Document:

Net Overriding Royalty Conveyance

 Exhibit 10.4 
 NET OVERRIDING ROYALTY CONVEYANCE 
 (Torch Energy Royalty Trust) 
 (Alabama) 
  

			
	 STATE OF ALABAMA
	  	§
		  	§
	 COUNTY OF TUSCALOOSA
	  	§

 This Net Overriding Royalty Conveyance (this “Conveyance”), in two Parts, 
 Part I being a conveyance from VELASCO GAS COMPANY, LTD., a Texas limited partnership (“Velasco”), of which the general partner
is Torch Energy Corporation, the address of which is 1221 Lamar, Suite 1600, Houston, Texas 77010, to TORCH ENERGY ADVISORS INCORPORATED, a Delaware corporation (“TEAI”), the address of which is 1221 Lamar, Suite 1600, Houston, Texas
77010, and 
 Part II being a conveyance from TEAI to the TORCH ENERGY ROYALTY TRUST, a Delaware business trust (the
“Trust”), the mailing address of which is c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attn: Torch Energy Royalty Trust, 
 WITNESSETH: 
 DEFINITIONS APPLICABLE
THROUGHOUT THIS CONVEYANCE 
 As used herein, the following words, terms or phrases have the following meanings (other defined terms may
be found elsewhere in this Conveyance): 
 “Affiliate” means, as to the party specified, any Person controlling, controlled by or
under common control with such Person, with the concept of control in such context meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another, whether through the ownership
of voting securities, by contract or otherwise. 
 “Business Day” means any day that is not a Saturday, Sunday, a holiday
determined by the New York Stock Exchange, Inc. as “affecting” ‘ex’ dates, or any other day on which the principal office of the Trustee is closed as authorized or required by law. 

 “Closing Date” means the date of the closing of the sale of the Firm Units as defined in the
underwriting agreement contemplated by that certain Registration Statement on Form S-1 (Securities and Exchange Commission File No. 33-68688). 
 “Credits to Production Costs”, for any Quarter, means amounts paid, reimbursed or credited to Velasco during such Quarter as any of the following: (a) proceeds from insurance or from judgments or settlements of litigation or
claims for loss or damage to any of the Wells or the Subject Interests or personal injury or death arising out of or related to the ownership or operation thereof, but only to the extent of the amount (if any) charged to Production Costs on account
of such loss, damage, personal injury or death (including amounts so charged for repair or replacement of loss of or damage to property); (b) payments by owners of interests in properties or depths other than those included in the Subject Lands
for the drilling or deferring of any well or other operations on the Subject Lands (including dry and bottom hole payments and payments for refraining from drilling an offset well); (c) adjustment of any well and leasehold equipment upon
unitization of any of the Subject Interests or upon enlargement or reduction of any unit to which any of the Subject Interests may be subject; (d) sale or transfer off the Subject Lands of lease and well fixtures, equipment and personal
property in, on, used or obtained in connection with the Wells or Subject Interests, with respect to such property existing at the Effective Time or (to the extent of the amount, if any, charged to Production Costs) acquired thereafter;
(e) rent and other consideration for use of the surface of the Subject Lands or for subsurface reservoir use of the Subject Lands; (f) damage caused to the surface or subsurface of the Subject Lands; and (g) amounts representing
downward adjustments or corrections made in such Quarter to Production Costs for any prior Quarter to the extent such adjustments or corrections result from errors or inaccuracies made in the accounting for such costs. 
 “Effective Time” means 7:00 o’clock A.M., local time in effect at the location of each Subject Interest, on October 1, 1993.

  

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 “Entitled Volume” means, in any Quarter, the volume of Gas (in MMBtu’s) which is produced
and saved from the Subject Lands during such Quarter and which is attributable to the Subject Interests (regardless of (i) any Gas imbalance or (ii) the volume of the Gas which is actually taken and sold by Velasco) less the volume of Gas
attributable to Existing Burdens. 
 “Entitled Volume Amount” means, for any Quarter, an amount calculated by multiplying the
Entitled Volume for such Quarter times the weighted average Monthly Gas Price under the Purchase Contract. 
 “Environmental Laws”
means all applicable federal, state and local laws (including case law), regulations, ordinances, rules, orders, permits and governmental restrictions relating to the environment, the effect of the environment on human health or safety, pollutants,
contaminants, hazardous substances or hazardous wastes, whether now or hereafter in effect. 
 “Excess Infill Costs” means, for any
Quarter, an amount equal to the excess, if any, of Infill Costs for such Quarter (including any carried forward from any preceding Quarter) over Infill Proceeds for such Quarter. 
 “Excess Maximum Gas Volume Costs” means, for any Quarter, an amount equal to the excess, if any, of Maximum Gas Volume Costs for such Quarter
(including any carried forward from any preceding Quarter) over Maximum Gas Volume Proceeds for such Quarter. 
 “Excess NPI Costs”
means, for any Quarter, an amount equal to the excess, if any, of NPI Costs for such Quarter (including any carried forward from any preceding Quarter) over NPI Proceeds for such Quarter. 
 “Excess Pre-1980 Costs” means, for any Quarter, an amount equal to the excess, if any, of Pre-1980 Costs for such Quarter (including any
carried forward from any preceding Quarter) over Pre-1980 Proceeds for such Quarter. 
 “Existing Burdens” means all royalties,
overriding royalties, production payments, net profits payments, and other payments out of or measured by production that are existing and of record as of the Effective Time, to the extent such payments are payable out of 

  

