIT A

Section 3.1:    FILING LOCATIONS

         Secretary of State of Delaware

A-iexv10w27w1

 

EXHIBIT 10.27.1

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)

FROM

PRIME
OFFSHORE L.L.C. 
(fka F-W Oil Exploration L.L.C.)

Taxpayer Identification Number: 76-0688905

(Mortgagor and Debtor)

TO

Arthur R. Gralla, Jr., Trustee

for the benefit of

GUARANTY BANK, FSB, Agent

(Mortgagee and Secured Party)

Effective June 29, 2006

For purposes of filing this Deed of Trust as a financing statement, the mailing address of
Mortgagor is 9821 Katy Freeway, Suite 1050, Houston, Texas 77024; the mailing address of Mortgagee
is 333 Clay Street, Suite 4400, Houston, Texas 77002-4103.

v   v   v   v   v   v  
 v   v   v
   v   v   v   v   
v   v   v   v

This instrument, prepared by R. H. Walls, Jackson Walker L.L.P., 1401 McKinney, Suite 1900,
Houston, Texas 77010, 713-752-4200, contains after-acquired property provisions and covers future
advances and proceeds to the fullest extent allowed by applicable law.

ATTENTION OF RECORDING OFFICER: This instrument is a mortgage of both real and personal
property and is, among other things, a Security Agreement and Financing Statement under the Uniform
Commercial Code. This instrument creates a lien on rights in or relating to lands of Mortgagor
which are described in Exhibit A hereto or in documents described in Exhibit A.

RECORDED DOCUMENT SHOULD BE RETURNED TO:

JACKSON WALKER L.L.P.

1401 McKinney, Suite 1900

Houston, Texas 77010

Attn.: Jessica Johnson

 

 

MORTGAGE,
DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)

          This Mortgage, Deed of Trust, Security Agreement, Financing Statement, and Assignment of
Production (this “Deed of Trust”) is executed pursuant to the Credit Agreement dated as of as of
June 29, 2006, by and among
Prime offshore L.L.C. (fka F-W Oil Exploration L.L.C.), a Delaware
limited liability company, as Borrower (herein, “Mortgagor”), and Guaranty Bank, FSB, a
federal savings bank, individually as a Lender and as Agent for the lenders signatory thereto from
time to time (the “Lenders”) (as amended, restated, or supplemented from time to time, the “Credit
Agreement”). Capitalized terms used but not defined herein shall have the meanings assigned to
such terms in the Credit Agreement.

          Mortgagor, acting herein by and through its proper officers who have heretofore been duly
authorized, whose mailing address is 9821 Katy Freeway, Suite 1050, Houston, Texas 77024, hereby
agrees as follows:

ARTICLE 1 

GRANT

          1.1 Lien. Mortgagor, for valuable consideration, the receipt of which is hereby
acknowledged, and in consideration of the debt and trust hereinafter mentioned, has granted,
bargained, sold, conveyed, transferred and assigned, and by these presents does grant, bargain,
sell, convey, transfer and assign to Arthur R. Gralla, Jr., Trustee, whose address is c/o Guaranty
Bank, FSB, 333 Clay Street, Suite 4400, Houston, Texas 77002-4103, and his successors and
substitutes in trust, as hereinafter provided (the “Trustee”), for the benefit of Guaranty Bank,
FSB, as Agent for the lenders, with banking quarters in Houston, Harris County, Texas, the mailing
address for which is 333 Clay Street, Suite 4400, Houston, Texas 77002-4103 (herein “Mortgagee”),
the following described Property:

     (a) all right, title, and interest, whether now owned and existing or hereafter
acquired or arising, of Mortgagor in and to the leases, rights of way, easements, or
other documents described in Exhibit A, attached hereto and incorporated
herein for all purposes or described or referred to in the documents described in
Exhibit A, without regard to any surface acreage and/or depth limitations
set forth in Exhibit A, and all renewals and extensions thereof and all new
leases, rights of way, easements, or other documents (i) in which an interest is
acquired by Mortgagor after the termination or expiration of any lease, right of
way, easement, or other document described or referred to in
Exhibit A, and
(ii) that covers all or any part of the Property described in and covered by such
terminated or expired lease, right of way, easement, or other document, to the
extent, and only to the extent, such new leases, rights of way, easements, or other
documents may cover such Property (all of the foregoing in this subsection (a) being
the “Leases”);

 

 

     (b) all right, title, and interest, whether now owned and existing or hereafter
acquired or arising, of Mortgagor in and to the lands subject to the Leases or
otherwise described or referred to in Exhibit A, without regard to any surface
acreage and/or depth limitations set forth in Exhibit A (the “Lands”),
including, without limitation, the oil, gas, mineral, and leasehold estates in and to
the Lands;

     (c) all right, title, and interest, whether now owned and existing or hereafter
acquired or arising, of Mortgagor in and to any of the oil, gas, and minerals in, on,
or under the Lands, including, without limitation, all contractual rights, fee
interests, leasehold interests, overriding royalty interests, non-participating royalty
interests, mineral interests, production payments, net profits interests, or any other
interest measured by or payable out of production of oil, gas, or other minerals from
the Leases and/or Lands;

     (d) all of the foregoing interests of Mortgagor as such interests may be enlarged
by the discharge of any payments out of production or by the removal of any charges or
encumbrances;

     (e) all right, title, and interest, whether now owned and existing or hereafter
acquired or arising, of Mortgagor in, to, and under or derived from any present or
future operating, farmout, bidding, pooling, unitization, and
communitization agreements, assignments, and subleases, whether or not described in
Exhibit A, to the extent, and only to the extent, that such agreements,
assignments, and subleases cover or include any right, title, and interest, whether now
owned and existing or hereafter acquired or arising, of Mortgagor in and to all or any
portion of the Leases and/or the Lands, and all units created by any such pooling,
unitization, and communitization agreements and all units formed under orders,
regulations, rules, or other official acts of any Governmental Authority having
jurisdiction, to the extent and only to the extent that such units cover or include all
or any portion of the Leases and/or the Lands;

     (f) all right, title, and interest, whether now owned and existing or hereafter
acquired or arising, of Mortgagor in, to, and under or derived from all presently
existing and future advance payment agreements, oil, casinghead gas, and gas sales,
exchange, and processing contracts and agreements, including, without limitation, those
contracts and agreements that are described or referred to in Exhibit A, to the
extent, and only to the extent, those contracts and agreements cover or include all or
any portion of the Leases and/or the Lands; and

     (g) all right, title, and interest, whether now owned and existing or hereafter
acquired or arising, of Mortgagor in, to, and under or derived from all existing and
future permits, licenses, easements, and similar rights and privileges that relate to
or are appurtenant to any of the Leases and/or the Lands.