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production attributable to the Subject Interests, as the same shall be enlarged or diminished by the discharge or imposition of any payments out of
production or by the removal or imposition of any charges or encumbrances to which any of the same are subject pursuant to existing Instruments. 
 “Gas” has the meaning ascribed to it in the Purchase Contract. 
 “Gross Proceeds” means, for any Quarter,
(i) with respect to Gas, the Entitled Volume Amount for such Quarter, and (ii) with respect to the Subject Hydrocarbons other than Gas the amounts received during such Quarter by Velasco from the sale of such Subject Hydrocarbons under the
Purchase Contract, as such amounts may be adjusted or corrected in such Quarter for any prior Quarter as a result of errors or inaccuracies (including, but not limited to, those made in measurement or computation), and provided that the following
shall apply: 
 (a) If, for any reason (including failure of TEMI to purchase the quantity of Hydrocarbons which TEMI is
obligated to purchase pursuant to the Purchase Contract), TEMI at any time does not make payments to Velasco during such Quarter, as required by the Purchase Contract, for Hydrocarbons which TEMI is obligated to purchase and pay Velasco for during
such Quarter, Gross Proceeds shall nevertheless be calculated during such Quarter as if Velasco had actually received during such Quarter the payments to which it is entitled under the Purchase Contract. 
 (b) There shall not be included in Gross Proceeds any Property Taxes which are deducted or excluded from proceeds of sale received by
Velasco. 
 (c) There shall not be included in Gross Proceeds any amount for Subject Hydrocarbons attributable to nonconsent
operations conducted with respect to the Subject Interests (or any portion thereof) as to which Velasco shall be a nonconsenting party and which is dedicated to the recoupment or reimbursement of costs and expenses of the consenting party or parties
by the terms of the relevant Instrument providing 

  

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for such nonconsent operations. Velasco agrees that its election not to participate in such operations shall be made in conformity with the provisions of
Section 6.02 of this Conveyance, but third persons shall not be under any duty to determine that such election so conformed. 
 (d) There shall not be included in Gross Proceeds any amount which Velasco shall receive as any of the following: consideration for transfer or sale of any of the Subject Interests (subject to the Royalty Interests) or sale or transfer off
the Subject Lands of lease and well fixtures, equipment and personal property (provided that amounts received from such sales or transfers shall be included in Credits to Production Costs to the extent provided in the definition of such term); and
amounts received by Velasco as a loan. 
 (e) There shall not be included in Gross Proceeds any amount for Subject
Hydrocarbons lost in the production or delivery thereof to the Delivery Points (which term as used herein has the same meaning as in the Purchase Contract) or used by Velasco or its operator in conformity with ordinary or prudent practices for
drilling and production operations. 
 (f) There shall not be included in Gross Proceeds amounts which are included in Credits
to Production Costs. 
 “Hydrocarbons” means oil, Gas and other minerals produced in association with oil or Gas, but excluding all
other minerals, whether similar or dissimilar. 
 “Infill Costs” means, for any Quarter, those Production Costs attributable to
Infill Wells, or the production of Subject Hydrocarbons therefrom, or the Subject Interests attributable thereto, plus: 
 (a)
Excess Infill Costs as determined at the end of the preceding Quarter; and 
 (b) interest on the amount of Excess Infill
Costs existing at the end of the preceding Quarter calculated from the last day of the preceding Quarter to the last day of the Quarter for which Infill Costs are being determined at the Prime Rate. 
  

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 “Infill Net Proceeds” means, for any Quarter, an amount equal to the excess, if any, of Infill
Proceeds for such Quarter over Infill Costs for such Quarter. 
 “Infill Net Royalty Interest” means a net overriding royalty
interest in and to the Hydrocarbons in and under the Subject Lands that may be produced and saved from the Infill Wells equal to twenty percent (20%) of the Infill Net Proceeds, all as more fully provided in this Conveyance. 
 “Infill Proceeds” means, for any Quarter, that portion of Gross Proceeds for such Quarter attributable to production of Subject Hydrocarbons
from Infill Wells. 
 “Infill Wells” means all wells drilled on the Subject Lands, commenced after the Closing Date, whether or not
any such well is drilled to a formation from which a Well or Wells previously drilled are then producing or capable of producing and whether or not any such well is drilled on a drilling or spacing unit previously containing a Well or Wells then
producing or capable of producing, together with any replacement well for an Infill Well, but such term shall not include (a) a well drilled to replace an NPI Well or a Pre-1980 Well which is no longer capable of producing in paying quantities
by reason of damage, destruction or other physical cause and not by reason of depletion of reserves, or (b) an NPI Well or a Pre-1980 Well which is reworked, recompleted, deepened, plugged back or sidetracked. 
 “Instrument” means an oil, gas or mineral lease, pooling or unitization agreement or order, operating agreement, division order, transfer
order, and any other type of agreement, conveyance, assignment or other instrument or evidence of title relating to any of the Subject Interests. 
 “Maximum Gas Volume” means the MMBtu equivalent of 730.0 MMcf of Gas for any Quarter before January 1, 1995, and 912.5 MMcf of Gas for any Quarter thereafter (such Gas meeting the quality standards of the Purchase Contract
and measured as provided in the 

  

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Purchase Contract) produced and saved from the NPI Wells during such Quarter, regardless of how much of such volume is produced on any day and whether or not
such volume is actually so produced and saved. In the event Velasco assigns a part of or interest in (but less than all) the Subject Interests insofar as they include the NPI Wells, a pro rata share of the Maximum Gas Volume (based on production)
shall be allocated by the assignor and assignee to such part or interest therein. 
 “Maximum Gas Volume Costs” means, for any
Quarter, that fraction of NPI Costs for such Quarter of which the numerator is the Maximum Gas Volume for such Quarter (in MMcf) and of which the denominator is the volume of Gas in MMcf (determined in the same manner as the Maximum Gas Volume)
produced and saved from the NPI Wells during such Quarter and attributable to the Subject Interests (provided that such computation shall not result in an amount which exceeds the amount of NPI Costs for such Quarter), plus Excess Maximum Gas Volume
Costs as determined at the end of the preceding Quarter and interest on the amount of Excess Maximum Gas Volume Costs existing at the end of the preceding Quarter, calculated from the last day of the preceding Quarter to the last day of the Quarter
for which Maximum Gas Volume Costs are being determined at the Prime Rate, provided that, for purposes of this definition NPI Costs shall include only the following portion of Production Costs attributable to NPI Wells, or the production of Subject
Hydrocarbons therefrom, or the Subject Interests attributable thereto: 
 (a) the Property Tax Accrual for such Quarter; and

 (b) any amounts paid by Velasco (or on its behalf) during such Quarter, whether as refund, interest or penalty, to any
governmental agency or other Person because the amount initially received by Velasco as sales price under the Purchase Contract was more or allegedly more than permitted by the terms of the Purchase Contract or any applicable statute, regulation,
order, decree or other obligation; provided such amounts (in the case of a refund), or the amounts with respect to which the interest or penalty was paid, were previously included in Maximum Gas Volume Proceeds. 
  