          1.2 Security Interest. Mortgagor, for the same consideration, hereby grants to
Mortgagee a continuing security interest in all improvements and all personal Property of any kind
or character defined in and subject to the provisions of the Uniform Commercial Code (“UCC”),

2

 

including, but not limited to, substitutions and replacements for, accessions to, and the proceeds
and products from any and all of such improvements and personal Property, as well as any and all
“as-extracted collateral” as such term is defined in the UCC, whether now owned and existing or
hereafter acquired or arising, and situated on any of the Lands, including, but not limited to,
pipe, casing, tubing, rods, storage tanks, boilers, loading racks, pumps, foundations, warehouses,
and all other personal Property and equipment of every kind and character upon, incident,
appurtenant, or belonging to and used in connection with the interest of Mortgagor, whether now
owned and existing or hereafter acquired or arising, in the Lands and/or the Leases, including all
oil, gas, and other minerals produced or to be produced to the account of Mortgagor from the Lands
and all accounts receivable, general intangibles, and contract rights of Mortgagor in connection
with the Lands and/or the Leases and all proceeds, products, substitutions, and exchanges thereof
(the Lands, the Leases, and the real and personal Property interests described in this Section
being the “Mortgaged Property”).

          1.3 Assignment of Security. Mortgagor, for the same consideration, hereby grants to
Mortgagee any and all rights of Mortgagor to Liens securing payment of proceeds from the sale of
production from the Mortgaged Property.

          1.4 After-Acquired Property. Mortgagor, for the same consideration, hereby grants,
bargains, sells, conveys, transfers, and assigns to the Trustee or grants to Mortgagee a continuing
security interest in, as the case may be, all additional right, title, or interest which Mortgagor
may hereafter acquire or become entitled to in the interests, Properties, Lands, Leases, and
premises aforesaid, and in the oil, gas, or other minerals in and under or produced from or
attributable to any of the Lands or Leases, which additional right, title, and interest, when
acquired, shall constitute “Mortgaged Property,” the same as if expressly described and conveyed
herein.

          1.5 Habendum. TO HAVE AND TO HOLD all and singular the Mortgaged Property and all
other Property which, by the terms hereof, has or may hereafter become subject to the Liens of this
Deed of Trust, together with all rights, hereditaments, and appurtenances in anywise belonging
thereto, to the Trustee or Mortgagee, as the case may be, or the successors or assigns of either of
them forever.

ARTICLE 2 

INDEBTEDNESS SECURED

          This conveyance is made, IN TRUST, HOWEVER, to secure and enforce the payment of the
following indebtedness, obligations, and liabilities:

          2.1 Specific Obligations. The Obligations, including, without limitation, the
indebtedness evidenced by (a) the Credit Agreement, and (b) the Promissory Note dated June 29,
2006, executed by Mortgagor to the order of the Lenders pursuant to the Credit Agreement in the
aggregate face amount of up to $200,000,000, bearing interest and being payable as provided therein
or as provided in the Credit Agreement.

          2.2 Additional Indebtedness.

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     (a) Payment of and performance of any and all present or future obligations of
Mortgagor under Commodity Hedge Agreements, as defined in the Credit Agreement.

     (b) Payment of and performance of any and all present or future obligations of
Mortgagor under any Rate Management Transaction, as defined in the Credit Agreement,
entered into by and between Mortgagor and a Lender.

     (c) Payment of and performance of any and all present or future obligations of
Mortgagor under any guaranty in favor of Lenders of any of the Mortgagor’s subsidiary’s
obligations under Commodity Hedge Agreements and Rate Management Transactions and all
present or future obligations of Mortgagor or Mortgagor’s subsidiaries under
Commodity Hedge Agreements and Rate Management Transactions.

          2.3 Other and Further Indebtedness. This Deed of Trust is intended to secure a
revolving credit line as set forth in the Credit Agreement. If intermediate paydowns by Mortgagor
reduce the outstanding Indebtedness to zero, it is intended that the Liens created under this Deed
of Trust shall remain in full force and effect as long as any Commitment exists. In addition, it
is contemplated that Mortgagor may from time to time borrow additional sums of money from or
otherwise be or become obligated to Lenders. This Deed of Trust is given to secure any and all
indebtedness of Mortgagor, present or future, either direct or indirect, primary or secondary,
fixed or contingent, which Mortgagor may now or hereafter owe, or as to which Mortgagor may in any
manner become obligated to Lenders for payment, including, without limitation, indebtedness arising
by way of guaranty as to obligations of another to Lenders and indebtedness originally owed to a
party other than Lenders but which becomes owing to Lenders as the result of Lenders having
acquired the right to payment thereof. This Deed of Trust shall likewise secure not only the above
described indebtedness, but any and all renewals for any period, extensions, and rearrangements of
all or any portion thereof; and the Liens under this Deed of Trust shall be cumulative of all other
Liens and security of any and every other kind or character whatsoever securing the above-described
indebtedness. Notwithstanding the foregoing, it is not the intention of the parties hereto to
extend the Liens of this Deed of Trust so as to violate, or give rise to an allegation of violation
of, any provision of any statute, regulation, rule, ordinance or order of any applicable
jurisdiction, or any agency or subdivision of any of such jurisdictions. In this connection, this
Deed of Trust shall not, solely as to the relevant indebtedness, serve as security for any
indebtedness when for it to do so would violate any provision of any statute, regulation, rule,
ordinance or order of any applicable jurisdiction, or any agency or subdivision of any of such
jurisdictions.

          2.4 Indebtedness. The word “Indebtedness” wherever used in this Deed of Trust shall
refer to all present and future debts, obligations, and liabilities described or referred to in
this Article 2, subject, however, to the limitations provided hereinabove in this Article 2.

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ARTICLE 3 

WARRANTIES

          3.1 Warranty of Title. Mortgagor hereby binds itself, its legal representatives,
successors, and assigns, to warrant and forever defend all and singular the Mortgaged Property to
the Trustee and the successors and assigns of the Trustee forever against every Person whomsoever
lawfully claiming or to claim the same or any part thereof. Notwithstanding that this Deed of Trust
covers all of the right, title, and interest, whether now owned and existing or hereafter acquired
or arising, of Mortgagor in and to the Mortgaged Property, Mortgagor, for itself, its legal
representatives, successors, and assigns, further covenants, represents, and warrants that
Mortgagor has good and indefeasible title to the Mortgaged Property and that the interests of
Mortgagor in and to the Leases and/or Lands described in Exhibit A are not greater than the
working interest nor less than the net revenue interest, overriding royalty interest, net profit
interest, production payment interest, royalty interest, or other interest payable out of or
measured by production set forth in connection with each oil and gas well described in Exhibit
A. In the event Mortgagor owns any other or greater interest, such additional interest is
nonetheless included in, covered by, and subject to the liens and security interests created by
this Deed of Trust.

          3.2 Additional Warranties. In consideration of the Indebtedness, Mortgagor, for
itself, its legal representatives, successors, and assigns, covenants, represents, and warrants
that:

     (a) Leases in Effect. All of the Leases specifically described or
referred to in Exhibit A, are in full force and effect. All covenants, express
or implied, in respect of the Leases specifically described or referred to in
Exhibit A, or of any assignment of any of such Leases, which may affect the
validity of any of such Leases, have been performed insofar as such Leases pertain to
the Lands.

     (b) Interests Free of Liens. The interests of Mortgagor in the Mortgaged
Property are free and clear of all Liens except for Permitted Liens. All gross
production taxes and all taxes as to which non-payment could result in a Lien against
any of the Mortgaged Property have been paid.

     (c) Representations and Warranties. As of the date hereof, all
representations and warranties of Mortgagor set forth in the Credit Agreement are true
and correct in all material respects, except to the extent such representations and
warranties relate solely to an earlier date, and all such representations and
warranties are hereby remade by Mortgagor to Mortgagee.

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ARTICLE 4

COVENANTS OF MORTGAGOR

          In consideration of the Indebtedness, Mortgagor, for itself, its legal representatives,
successors, and assigns, covenants and agrees as follows:

          4.1 Maintenance of Leases. Mortgagor will keep and continue all Leases, estates, and
interests herein described and all contracts and agreements relating thereto in full force and
effect in accordance with the terms thereof and will not permit the same to lapse or otherwise
become impaired for failure to comply with the obligations thereof, whether express or implied, In
this connection, Mortgagor shall not release any of the Leases without the prior written consent of
Mortgagee.

          4.2 Maintenance of Property. Mortgagor will keep and maintain all
improvements, personal Property, and equipment now or hereafter situated on the Lands and
constituting a portion of the Mortgaged Property and used or obtained in connection therewith in
good repair and condition, ordinary wear and tear excepted, and will not tear down or remove the
same or permit the same to be torn down or removed without the prior consent of Mortgagee, except
in the usual course of operations as may be required for replacement when otherwise in compliance
with the provisions of this Deed of Trust and the Credit Agreement.

          4.3 Pooling or Unitization. Mortgagor will not, without the prior written consent of
Mortgagee, pool or unitize all or any part of the Mortgaged Property where the pooling or
unitization would result in the diminution of the net revenue interest of Mortgagor in production
from the pooled or unitized lands attributable to the Mortgaged Property constituting a portion of
such pooled or unitized lands. Immediately after the formation of any pool or unit in accordance
herewith, Mortgagor will furnish to Mortgagee a conformed copy of the pooling agreement,
declaration of pooling, or other instrument creating the pool or unit. The interest of Mortgagor
included in any pool or unit attributable to the Mortgaged Property or any part thereof shall
become a part of the Mortgaged Property and shall be subject to the Liens hereof in the same manner
and with the same effect as though the pool or unit and the interest of Mortgagor therein were
specifically described in Exhibit A. In the event any proceedings of any Governmental
Authority which could result in pooling or unitizing all or any part of the Mortgaged Property are
commenced, Mortgagor shall give immediate written notice thereof to Mortgagee. Any pooling or
unitization of all or any part of the Mortgaged Property in violation of this Section shall be of
no force or effect against the Trustee or Mortgagee.

          4.4 Operation of Mortgaged Property. Mortgagor will operate or, to the extent that the
right of operation is vested in others, will exercise its best efforts to require the operator to
operate the Mortgaged Property and all wells now or hereafter located thereon continuously and in a
prudent and workmanlike manner in accordance with the best usage of the field and in accordance
with all applicable Requirements of Law. Mortgagor will comply with all terms and conditions of the
Leases and each assignment or contract obligating Mortgagor in any way with respect to the
Mortgaged Property; but nothing herein shall be construed to empower Mortgagor to bind the Trustee
or Mortgagee to any contract or obligation or render the Trustee or Mortgagee in any way
responsible or liable for bills or obligations incurred by Mortgagor.

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          4.5 Compliance with Operating Agreements. Mortgagor agrees to promptly pay all bills
for labor and materials incurred in the operation of the Mortgaged Property and will promptly pay
its share of all costs and expenses incurred under any joint operating agreement affecting the
Mortgaged Property or any portion thereof; will furnish Mortgagee, as and when requested, full
information as to the status of any joint account maintained with others under any such operating
agreement; will not take any action to incur any liability or Lien thereunder; and will not enter
into any new operating agreement or any amendment of any existing operating agreement affecting the
Mortgaged Property without the prior written consent of Mortgagee. Furthermore, Mortgagor will not
consent or agree to participate in any proposed operation under any presently existing operating
agreement affecting the Mortgaged Property unless Mortgagor obtains the prior written consent of
Mortgagee and, if requested by Mortgagee, deposits with the operator or Mortgagee, where Mortgagor
is a non-operator, or with Mortgagee, where Mortgagor is an operator, Mortgagor’s share of the
estimated cost of the proposed operation prior to electing to participate in the operation. To the
extent that Mortgagor is unable to consent to any proposed operation with respect to any of the
Mortgaged Property, prior to electing not to participate in the proposed operation, Mortgagor will
use its best efforts, to the extent practicable and to the extent allowed to do so under the
relevant operating agreement or other applicable contract, to farmout to others acceptable to
Mortgagee, on the best terms obtainable and acceptable to Mortgagee, the interest or relevant
portion of the interest of Mortgagor in the proposed operation.

          4.6 Access to Mortgaged Property. Mortgagor will permit Mortgagee and its accredited
agents, representatives, attorneys and employees, at the expense of Mortgagor, at all times to go
upon, examine, inspect, conduct environmental audits and other testing of, and remain on, the
Mortgaged Property, and to go upon the derrick floor of any well at any time drilled or being
drilled thereon, and will furnish Mortgagee, upon request, all pertinent information regarding the
development and operation of the Mortgaged Property.

          4.7 Waivers. Mortgagor hereby expressly waives, to the full extent permitted by
applicable law, any and all rights or privileges of marshalling of assets, sale in inverse order of
alienation, notices, appraisements, redemption, and any prerequisite in the event of foreclosure of
the Liens created herein. Mortgagee at all times shall have the right to release any part of the
Mortgaged Property now or hereafter subject to the Liens of this Deed of Trust, any part of the
proceeds of production or other income herein or hereafter assigned or pledged, or any other
security it now has or may hereafter have securing the Indebtedness, without releasing any other
part of the Mortgaged Property, proceeds, or income, and without affecting the Liens hereof as to
the part or parts of the Mortgaged Property, proceeds, or income not so released or the right to
receive future proceeds and income.