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 “Maximum Gas Volume Net Proceeds” means, for any Quarter, an amount equal to the excess, if
any, of Maximum Gas Volume Proceeds for such Quarter over Maximum Gas Volume Costs for such Quarter. 
 “Maximum Gas Volume
Proceeds” means, for any Quarter, the product of the Maximum Gas Volume for such Quarter times the weighted average Monthly Gas Price during such Quarter under the Purchase Contract. 
 “MMBtu” means one million British thermal units. 
 “MMcf” means one million cubic feet. 
 “Net Royalty Interest” means, for each Quarter, a
net overriding royalty interest in and to the Hydrocarbons in and under the Subject Lands that may be produced and saved from the NPI Wells equal to the lesser of (a) ninety-five percent (95%) of the NPI Net Proceeds for such Quarter or
(b) the Maximum Gas Volume Net Proceeds for such Quarter, all as more fully provided in this Conveyance. 
 “Non-Affiliate”
means, as to the party specified, any Person who is not an Affiliate of such party. 
 “NPI Costs” means, for any Quarter, those
Production Costs attributable to NPI Wells, or the production of Subject Hydrocarbons therefrom, or the Subject Interests attributable thereto, plus: 
 (a) Excess NPI Costs as determined at the end of the preceding Quarter; and 
 (b) interest on
the amount of Excess NPI Costs existing at the end of the preceding Quarter, calculated from the last day of the preceding Quarter to the last day of the Quarter for which NPI Costs are being determined at the Prime Rate; 
 provided that Second Category Costs shall not be included in NPI Costs for Quarters prior to January 1, 2003. 
 “NPI Net Proceeds” means, for any Quarter, an amount equal to the excess, if any, of NPI Proceeds for such Quarter over NPI Costs for such
Quarter. 
  

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 “NPI Proceeds” means, for any Quarter, that portion of Gross Proceeds for such Quarter
attributable to production of Subject Hydrocarbons from NPI Wells. 
 “NPI Wells” means all wells and boreholes, except Infill
Wells and Pre-1980 Wells, located on the Subject Lands, whether or not they produce in paying quantities, including without implied limitation any well temporarily abandoned, any well or borehole which is reworked, deepened, plugged back,
sidetracked or recompleted at the same or a different depth, and any replacement well for any such well. 
 “Person” means any
individual, corporation, partnership, trust, estate, limited liability company or other entity, organization or association. 
 “Pre-1980 Costs” means, for any Quarter, those Production Costs attributable to Pre-1980 Wells, or the production of Subject Hydrocarbons therefrom, or the Subject Interests attributable thereto, plus: 
 (a) Excess Pre-1980 Costs as determined at the end of the preceding Quarter; and 
 (b) interest on the amount of Excess Pre-1980 Costs existing at the end of the preceding Quarter, calculated from the last day of the
preceding Quarter to the last day of the Quarter for which Pre-1980 Costs are being determined at the Prime Rate; 
 provided that Second Category Costs
shall not be included in Pre-1980 Costs for Quarters prior to January 1, 2003. 
 “Pre-1980 Net Proceeds” means, for any
Quarter, an amount equal to the excess, if any, of Pre-1980 Proceeds for such Quarter over Pre-1980 Costs for such Quarter. 
 “Pre-1980
Net Royalty Interest” means a net overriding royalty interest in and to the Hydrocarbons in and under the Subject Lands that may be produced and saved from the Pre-1980 Wells equal to ninety-five percent (95%) of the Pre-1980 Net Proceeds,
all as more fully provided in this Conveyance. 
  

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 “Pre-1980 Proceeds” means, for any Quarter, that portion of Gross Proceeds for such Quarter
attributable to production of Subject Hydrocarbons from Pre-1980 Wells. 
 “Pre-1980 Wells” means all wells located on the Subject
Lands that produced marketable quantities (as such term is used for Federal income tax purposes) of Hydrocarbons prior to the year 1980. 
 “Prime Rate” means the lesser of (a) a rate of interest per annum, compounded Quarterly, equal to the rate announced publicly by Citibank, N.A. (or its successor) in New York, New York, from time to time as its “prime
rate” in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced), with the understanding that such bank’s “prime rate” may be one of several
base rates and may serve as a basis upon which effective rates are from time to time calculated for loans making reference thereto or (b) the maximum nonusurious interest rate permitted by applicable law. 
 “Production Costs” means, for any Quarter, the amounts (whether capital or non-capital in nature) in any way related to (i) the Wells,
(ii) the production of Hydrocarbons therefrom or (iii) the Subject Interests, for periods from and after the Effective Time, to the extent such amounts are attributable to the Subject Interests and were not the subject of reductions to or
exclusions from Gross Proceeds, and without duplication, equal to the sum of the following “First Category Costs” and the following “Second Category Costs”. “First Category Costs” means the following: 
 (a) all amounts paid by Velasco (or on its behalf) during such Quarter for the following: delay rental; shut-in gas well royalty or
payment; minimum royalty; payments to owners of interests in properties other than those included in the Subject Lands for refraining from drilling an offset well; rent and other consideration for use of the surface or for subsurface reservoir use;
and damage caused to the surface or subsurface; 
 (b) the Property Tax Accrual for such Quarter; 
  

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 (c) any amounts paid by Velasco (or on its behalf) during such Quarter, whether as
refund, interest or penalty, to a purchaser or any governmental agency or other Person because the amount initially received by Velasco as sales price under the Purchase Contract was more or allegedly more than permitted by the terms of the Purchase
Contract or any applicable statute, regulation, order, decree or other obligation; provided such amounts (in the case of a refund), or the amounts with respect to which the interest or penalty was paid, were previously included in Gross Proceeds;

 (d) additional tax or other charges (including any interest and penalty) paid by Velasco (or on its behalf) during such
Quarter as a result of any audit by any federal or state agency or body or other interested Person relating to operation of the Subject Interests or sale of production therefrom to the extent such tax or other charge would otherwise constitute First
Category Costs hereunder; 
 (e) any amount paid by Velasco (or on its behalf) during such Quarter for losses associated with
property damage, personal injury or death that relate to the operation of the Subject Interests, provided that Velasco has not breached Section 6.01 hereof; 
 (f) any other amounts paid by Velasco (or on its behalf) during such Quarter, whether such amounts are paid as refund, fine, judgment or
settlement amount (including any interest or penalty amounts), in connection with litigation or settlement of threatened litigation or claims that arise on or after the Closing Date or in connection with order of a governmental agency or body that
is issued on or after the Closing Date, to the extent such refund, fine, judgment or settlement amount would otherwise constitute First Category Costs hereunder and provided that in each case Velasco has not breached Section 6.01 hereof;

 (g) amounts paid by Velasco (or on its behalf) during such Quarter to comply with Environmental Laws for acts or 

  

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omissions occurring on or under, or in connection with, the Subject Lands or the Wells on or after the Closing Date, or conditions on or under the Subject
Lands or the Wells that arise on or after the Closing Date; and 
 (h) amounts representing upward adjustments or corrections
made in such Quarter to First Category Costs for any prior Quarter to the extent such adjustments or corrections result from errors or inaccuracies made in the accounting for such First Category Costs. 
 “Second Category Costs” means the following: 
 (a) the aggregate costs paid by Velasco (or on its behalf) during such Quarter under any joint operating agreement applicable to the Subject Interests to which Velasco and one or more Non-Affiliates are parties,
except Property Taxes and except such of the foregoing costs as are First Category Costs; 
 (b) the aggregate costs paid by
Velasco (or on its behalf) during such Quarter under Exhibit C attached hereto with respect to any Subject Interest not subject to a joint operating agreement between Velasco and a Non-Affiliate, except Property Taxes and except such of the
foregoing costs as are First Category Costs; 
 (c) all other costs, expenses and liabilities (except those provided for in
(a) and (b) above and except Property Taxes) paid by Velasco (or on its behalf) during such Quarter for locating, drilling, completing and plugging and abandoning any Well, including title examination and curative expenses, operating and
producing Subject Hydrocarbons, including without implied limitation costs paid by Velasco (or on its behalf) for: equipping, maintaining, plugging back, reworking, recompleting and sidetracking of any Well on the Subject Lands; and secondary or
other enhanced recovery, pressure maintenance, repressuring, cycling and other operations conducted for the purpose of enhancing production; provided that the costs and expenses paid by Velasco to an Affiliate of 

  

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Velasco or TEAI for performing the operations or services referred to in this paragraph (c) and chargeable under this paragraph (c) shall not
exceed competitive contract charges prevailing in the area for such operations or services; 
 (d) any amounts paid by Velasco
(or on its behalf) during such quarter, whether such amounts are paid as refund, fine, judgment or settlement amount (including any interest or penalty amounts), in connection with litigation or settlement of threatened litigation or claims that
arise on or after the Closing Date or in connection with order of a governmental agency or body that is issued on or after the Closing Date, relating to operation of the Subject Interests and which are not included in First Category Costs, provided
that Velasco has not breached Section 6.01 hereof; 
 (e) all consideration hereafter paid and costs and expenses
hereafter incurred and paid by Velasco (or on its behalf) during such Quarter for any renewals or extensions of leases and other Instruments which are included in the definition herein of Subject Interests, unless the interest which lapsed or
expired did so as a result of violation by Velasco of the standard set out in Section 6.01 hereof; 
 (f) all amounts
paid by Velasco (or on its behalf) during such Quarter for adjustment of any well and leasehold equipment upon unitization of any of the Subject Interests or upon enlargement or reduction of any unit to which any of the Subject Interests may be
subject; and 
 (g) any amounts paid by Velasco (or on its behalf) during such Quarter for defending or asserting claims,
including litigation, concerning title to the Subject Interests or brought by Velasco to protect the Subject Interests. 
  

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 However, notwithstanding anything to the contrary in the foregoing First Category Costs and Second Category Costs, in no
event shall Production Costs include any of the following (all of which shall be borne solely by Velasco): 
 (a) any amount
that would otherwise be included in Production Costs, but that is attributable to periods prior to the Effective Time; 
 (b)
any amount (including any amount paid by way of indemnity of the Trustee under the Trust Agreement) arising out of or in connection with liabilities under Environmental Laws to the extent such amount arises out of or relates to acts or omissions
occurring on or under, or in connection with, the Subject Lands or the Wells prior to the Closing Date, or conditions existing on or under the Subject Lands or the Wells prior to the Closing Date; 
 (c) amounts borne by Velasco as an overproduced party and paid to an underproduced party in order to settle in whole or in part a gas
balancing account in lieu of balancing in kind; and 
 (d) amounts which would otherwise be included in Production Costs for
any Quarter equal to the amounts which are included in Credits to Production Costs for such Quarter, so that such Credits to Production Costs shall operate to reduce Production Costs. 
 “Property Taxes” means the sum of all general property (ad valorem), production, severance, sales, gathering and excise taxes and other taxes
(whether state, federal or otherwise and whether presently in effect or hereafter levied), except income, franchise and other similar taxes, assessed or levied on or in connection with the Subject Interests, the Royalty Interests or the production
therefrom or equipment on the Subject Lands, or against Velasco as owner of the Subject Interests or TEAI or the Trust (as its assignee in Part II hereof) as owner of the Royalty Interests, taking into account any applicable credits, exemptions,
moratoria or other benefits. 
 “Property Tax Accrual” means, for any Quarter, an amount that may be set aside by Velasco as an
accrual to be applied against Property Taxes other than those which are deducted or excluded from proceeds of sale received by Velasco, which accrual shall be adjusted if and to the extent actual Property Taxes differ from such accrual. 