          4.8 Compliance with Laws. Mortgagor will comply with all Requirements of Law
applicable to the Mortgaged Property and the operations conducted thereon, including, without
limitation, the Natural Gas Policy Act of 1978, as amended, and Environmental Laws; and cause all
employees, crew members, agents, contractors, sub-contractors, and future lessees (pursuant to
appropriate lease provisions) of Mortgagor, while such Persons are acting within the scope of their
relationship with Mortgagor, to comply with all such Requirements of Law as may be necessary or
appropriate to enable Mortgagor to so comply.

7

 

          4.9 Hazardous Substances Indemnification. Mortgagor hereby indemnifies and
holds mortgagee and the lenders and their respective shareholders, officers, directors, employees,
agents, attorneys-in-fact, and affiliates and the trustee harmless from and against any and all
claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial
proceedings and orders, judgments, remedial actions, requirements and enforcement actions of any
kind, and all costs and expenses incurred in connection therewith (including, without limitation,
attorneys’ fees and expenses), arising directly or indirectly, in whole or in part, from (a) the
presence of any hazardous substances on, under, or from any mortgaged property, whether prior to or
during the term hereof, (b) any activity carried on or undertaken on or off any mortgaged property,
whether prior to or during the term hereof, and whether by mortgagor or any predecessor in title,
employee, agent, contractor, or subcontractor of mortgagor or any other person at any time
occupying or present on any mortgaged property, in connection with the handling, treatment,
removal, storage, decontamination, cleanup, transportation, or disposal of any hazardous
substances at any time located or present on or under such property, (c) any residual contamination
on or under any mortgaged property, (d) any contamination of any mortgaged property or natural
resources arising in connection with the generation, use, handling, storage, transportation, or
disposal of any hazardous substance by mortgagor or any employee, agent, contractor, or
subcontractor of mortgagor while such persons are acting within the scope of their relationship
with mortgagor, irrespective of whether any of such activities were or will be undertaken in
accordance with applicable requirements of law, or (e) the performance and enforcement of this deed
of trust or any other act or omission in connection with or related to this deed of trust or the
transactions contemplated hereby, including, without limitation, any of the foregoing in this
section arising from negligence, whether sole or concurrent, on the part of mortgagee or any lender
or any of their respective shareholders, officers, directors, employees, agents, attorneys-in-fact,
or affiliates or the trustee; with the foregoing indemnity surviving satisfaction of the
indebtedness, the termination of the credit agreement, and the release of the liens created
hereby.

          4.10 Site Assessments. Mortgagee (by its officers, employees and agents) at any
time and from time to time, either prior to or after the occurrence of an Event of Default, may
contract, at the expense of Mortgagor, for the services of Persons (the “Site Reviewers”) to
perform environmental site assessments and other tests (“Site Assessments”) on all or any portion
of the Mortgaged Property for the purpose of determining whether any environmental condition exists
on any Mortgaged Property which could reasonably be expected to result in any liability, cost, or
expense to Mortgagee or any owner, occupier, or operator of such Mortgaged Property. The Site
Assessments may be performed at any time or times, upon reasonable notice, and under reasonable
conditions established by Mortgagor which do not impede the performance of the Site Assessments.
The Site Reviewers are hereby authorized to enter upon all or any portion of the Mortgaged Property
for such purposes. The Site Reviewers are further authorized to perform both above and below the
ground testing for environmental damage or the presence of Hazardous Substances on the Mortgaged
Property and such other tests on the Mortgaged Property as may be necessary to conduct the Site

8

 

Assessments in the reasonable opinion of the Site Reviewers. Mortgagor will supply to the Site
Reviewers such historical and operational information regarding the Mortgaged Property as may be
reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make
available for meetings with the Site Reviewers appropriate personnel having knowledge of such
matters. On request, Mortgagee shall make the results of such Site Assessments available to
Mortgagor, which, prior to an Event of Default, may at its election participate under reasonable
procedures in the direction of such Site Assessments and the description of tasks of the Site
Reviewers. The cost of performing all Site Assessments shall be paid by Mortgagor upon demand of
Mortgagee and any such obligations shall be Indebtedness secured by this Deed of Trust.

          4.11 Uneconomic Wells. Should proceeds from the sale of production from any oil and/or
gas well constituting part of the Mortgaged Property (net of production, severance and windfall
profit taxes and royalties, overriding royalties and other payments out of or measured by
production) not exceed the expense of operation of such well (including, but not limited to,
operator’s overhead, payments to contractors and suppliers, and annual taxes assessed on the basis
of the value of the Property prorated on a monthly basis, but expressly excluding any portion of
the cost of drilling or completing the relevant well or the cost of non-routine workover or
remedial operations) for a period in excess of three consecutive calendar months, then, upon
receipt by Mortgagor of written notification from Mortgagee, Mortgagor will (a) take all necessary
steps to abandon the relevant well, or (b) provide from sources other than proceeds from the sale
of production attributable to the Mortgaged Property (i.e., through borrowings or contractual
commitments obtained from third parties not in violation of any provision of this Deed of Trust or
any other Loan Document) the funds required to pay the share of Mortgagor of the expenses
associated with the continuing operation of such well.

          4.12 Performance of Gas Contracts. Mortgagor will perform and observe in all material
respects all of its obligations under each contract relating to the sale of gas produced from or
attributable to the Mortgaged Property and will not, except in good faith and as the result of
arm’s length negotiations and with prior written notice to Mortgagee, change, modify, amend or
waive any of the terms or provisions of any such contract or take any other action which would
release any other party from its obligations or liabilities under any such contract.

          4.13 Covenants Running with the Land. All covenants and agreements herein contained
shall constitute covenants running with the Land.

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ARTICLE 5

DEFEASANCE, FORECLOSURE

AND OTHER REMEDIES

          5.1 Defeasance. Should the Indebtedness be paid, then the conveyance of the Mortgaged
Property shall become of no further force and effect, and, at the request and expense of Mortgagor,
the Lien granted hereunder shall be released, without recourse or warranty; otherwise, it shall
remain in full force and effect.

          5.2 Events of Default. The occurrence of any Event of Default under the Credit
Agreement shall constitute an Event of Default under this Deed of Trust.