 

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 “Purchase Contract” means the Oil and Gas Purchase Contract between Torch Royalty Company,
Velasco, TEAI and Torch Energy Marketing Incorporated (“TEMI”) dated as of October 1, 1993, together with all amendments and modifications to, or replacements for, such contract. 
 “Quarter” means a calendar quarter. 
 “Royalty Interests” means, collectively, the Net Royalty Interest, the Infill Net Royalty Interest and the Pre-1980 Net Royalty Interest. 
 “Section 29 Coal Seam Tax Credits” means those tax credits for non-conventional fuels production allowed pursuant to Section 29 of the Internal Revenue Code of 1986, as amended. 
 “Subject Hydrocarbons” means all Hydrocarbons in and under, and which may be produced and saved from, and which are attributable to, the
Subject Interests, less the portion of such Hydrocarbons which are attributable to Existing Burdens. 
 “Subject Interests” means
(a) all of the interest in and to those of the Subject Properties described in Part One of Exhibit A attached hereto and (b) an undivided twenty-five percent (25%) interest in and to those of the Subject Properties described in Part
Two of Exhibit A attached hereto. 
 “Subject Properties” means every kind and character of right, title, claim or interest which
Velasco has at the Effective Time in or under each Instrument (including units created by any Instrument) relating to the Subject Lands (including but not limited to the Instruments described or referred to in Exhibit A), insofar as they cover the
Subject Lands, and all other right, title, claim or interest which Velasco has on the Effective Time in and to the Subject Lands, whether such right, title, claim or interest be under and by virtue of an Instrument or under any other type of claim
or title, legal or equitable, recorded or unrecorded, even though Velasco’s interests be incorrectly or incompletely described in, or a description thereof be omitted from, Exhibit A, 

  

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all as the same shall be enlarged or diminished by the discharge or imposition of any payments out of production or by the removal or imposition of any
charges or encumbrances to which any of the same are subject pursuant to existing Instruments, and any and all renewals and extensions of any of the same (to the extent provided for below), but subject to all Existing Burdens to which Velasco’s
such right, title, claim or interest is subject (while same remains so subject), limited, however, if Velasco’s interest in any Subject Interest should terminate at any time, to the period to which Velasco’s interest in such Subject
Interest is limited. There shall be excluded from the term “Subject Interests” any interest hereafter acquired by Velasco in and to any of the Subject Lands, except any interest acquired through non-participation in operations by third
parties and any other interest acquired pursuant to existing agreements for no new consideration and renewals or extensions of leases and other such agreements. For purposes of this Conveyance “renewals or extensions” of any lease or other
such agreement shall be limited to renewals or extensions of an existing lease or other such agreement obtained by the present owner thereof (or such owner’s successors in interest) while such lease is in force or within six months after such
lease or other such agreement terminates. Velasco shall be under no duty to seek renewals or extensions of any lease or other such agreement. 
 “Subject Lands” means the lands in which Velasco has a right, title, claim or interest and which are described in or which are subject to the Instruments described in Exhibit A attached hereto, provided that (a) there are
excepted from each parcel of the Subject Lands described in Exhibit A attached hereto and retained by Velasco all its right, title and interest in all depths deeper than one hundred feet (100’) below the base of the lowest depth, formation
or reservoir from which, on the Effective Date, a Well drilled on or producing from such parcel or land pooled or unitized therewith is producing or capable of producing Hydrocarbons, (b) where the description in Exhibit A excepts land or
refers to an 

  

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Instrument insofar only as it covers certain land, no interest in such excepted land or in land other than to which such reference is limited shall be
included in the terms “Subject Lands” and (c) if Exhibit A described an Instrument but does not limit such description to certain land, then “Subject Lands” shall include all land covered by such Instrument in which Velasco
has an interest (subject to the depth limitation in (a) above). If allocation of acreage to any Well is required by governmental authority or existing Instrument for spacing or allowable or other purposes in order to comply with governmental
authority or existing Instrument, Velasco shall have the right to select such allocated acreage from the Subject Lands provided that such allocation shall not reduce the quantity of Hydrocarbons that may be lawfully produced from an NPI Well on the
Subject Lands or cause such NPI Well to violate applicable spacing rules or regulations. If permitted by governmental authority or existing Instrument, the acreage so allocated to an Infill Well or a Pre-1980 Well shall be limited to the depths,
formations or reservoirs from which the Infill Well or Pre-1980 Well is producing or capable of producing Hydrocarbons. In the case of Subject Lands which are pooled or unitized, if an Infill Well is drilled on a pooled or unitized tract from which
a well on the Subject Lands which is not an Infill Well is producing or capable of producing Hydrocarbons and the method of allocating pooled or unitized production to such tract (under the pooling or unitization Instrument providing for such
allocation) does not provide for an allocation between different interests in two or more wells on such tract, then such allocation shall be made between Infill Wells and wells which are not Infill Wells producing from the same tract on the basis of
their relative actual monthly production of Hydrocarbons. 
 “Trust Agreement” means the Trust Agreement of the Trust entered into
by and among TEAI, Torch Royalty Company, Velasco and Trustee, effective as of October 1, 1993, as amended from time to time. 
  

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 “Trustee” means Wilmington Trust Company, a banking corporation organized under the laws of the
State of Delaware with its principal office in Wilmington, Delaware, and its successors and permitted assigns. 
 “Wells” means,
collectively, the NPI Wells, the Infill Wells and the Pre-1980 Wells, and the fixtures, equipment and personal property in, on, used or obtained in connection therewith. 
 PART I 
 ARTICLE I 
 GRANT 
 Section 1.01. Royalty Interests. For and in consideration of good and valuable consideration
paid to Velasco, the receipt and sufficiency of which are hereby acknowledged, Velasco does hereby BARGAIN, SELL, GRANT, CONVEY, TRANSFER and ASSIGN unto TEAI the Net Royalty Interest, the Infill Net Royalty Interest and the Pre-1980 Net Royalty
Interest. 
 Section 1.02. Habendum Clause. TO HAVE AND TO HOLD the Net Royalty Interest, the Infill Net Royalty Interest and the
Pre-1980 Net Royalty Interest, together with all and singular the rights and appurtenances thereto in anywise belonging, unto TEAI, subject, however, to the terms and provisions of this Conveyance. 
 Section 1.03. Nature of Interests. The Royalty Interests conveyed hereby are nonoperating, nonexpense-bearing variable royalty interests in and to
the Subject Lands, and this Conveyance is an absolute conveyance of interests in real property. 
 ARTICLE II 
 RECORDS AND REPORTS 
 Section 2.01. Books
and Records. Velasco shall at all times maintain true and correct books and records sufficient to determine the amounts payable hereunder to the Trust (as assignee of TEAI under the following Part II), including, but not limited to, (a) a
NPI Net Proceeds account to which NPI Proceeds and NPI Costs attributable to the NPI Wells are credited and charged, (b) an Infill Net Proceeds account to which Infill Proceeds and Infill Costs attributable to the Infill Wells are credited and
charged, (c) a Pre-1980 Net Proceeds account to which Pre-1980 Proceeds and 

  

 – 18 – 

 
Pre-1980 Costs attributable to the Pre-1980 Wells are credited and charged and (d) a Maximum Gas Volume Net Proceeds account to which Maximum Gas Volume
Proceeds and Maximum Gas Volume Costs are credited and charged. 
 Section 2.02. Inspections. The books and records referred to in
Section 2.01 hereof shall be open for inspection by the Trustee and its designated representatives, on behalf of the Trust (as assignee of TEAI under the following Part II) , at the office of Velasco during normal business hours and upon
reasonable notice; provided, however, that the Trustee and its designated representatives shall have no right to review books and records that pertain to calendar years for which the period for raising objections under Section 2.05 has expired
unless such books and records are necessary to prepare a response by a holder or former holder of units in the Trust in connection with an administrative or legal proceeding by the Internal Revenue Service. 
 Section 2.03. Quarterly Statements. On or before the last Business Day preceding the fiftieth (50th) day following the last day of each
Quarter, Velasco shall deliver to the Trustee, on behalf of the Trust (as assignee of TEAI under the following Part II), an unaudited statement showing (a) the computation of NPI Net Proceeds, Infill Net Proceeds, Pre-1980 Net Proceeds and
Maximum Gas Volume Net Proceeds for such Quarter and all amounts payable to the Trust for such Quarter, and (b) the Section 29 Coal Seam Tax Credit production volumes attributable to the Net Royalty Interest for the preceding Quarter (as
such volumes are determined in accordance with Velasco’s interpretation of the applicable provisions of the Internal Revenue Code of 1986, as amended). On or before the sixty-fifth (65th) day following the last day of each of the first
three Quarters of each calendar year, Velasco shall deliver to the Trustee, on behalf of the Trust (as assignee of TEAI under the following Part II), an unaudited statement showing revenues and direct operating expenses in such Quarter attributable
to the Subject Interests. 
  

 – 19 – 

 Section 2.04. Annual Statements. On or before the sixtieth (60th) day following December 31,
1993, Velasco shall deliver to the Trustee, on behalf of the Trust (as assignee of TEAI under the following Part II), an unaudited statement showing the Section 29 Coal Seam Tax Credit production volumes attributable to the Net Royalty Interest
for the Quarter ending December 31, 1993 (as such volumes are determined in accordance with Velasco’s interpretation of the applicable provisions of the Internal Revenue Code of 1986, as amended). On or before the sixtieth (60th) day
following the close of each calendar year after 1993, Velasco shall deliver to the Trustee, on behalf of the Trust (as assignee of TEAI under the following Part II), an unaudited statement showing the Section 29 Coal Seam Tax Credit production
volumes attributable to the Net Royalty Interest for each Quarter of such calendar year (as such volumes are determined in accordance with Velasco’s interpretation of the applicable provisions of the Internal Revenue Code of 1986, as amended).
On or before the ninetieth (90th) day following the close of each calendar year, Velasco shall deliver to the Trustee, on behalf of the Trust (as assignee of TEAI under the following Part II), a statement audited by an independent accounting
firm selected by Velasco showing the computation of NPI Net Proceeds, Infill Net Proceeds, Pre-1980 Net Proceeds and Maximum Gas Volume Net Proceeds for each Quarter of such calendar year and all amounts payable to the Trust (as assignee of TEAI
under the following Part II) for such calendar year. 
 Section 2.05. Objections to Quarterly and Annual Statements. If the Trust (as
assignee of TEAI under the following Part II) objects to any item or items included in the quarterly or annual statements provided by Velasco, the Trustee shall notify Velasco in writing, setting forth in such notice the specific items included in
such statement to which the Trust objects. With respect to the objections that are justified, an adjustment will be made. With respect to any audited annual statement delivered by Velasco under Section 2.04, if the Trustee fails to give Velasco
notice of any objection to such audited annual statement (or the other quarterly or annual statements provided by Velasco for such year) within 180 

  

 – 20 – 

 
days after such annual statement is delivered to the Trustee, then all statements for such calendar year shall be deemed to be correct for all purposes, and
the Trustee and the Trust shall be deemed to have waived any objection to such statements. 
 ARTICLE III 
 PAYMENT 
 Section 3.01. Payment. On or
before the last day of the second month following each Quarter (or, if such day is not a Business Day, the first Business Day thereafter), beginning with the Quarter ending December 31, 1993, Velasco shall pay to the Trust (as assignee of TEAI
under the following Part II), in respect of the Royalty Interests, the sum of (a) an amount equal to the lesser of ninety-five percent (95%) of the NPI Net Proceeds for such Quarter or the Maximum Gas Volume Net Proceeds for such Quarter,
(b) an amount equal to ninety-five percent (95%) of the Pre-1980 Net Proceeds for such Quarter and (c) an amount equal to twenty percent (20%) of the Infill Net Proceeds for such Quarter. 
 Section 3.02. Interest on Payments. Gross Proceeds shall not include any interest on proceeds received by Velasco prior to the payment dates
provided for in Section 3.01, but any amount not paid by Velasco to the Trust (as assignee of TEAI under the following Part II) when due shall bear interest from such due date until such amount is paid at the Prime Rate. 
 Section 3.03. Overpayment. If at any time Velasco pays the Trust more than the amount due for any reason, the Trust will not be obligated to
return any such overpayment, but the amount otherwise payable to the Trust in respect of the Royalty Interests for any subsequent Quarters will be reduced by an amount equal to such overpayment, plus an amount equal to interest at the Prime Rate on
the unrecouped balance of such overpayment from the date of such overpayment until Velasco has recovered such overpayment plus such interest. 
  