          5.3 Acceleration and Exercise of Power of Sale.

     (a) Upon the occurrence of an Event of Default specified in Sections 7.1(f) or
7.1(g) of the Credit Agreement, the aggregate principal amount of all Indebtedness then
outstanding and all interest accrued thereon shall automatically become immediately due
and payable, without presentment, demand, protest, notice of protest, default or
dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity,
or other notice of any kind, all of which are hereby expressly waived by Mortgagor to
the full extent permitted by applicable law. Upon the occurrence of any other Event
of Default, Mortgagee may declare the aggregate principal amount of all Indebtedness
then outstanding and all interest accrued thereon immediately due and payable,
whereupon the same shall become immediately due and payable without presentment,
demand, protest, notice of protest, default or dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, or other notice of any kind, all of which
are hereby expressly waived by Mortgagor to the full extent permitted by applicable
law.

     (b) Upon the occurrence of any Event of Default or at any time thereafter while
the Indebtedness or any part thereof remains unpaid, it shall be the duty of the
Trustee, on request of Mortgagee (which request is hereby presumed), to enforce this
Trust and, after advertising the time and place of the sale for at least 21 days prior
to the day of sale, by posting or causing to be posted a written or printed notice
thereof at the courthouse door and by filing a copy of such notice in the office of the
county clerk of each county in which the Mortgaged Property or any part thereof may be
situated, and serving written notice of the proposed sale on each debtor obligated to
pay the Indebtedness according to the records of Mortgagee, by postage prepaid,
certified United States mail, at the most recent address for such debtor as shown by
the records of Mortgagee, at least 21 days prior to the day of sale, to sell the
Mortgaged Property, either as a whole or in parcels, as the Trustee may deem proper, at
public venue at the courthouse of the county in which the Mortgaged Property or any
part thereof may be situated (and being the county designated in the notice of sale) on
the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m., to the
highest bidder for cash, and after such sale to execute and deliver to the purchaser or
purchasers good and sufficient deeds and assignments, conveying

10

 

such Property so sold to the purchaser or purchasers with general warranty of title
made on behalf of Mortgagor. The Trustee, or his successor or substitute, is hereby
authorized and empowered to appoint any one or more Persons as his
attorneys-in-fact
or agents to act as Trustee under him and in his name, place and stead, such
appointment to be evidenced by a written instrument executed by the Trustee, or his
successor or substitute, to perform any one or more act or acts necessary or
incident to any sale under the power of sale hereunder, including, without
limitation, the posting and filing of any notices, the conduct of the sale and the
execution and delivery of any instruments conveying the Mortgaged Property as a
result of the sale, but in the name and on behalf of the Trustee, or his successor
or substitute; and all acts done or performed by such attorneys-in-fact or agents
shall be valid, lawful and binding as if done or performed by the Trustee, or his
successor or substitute. No single sale or series of sales by the Trustee shall
extinguish the Lien or exhaust the power of sale hereunder except with respect to
the items of Property sold, but such Lien and power shall exist for so long as and
may be exercised in any manner by law or as herein provided as often as the
circumstances require to give Mortgagee full relief hereunder. The purchaser at any
such sale shall not assume, nor shall the heirs, legal representatives, successors
or assigns of such purchaser, be deemed to have assumed, by reason of the
acquisition of Property or rights mortgaged hereunder, any liability or obligation
of any lessee or operator of the Mortgaged Property, or any part thereof, arising by
reason of any occurrence taking place prior to such sale. It shall not be necessary
to have present, or to exhibit at any such sale, any of the personal Property
subject to the Lien hereof.

          5.4 Rights as Secured Party. Upon the occurrence of any Event of Default, Mortgagee
shall be entitled to all of the rights, powers, and remedies afforded a secured party by the UCC
with respect to the personal Property and fixtures and as-extracted collateral in which Mortgagee
has been granted a security interest hereby, or Mortgagee may proceed in accordance with the
provisions hereof as to both the real and personal Property covered hereby.

          5.5 Application of Proceeds of Sale. The Trustee is authorized to receive the proceeds
of each sale of Mortgaged Property and apply the same as follows:

FIRST: to the payment of all necessary costs and expenses
incident to the execution of this Deed of Trust, including, but not
limited to, a fee to the Trustee of 5% of the amount realized at the
sale, if required by the Trustee;

SECOND: to any and all Indebtedness then hereby secured,
application to be made in such order and in such manner as Mortgagee
may, in its discretion, elect;

THIRD: the balance, if any, to Mortgagor or its successors
or assigns, or other Person legally entitled thereto.

          5.6 Substitute Trustee. In the event of the death of the Trustee, or his removal from
the State of Texas, or his failure, refusal, or inability for any reason to make any such sale or
to

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perform any of the trusts herein declared, or at any time, whether with or without cause,
Mortgagee may appoint, in writing, a substitute trustee who shall thereupon succeed to all the
estates, rights, powers, and trusts herein granted to and vested in the Trustee. In the same
events as first above stated, and in the same manner, successive substitute Trustees may
thereafter be appointed.

          5.7 Statements by Trustee. It is agreed that in any deed or deeds given by any Trustee
any and all statements of fact or other recitals therein made as to the identity of the holder or
holders of the Indebtedness, or as to default in the payments thereof or any part thereof, or as to
the breach of any covenants herein contained, or as to the request to sell, notice of sale, time,
place, terms and manner of sale, and receipt, application, and distribution of the money realized
therefrom, or as to the due and proper appointment of a substitute trustee, and, without being
limited by the foregoing, as to any other or additional act or thing having been done by Mortgagee
or the Trustee, shall be taken by all courts of law and equity as prima facie evidence that the
statements or recitals state facts and are without further question to be so accepted. Mortgagor
does hereby ratify and confirm any and all acts that the Trustee may lawfully do in the premises by
virtue of the terms and conditions of this Deed of Trust.

          5.8 Suit to Collect and Foreclose. Mortgagee, at its election, or the Trustee, upon
written request of Mortgagee, may proceed by suit or suits, at law or in equity, to enforce the
payment of the Indebtedness in accordance with the terms hereof and of the notes, guaranties, or
other documents evidencing it, and to foreclose the Lien of this Deed of Trust as against all or
any portion of the Mortgaged Property and to have such Property sold under the judgment or decree
of a court of competent jurisdiction.

          5.9 Mortgagee or Trustee as Purchaser. Mortgagee or the Trustee may be a purchaser
of all or any portion of the Mortgaged Property at any sale thereof, whether such sale be under the
power of sale hereinabove vested in the Trustee, upon any other foreclosure of the Lien hereof, or
otherwise. Mortgagee or the Trustee so purchasing shall, upon any such purchase, acquire title to
the Mortgaged Property so purchased, free of the Lien of this Deed of Trust and free of all rights
of redemption in Mortgagor.

          5.10 Entry and Operation. Upon the occurrence of any Event of Default, then in each
and every such case and in addition to the other rights and remedies hereunder, the Trustee or
Mortgagee, whether or not the Indebtedness shall have become due and payable, may, but shall not be
obligated to, enter into and upon and take possession of all or any portion of the Mortgaged
Property and may exclude Mortgagor, its agents and servants wholly therefrom and have, hold, use,
operate, manage, and control all or any portion of the Mortgaged Property and produce the oil, gas,
and other minerals therefrom and market the same, all at the sole risk and expense of Mortgagor and
at the expense of the Mortgaged Property, applying the net proceeds so derived, first, to the cost
of maintenance and operation of such Mortgaged Property; second, to the payment of the
Indebtedness, application to be made first to interest and then to principal; and the balance
thereof, if any, shall be paid to Mortgagor. Upon such payment of all such costs and Indebtedness,
the Mortgaged Property shall be returned to Mortgagor in its then condition, and neither the
Trustee nor Mortgagee shall be liable to Mortgagor for any damage or injury to the Mortgaged
Property except such as may be caused through the fraud or willful misconduct of the Trustee or
Mortgagee, as the case may be.

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          5.11 Power of Attorney to Mortgagee. Mortgagor does hereby designate Mortgagee as
the agent of Mortgagor to act in the name, place, and stead of Mortgagor in the exercise of each
and every remedy set forth herein and in conducting any and all operations and taking any and all
action reasonably necessary to do so, recognizing such agency in favor of Mortgagee to be coupled
with the interests of Mortgagee under this Deed of Trust and, thus, irrevocable so long as this
Deed of Trust is in force and effect.

          5.12 Remedies Cumulative and Non-Exclusive. The rights of entry, sale, or suit, as
hereinabove or hereinafter conferred, are cumulative of all other rights and remedies herein or by
law or in equity provided, and shall not be deemed to deprive Mortgagee or the Trustee of any such
other legal or equitable rights or remedies, by judicial proceedings or otherwise, appropriate to
enforce the conditions, covenants, and terms of this Deed of Trust and the other Loan Documents.
The employment of any remedy hereunder or otherwise shall not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies.

ARTICLE 6

ASSIGNMENT OF PRODUCTION

          6.1 Assignment. In addition to the conveyance to the Trustee herein made, Mortgagor
does hereby transfer, assign, deliver and convey unto Mortgagee, its successors and assigns, all of
the oil, gas, and other minerals produced, saved, or sold from the Mortgaged Property and
attributable to the interests of Mortgagor therein subsequent to 7:00 a.m. on the first day of the
month in which this Deed of Trust is executed, together with the proceeds of any sale thereof.
Mortgagor hereby directs any purchaser now or hereafter taking any production from the Mortgaged
Property to pay to Mortgagee such proceeds derived from the sale thereof and to continue to make
payments directly to Mortgagee until notified in writing by Mortgagee to discontinue the same. The
purchaser of any such production shall not be required to see to the application of the proceeds
thereof by Mortgagee, and payment made to Mortgagee shall be binding and conclusive as between such
purchaser and Mortgagor. Mortgagor further agrees to perform all such acts and to execute all such
further assignments, transfer and division orders, and other instruments as maybe required or
desired by Mortgagee or any other party to have such proceeds and revenues so paid to Mortgagee.

          6.2 Postponement of Payment. For its convenience, Mortgagee has elected not to
exercise immediately its right to receive payment to it directly of the proceeds of any sale of the
oil, gas and other minerals produced or sold from the Mortgaged Property and the purchasers may
continue to make such payment or delivery of the proceeds to Mortgagor until such time as Mortgagor
and the purchasers have received notice that an Event of Default has occurred and is continuing,
and that the purchasers are directed to make payment or delivery of the proceeds directly to
Mortgagee. Such failure by Mortgagee to exercise its rights immediately shall not in any way waive
the right of Mortgagee to receive any of the proceeds, or to make any such demand, or to affect any
such assignment as to any proceeds not theretofore paid or delivered to Mortgagor. In this regard,
if any of the proceeds are paid or delivered directly to Mortgagee and then, at the request of
Mortgagee, the proceeds are, for a period or periods of time, paid or delivered to Mortgagor,
Mortgagee shall nevertheless have the right, effective upon written notice, to require that future
proceeds be again paid or delivered directly to it. Mortgagee shall never be required to send any
such

13

 

notice to all purchasers, and may direct such notice only to those purchasers as it may, in its
discretion, desire. It shall never be necessary for Mortgagee to institute legal proceedings to
enforce the assignment of hydrocarbons, proceeds, or other rents, profits, or income contained in
this instrument. It shall not be necessary for Mortgagee to obtain possession of the Mortgaged
Property as a prerequisite to Mortgagee’s right to collect or receive any hydrocarbons, other
minerals, proceeds, or other rents, profits, or income assigned to Mortgagee under this
instrument. Mortgagor and Mortgagee expressly agree and it is the express intention of Mortgagor
and Mortgagee that in no event will any reduction in the obligations be measured by the fair
market value of the hydrocarbons, other minerals, proceeds, or other rents, profits, or income
assigned to Mortgagee under this instrument.

          6.3 Change of Purchaser. Should any purchaser taking the production from the Mortgaged
Property fail to make prompt payment to Mortgagee in accordance with the provisions of Section 6.1,
Mortgagee shall have the right, at the expense of Mortgagor, to demand a change of connection and
to designate another purchaser with whom a new connection may be made, without any liability on the
part of Mortgagee in making such selection, so long as ordinary care is used in the making thereof.
Promptly upon such demand, Mortgagor shall take all necessary and appropriate action to effect such
change of connection.

          6.4 Application of Proceeds. Mortgagor authorizes and empowers Mortgagee to receive,
hold, and collect all sums of money paid to Mortgagee in accordance with the provisions of Section
6.1, and to apply the same as hereinafter provided, all without any liability or responsibility on
the part of Mortgagee, save and except as to good faith in so receiving and applying such sums.
Mortgagee may apply all sums received by Mortgagee pursuant to Section 6.1 to the payment of the
Indebtedness, application to be made in such manner as Mortgagee may elect, regardless of whether
the application so made shall exceed the payments of principal and interest then due as provided in
the Loan Documents. After such application has been so made by Mortgagee, the balance of any such
sums shall be paid to Mortgagor.

          6.5 No Postponement of Installments on Indebtedness. It is understood and agreed
that should such payments provided for by Section 6.1 be less than the sum or sums then due on the
Indebtedness, such sum or sums then due shall nevertheless be paid by Mortgagor in accordance with
the provisions of the Loan Documents, and neither the assignment made pursuant to Section 6.1 nor
any other provisions hereof shall in any manner be construed to affect the terms and provisions of
the Loan Documents. Likewise, neither the assignment made pursuant to Section 6.1 nor any other
provisions hereof shall in any manner be construed to affect the Liens, rights, title, and remedies
herein granted securing the Indebtedness or the liability of Mortgagor therefor. The rights under
this Article VI are cumulative of all other rights, remedies, and powers granted under this Deed of
Trust and are cumulative of any other security which Mortgagee now holds or may hereafter hold to
secure the payment of the Indebtedness.