 – 21 – 

 ARTICLE IV 
 SALE OF SUBJECT HYDROCARBONS 
 Section 4.01. Disposition of Production. The Subject Hydrocarbons are
subject to the Purchase Contract, which shall govern the disposition thereof to the extent provided in the Purchase Contract. Any quantity of Hydrocarbons not sold by Velasco to TEMI and not purchased by TEMI from Velasco under the Purchase Contract
shall be marketed by Velasco. The parties agree that the prices paid or payable under the Purchase Contract for Hydrocarbons are the wellhead value of such Hydrocarbons. 
 Section 4.02. Reliance by Third Party. As to any Person, the acts of Velasco under the Purchase Contract will be binding on the Trust (as assignee of TEAI under the following Part II). Velasco reserves the
right to execute any division or transfer order and the Purchase Contract without necessity of joinder by or consent of TEAI or the Trust. Proceeds from the sale of the Subject Hydrocarbons shall be paid by the purchasers thereof directly to Velasco
without necessity of joinder by or consent of TEAI or the Trust. 
 ARTICLE V 
 NON-LIABILITY OF TEAI, TRUSTEE AND THE TRUST 
 In no event will TEAI (in its capacity
as assignee in Part I or as assignor in Part II hereof), the Trust (as assignee of TEAI under Part II hereof) or the Trustee be personally or individually liable, or responsible in any way, for payment of any costs or liabilities incurred by Velasco
or others attributable to the Wells, the Subject Interests or the Subject Hydrocarbons, except to the extent (in the case of TEAI) of TEAI’s obligations set out in the Standby Performance Agreement between TEAI, Velasco and Torch Royalty
Company. 
 ARTICLE VI 
 OPERATION
OF SUBJECT INTERESTS 
 Section 6.01. Reasonably Prudent Operator Standard. To the extent it has the legal right to do so under the
terms of any Instrument affecting or pertaining to the Subject Interests or the Wells (or any portion thereof), Velasco shall exercise such rights with respect to the maintenance and operation of the Subject Interests and the Wells in a good and
workmanlike manner and as 

  

 – 22 – 

 
would a reasonably prudent operator under the same or similar circumstances, without regard to the existence or burden of the Royalty Interests or the direct
or indirect effect, financial or otherwise, on Velasco or TEMI or any of their Affiliates, of the Purchase Contract. 
 Section 6.02.
Nonconsents. Nothing in Section 6.01 shall be deemed to prevent or restrict Velasco from electing not to participate in any operation to be conducted under the terms of any Instruments affecting or pertaining to the Subject Interests or
any of the Wells, and allowing consenting parties to conduct nonconsent operations thereon, if such election is made by Velasco in accordance with the reasonably prudent operator standard set forth in Section 6.01, without regard to the
existence or burden of the Royalty Interests or the direct or indirect effect, financial or otherwise, on Velasco or TEMI or any of their Affiliates, of the Purchase Contract. By way of example and not by way of limitation, if such operation relates
to an NPI Well and if Velasco reasonably concludes that the cost of such operation (as if such cost were included in First Category Costs, even though such cost shall not be) is likely to result in Excess NPI Costs, or if such operation relates to
an Infill Well or a Pre-1980 Well and if Velasco reasonably concludes that the cost of such operation (which would be included in Production Costs) is likely to result in Excess Infill Costs or Excess Pre-1980 Costs, in each case for an unreasonable
period of time under the circumstances, then its election not to participate in such operation shall be deemed not to breach the standard in Section 6.01. Similarly, if Velasco does or does not undertake any operation on a Subject Property
(other than in a consent or non-consent context, such as where Velasco owns 100% of the operating interest in such Subject Property), then its election to undertake or not to undertake such operation shall be deemed not to breach the standard in
Section 6.01 if the same criteria are followed as in the foregoing consent or non-consent example. If Velasco elects not to participate in an operation, with the result that any of the Subject Interests are relinquished 

  

 – 23 – 

 
(for a period of time or permanently) to the Persons electing to participate, such interest so relinquished shall (for such period of time) not be part of
the Subject Interests or burdened by the Royalty Interests, and the costs (including the costs of conducting such operation) related thereto shall not be Production Costs. If Velasco elects to participate in an operation and another party elects not
to participate, with the result that all or a part of such third party’s interest is relinquished (for a period of time or permanently) to Velasco, such interest so relinquished shall (for such period of time) become a part of the Subject
Interests and the costs (including the costs of conducting such operation) attributable to such interest shall be Production Costs. 
 Section 6.03. Limitation on Liability. NOTWITHSTANDING ANYTHING ELSEWHERE HEREIN TO THE CONTRARY, VELASCO SHALL NOT BE LIABLE TO TEAI, THE TRUST (as assignee of TEAI under the following Part II) OR THE TRUSTEE FOR THE MANNER IN WHICH
VELASCO PERFORMS ITS RIGHTS AND DUTIES HEREUNDER, SO LONG AS VELASCO ACTS IN ACCORDANCE WITH THE REASONABLY PRUDENT OPERATOR STANDARD SET FORTH IN SECTION 6.01. VELASCO EXPRESSLY DISCLAIMS AND TEAI AND THE TRUST AGREE THAT THE VELASCO DOES NOT HAVE
ANY FIDUCIARY DUTY OR FIDUCIARY OBLIGATION IN FAVOR OF TEAI OR THE TRUST. 
 Section 6.04. Abandonment of Properties. Nothing herein
contained shall obligate Velasco as a working interest owner of any Well (whether or not Velasco is the designated operator) to continue to operate such Well, to continue to participate in the operation of such Well or to maintain in force or
attempt to maintain in force any of the Subject Interests attributable to such Well when, in Velasco’s judgment (reasonably exercised), such Well is no longer capable of producing Hydrocarbons in paying quantities and a reasonably prudent
operator (without regard to the existence or burden of the Royalty Interests or the direct or indirect effect, financial or otherwise, on Velasco or TEMI or any of their Affiliates, of the Purchase Contract) in similar circumstances would not
undertake reworking operations to restore production. 
  