          6.6 Turnover to Mortgagee. Should Mortgagor receive any of the proceeds of any sale of
oil, gas, or other minerals produced, saved, or sold from the Mortgaged Property, which under the
terms hereof should have been remitted to Mortgagee, Mortgagor will immediately remit same in full
to Mortgagee.

14

 

          6.7 Release of Proceeds Upon Payment of Indebtedness. Upon payment in full of all Indebtedness
and the termination of the Commitment, the remainder of such proceeds held by Mortgagee, if any,
shall be paid over to Mortgagor upon demand, and a release of the interest hereby assigned will be
made, without recourse or warranty, by Mortgagee to Mortgagor at its request and its expense.

          6.8 Duty of Mortgagee. Mortgagee shall not be liable for any failure to collect, or
for any failure to exercise diligence in collecting, any funds assigned hereunder. Mortgagee shall
be accountable only for funds actually received.

          6.9 Power of Attorney to Mortgagee. Mortgagor does hereby designate Mortgagee as
the agent of Mortgagor to act in the name, place, and stead of Mortgagor for the purpose of taking
any and all actions deemed by Mortgagee necessary for the realization by Mortgagee of the benefits
of the assignment of production provided herein, recognizing such agency in favor of Mortgagee to
be coupled with the interests of Mortgagee under this Deed of Trust and, thus, irrevocable so long
as this Deed of Trust is in force and effect.

ARTICLE 7 

MISCELLANEOUS

          7.1 Further Assurances. Upon request of Mortgagee, Mortgagor will promptly correct any
defects, errors, or omissions in the execution or acknowledgment of this Deed of Trust or any other
Loan Document, and execute, acknowledge, and deliver such other assurances and instruments as
shall, in the opinion of Mortgagee, be necessary to fulfill the terms of this Deed of Trust.

          7.2 Interest. Any provision in any document that may be executed in connection
herewith to the contrary notwithstanding, Mortgagee shall in no event be entitled to receive or
collect, nor shall any amounts received hereunder be credited so that Mortgagee shall be paid, as
interest a sum greater than that authorized by law. If any possible construction of this Deed of
Trust or any Loan Document seems to indicate any possibility of a different power given to
Mortgagee or any authority to ask for, demand, or receive any larger rate of interest, this clause
shall override and control, and proper adjustments shall be made accordingly.

          7.3 Agreement as Entirety. This Deed of Trust, for convenience only, has been divided
into Articles, Sections, and subsections. The rights, powers, privileges, duties, and other legal
relations of Mortgagor, the Trustee, and Mortgagee shall be determined from this Deed of Trust as
an entirety and without regard to the aforesaid division into Articles, Sections, and subsections
and without regard to headings affixed to such Articles, Sections, or subsections.

          7.4 Number and Gender. Whenever the context requires, reference herein made to the
single number shall be understood to include the plural, and the plural shall likewise be
understood to include the singular. Words denoting sex shall be construed to include the masculine,
feminine, and neuter when such construction is appropriate; and specific enumeration shall not
exclude the general, but shall be construed as cumulative.

15

 

          7.5 Rights and Remedies Cumulative. All rights, powers, immunities, remedies, and
Liens of Mortgagee existing and to exist hereunder or under any other instruments or at law or in
equity and all other or additional security shall be cumulative and not exclusive, each of the
other. Mortgagee shall, in addition to the rights and remedies herein expressly provided, be
entitled to such other remedies as may now or hereafter exist at law or in equity for securing and
collecting the Indebtedness, for enforcing the covenants herein, and for foreclosing the Liens
hereof. Resort by Mortgagee to any right or remedy provided for hereunder or at law or in equity
shall not prevent concurrent or subsequent resort to the same or any other right or remedy. No
security heretofore, herewith, or subsequently taken by Mortgagee shall in any manner impair or
affect the security given by this Deed of Trust or any security by endorsement or otherwise
presently or previously given; and all security shall be taken, considered, and held as cumulative.

          7.6 Parties in Interest. This Deed of Trust shall be binding upon the parties and
their respective heirs, administrators, legal representatives, successors, and assigns and shall
inure to the benefit of the Mortgagee and its legal representatives, successors, and assigns. The
terms used to designate any of the parties herein shall be deemed to include the heirs,
administrators, legal representatives, successors, and assigns of such parties. The term
“Mortgagee” shall also include any lawful owner, holder, or pledgee of any Indebtedness.

          7.7 Supplements. Without in any manner limiting the effect of Section 1.4 or any other
provisions of this Deed of Trust as to the binding effect of this Deed of Trust on after-acquired
rights of Mortgagor, it is contemplated by the parties hereto that from time to time additional
interests and properties may or will be added to the interests and properties subject to the Liens,
rights, titles, and interests created by this Deed of Trust by means of supplemental indentures
identifying this Deed of Trust and describing such interests and properties to be so added and
included. Upon the execution of any such supplemental indenture, the Liens, rights, titles, and
interests created herein shall immediately attach to and be effective with respect to any such
interests and properties so described, the same as if such interests and properties had been
specifically described herein, and such interests and properties being included in the term
“Mortgaged Property,” as used herein.

          7.8 Invalidity. In the event that any one or more of the provisions contained in this
Deed of Trust shall for any reason be held invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision of this Deed of
Trust or any other Loan Document.

          7.9 Construction. All titles or headings to Articles, Sections, subsections, or other
divisions of this Deed of Trust or the exhibits hereto are only for the convenience of the parties
and shall not be construed to have any effect or meaning with respect to the other content of such
Articles, Sections, subsections, or other divisions, such other content being controlling as to the
agreement among the parties hereto. Article, Section, subsection, and Exhibit references herein are
to such Articles, Sections, subsections, and Exhibits of this Deed of Trust unless otherwise
specified.
The words “hereby,” “herein,” “hereinabove,” “hereinafter,” “hereinbelow,” “hereof,” and
“hereunder” when used in this Deed of Trust shall refer to this Deed of Trust as a whole and not
to any particular Article, Section, subsection, or provision of this Deed of Trust.

16

 

          7.10 Fixtures, Minerals and Accounts. Without in any manner limiting the generality
of any of the foregoing hereof, some portions of the personal Property described hereinabove are or
are to become fixtures on the Lands. In addition, the security interest created hereby under
applicable provisions of the UCC attaches to minerals, including oil and gas, and accounts
resulting from the sale thereof, at the wellhead or minehead located on the Lands.

          7.11 Financing Statement Filings. This Deed of Trust may be filed as provided in
Article 9 of the UCC to assure that the security interests granted by this Deed of Trust are
perfected. In this connection, this Deed of Trust may be presented to a filing officer under the
UCC to be filed in the real estate records as a Financing Statement covering minerals and fixtures.
Further, Mortgagor authorizes Mortgagee to execute and file at any time and from time to time any
and all Financing Statements and amendments thereto in any UCC jurisdiction, pursuant to Article 9
of the UCC, as Mortgagee deems necessary in its sole discretion, in conjunction with this Deed of
Trust, and Mortgagor expressly authorizes execution and filing of such Financing Statements by
Mortgagee without need of signature or execution by Mortgagor.

          7.12 Addresses. For purposes of filing this Deed of Trust as a financing statement,
the addresses for Mortgagor, as the debtor, and Mortgagee, as the secured party, are as set forth
hereinabove.

          7.13 Counterparts. For the convenience of the parties, this Deed of Trust may be
executed in multiple counterparts, each of which for all purposes shall be deemed, and may be
enforced from time to time as, a chattel mortgage, real estate mortgage, deed of trust, security
agreement, assignment or contract, or as one or more thereof. For recording purposes, various
counterparts have been executed, and there may be attached to each such counterpart an Exhibit
A containing only the description of the Mortgaged Property, or portions thereof, which relates
to the county or state in which the particular counterpart is to be recorded. A complete,
original counterpart of this Deed of Trust with a complete Exhibit A may be obtained from
Mortgagee. Each of the counterparts hereof so executed shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the same instrument.

          7.14 No Waiver by Mortgagee. No course of dealing on the part of Mortgagee, its
officers or employees, nor any failure or delay by Mortgagee with respect to exercising any of its
rights or remedies hereunder shall operate as a waiver thereof nor shall the exercise or partial
exercise of any such right or remedy shall preclude the exercise of any other right or remedy.

          7.15 Governing Agreement. This Deed of Trust is made pursuant and subject to the terms
and provisions of the Credit Agreement. In the event of a conflict between the terms and provisions
of this Deed of Trust and those of the Credit Agreement, the terms and provisions of the Credit
Agreement shall govern and control. The inclusion in this Deed of Trust of provisions not addressed
in the Credit Agreement shall not be deemed a conflict, and all such additional provisions
contained herein shall be given full force and effect.

17

 

          IN WITNESS WHEREOF, this Deed of Trust is executed on the date of the acknowledgment below but
effective as of the 29th day of June, 2006.

	 	 	 	 	 	 	 
	 	 	MORTGAGOR (DEBTOR):	 	 
	 
	 	 	 	 	 	 
	 	 	Prime Offshore L.L.C.

(fka F-W Oil Exploration L.L.C.)	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Beverly A. Cummings	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Beverly A. Cummings	 	 
	 

	 	 	 	Chief Executive Officer	 	 

 

 

	 	 	 	 	 
	THE STATE OF CONNECTICUT

	 	§ 
	 	 
	 
	 	 	 	 
	 

	 	§ 	 	 
	COUNTY OF FAIRFIELD

	 	§ 	 	 

          BEFORE ME, the undersigned authority, on this day personally appeared BEVERLY A. CUMMINGS,
Chief Executive Officer of PRIME OFFSHORE L.L.C., a Delaware limited liability company, known to me
to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that
she executed the same for the purposes and consideration therein expressed, as the act and deed of
such limited liability company and in the capacity therein stated.

          GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29 day of June, 2006.

	 	 	 	 	 
	 

	 	/s/ Joan Podlovits
	 	 
	 

	 	 	 	 
	 

	 	NOTARY PUBLIC in and for	 	 
	 

	 	Fairfield County, Connecticut	 	 
	 
	 	 	 	 
	 

	 	JOAN PODLOVITS	 	 
	 

	 	NOTARY PUBLIC	 	 
	 

	 	MY COMMISSION EXPIRES MAY 31, 2008	 	 

2

 

EXHIBIT A

TO

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

          The designation “Working Interest” or “WI” when used in this Exhibit means an interest
owned in an oil, gas, and mineral lease that determines the cost-bearing percentage of the owner of
such interest. The designation “Net Revenue Interest” or “NRI” means that portion of the
production attributable to the owner of a working interest after deduction for all royalty burdens,
overriding royalty burdens or other burdens on production, except severance, production, and other
similar taxes. The designation “Overriding Royalty Interest” or “ORRI” means an interest in
production which is free of any obligation for the expense of exploration, development, and
production, bearing only its pro rata share of severance, production, and other similar taxes and,
in instances where the document creating the overriding royalty interest so provides, costs
associated with compression, dehydration, other treating or processing, or transportation of
production of oil, gas, or other minerals relating to the marketing of such production. The
designation “Royalty Interest” or “RJ” means an interest in production which results from an
ownership in the mineral fee estate or royalty estate in the relevant land and which is free of any
obligation for the expense of exploration, development, and production, bearing only its pro rata
share of severance, production, and other similar taxes and, in instances where the document
creating the royalty interest so provides, costs associated with compression, dehydration, other
treating or processing or transportation of production of oil, gas, or other minerals relating to
the marketing of such production.

          Any reference in this Exhibit to wells or units is for warranty of interest, administrative
convenience, and identification and shall not limit or restrict the right, title, interest, or
properties covered by this Deed of Trust. All right, title, and interest of Mortgagor in the
properties described herein are and shall be subject to this Deed of Trust, regardless of the
presence of any units or wells not described herein.

          The references to book or volume and page herein refer to the recording location of each
respective Mortgaged Property described herein in the county where the land covered by the
Mortgaged.

A-i

 

OIL, GAS AND MINERAL INTERESTS

South Padre Island 1113

Oil and Gas Lease OCS-G-24302, granted by the United States of America to F-W Oil Exploration
L.L.C., dated effective November 1, 2002, covering all of Block 1113, South Padre Island Area, OCS
Leasing Map, Texas Map No. 1, offshore Cameron County, Texas.

	 	 	 	 	 
	Working Interest
	 	 	75.0000	 
	Net Revenue Interest
	 	 	60.2500	 

 South Padre Island 1133

Oil and Gas Lease OCS-G-26431, granted by the United States of America to F-W Oil Exploration
L.L.C., dated effective November 1, 2004, covering all of Block 1133, South Padre Island Area, OCS
Leasing Map, Texas Map No. 1, offshore Cameron County, Texas.

	 	 	 	 	 
	Working Interest
	 	 	75.0000	 
	Net Revenue Interest
	 	 	60.2500	 

A-ii

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