 – 24 – 

 Section 6.05. Insurance. Velasco is not obligated under this Conveyance to carry insurance on any
Well or the Subject Interests or covering any risks with respect thereto. Provided that Velasco has not breached Section 6.01 hereof, Velasco shall not be liable to TEAI or the Trust (as assignee of TEAI under the following Part II) or the
Trustee on account of any losses sustained that are not covered by insurance. In the event Velasco elects to carry insurance purchased from a third party on any Well or the Subject Interests or operation thereof, the premiums for such insurance
shall be included in Production Costs. 
 ARTICLE VII 
 POOLING AND UNITIZATION 
 Section 7.01. Pooled Subject Interests. Some of the Subject Interests have
been heretofore pooled, unitized or communitized for the production of Hydrocarbons. Such Subject Interests are and shall be subject to the terms and provisions of the Instruments governing such pooling, unitization or communitization, and the
Royalty Interest in each such Subject Interest shall apply to and affect only the production from such units which accrues to such Subject Interest under and by virtue of the applicable pooling, unitization or communitization Instruments.

 Section 7.02. Right to Pool. Velasco shall have the exclusive right and power (as between TEAI and the Trust as assignee of TEAI
under the following Part II), exercisable only during the period provided in Section 7.03 hereof, to pool, unitize or communitize any of the Subject Interests and to alter, change or amend or terminate any pooling, unitization or
communitization orders or Instruments heretofore or hereafter entered into, as to all or any part of the land covered hereby, as to any one or more of the formations or horizons hereunder, and as to any one or more Hydrocarbons, upon such terms and
provisions as Velasco shall in its sole discretion determine. If and whenever through the exercise of such right and power, or pursuant to any law hereafter enacted or any rule, regulation or order of any governmental body or official hereafter
promulgated, any of the Subject Interests are pooled, unitized or communitized in any manner, the Royalty 

  

 – 25 – 

 
Interest insofar as it affects such Subject Interest shall also be pooled, unitized or communitized, and in any such event such Royalty Interest in such
Subject Interest shall apply to and affect only the production which accrues to such Subject Interest under and by virtue of the pooling, unitization or communitization, and it shall not be necessary for TEAI or the Trust (as assignee of TEAI under
the following Part II) to agree to, consent to, ratify, confirm or adopt any exercise of such right and power by Velasco. 
 Section 7.03.
Applicable Period. Velasco’s power and rights in Section 7.02 shall be exercisable only during the period of the life of the last survivor of the descendants of the signers of the Declaration of Independence living on the date of
execution hereof, plus twenty-one (21) years after the death of such last survivor. 
 ARTICLE VIII 
 GOVERNMENT REGULATION 
 All obligations of
Velasco hereunder are subject to all present and future valid federal, state and local laws, statutes, codes and orders; and all applicable rules, orders, regulations and decisions of every court, governmental agency, body or authority having
jurisdiction over Velasco, the Wells, the Subject Interests or the Subject Hydrocarbons. 
 ARTICLE IX 
 ASSIGNMENTS 
 Section 9.01. Assignment by
Velasco. Velasco shall have the right to assign, sell, transfer, convey, mortgage or pledge the Subject Interests, or any part thereof or interest therein, to any third party, including an Affiliate of Velasco, subject to the Royalty Interests
and to the terms and provisions of this Conveyance; provided that such assignment shall be subject to the conditions and the notice requirements of Section 12.08 of the Trust Agreement. From and after the effective date of any such assignment,
sale, transfer or conveyance by Velasco, the assignee thereunder shall succeed to all the rights and duties of Velasco hereunder as to the interests in the Subject Interests so acquired by such assignee, and, if such assignee expressly assumes all

  

 – 26 – 

 
duties of Velasco hereunder as to the interests so acquired, Velasco shall be relieved of such duties, except to the extent such relate to periods prior to
effective date of such assignment. If Velasco assigns a part of or interest in (but less than all) the Subject Interests, then, from and after the effective date of any such assignment, in determining the Royalty Interests payable with respect to
the part or interest so assigned, the Royalty Interests shall be computed and determined by the assignee in the aggregate as to the assigned interests owned by such assignee, separate from and not aggregated with the computation and determination
made by Velasco as to unassigned interests. 
 Section 9.02. Assignment by TEAI and the Trust. TEAI shall have the right to assign and
convey the Royalty Interests only to the Trust (as is done in the following Part II), and the Trust shall not assign or convey the Royalty Interests except as provided under the Trust Agreement. In making conveyances or assignments of any of the
Subject Interests (to the extent permitted hereunder), the Trust need not vest in its grantee or assignee all of the rights of TEAI or the Trust hereunder with respect to the interest in the Subject Interests so conveyed or assigned. 
 Section 9.03. Change in Ownership. No change in ownership or right to receive payment of the Royalty Interests, or of any part thereof, however
accomplished, shall be binding upon Velasco until notice thereof shall have been furnished by the Person claiming the benefit thereof, and then only with respect to payments thereafter made. Notice of sale or assignment shall consist of a certified
copy of the recorded instrument accomplishing the same; notice of change of ownership or right to receive payment accomplished in any other manner (for example by reason of incapacity, death or dissolution) shall consist of certified copies of
recorded documents and complete proceedings legally binding and conclusive of the rights of all parties. Until such notice accompanied by such documentation shall have been furnished Velasco as above provided, the payment or tender of all sums
payable on the Royalty Interests may be made in the manner provided herein precisely as if 

  

 – 27 – 

 
no such change in interest or ownership or right to receive payment had occurred, or (at Velasco’s election) Velasco shall have the right to suspend
payment of such sums without interest in the event of such change until such documentation is furnished. The kind of notice herein provided shall be exclusive, and no other kind, whether actual or constructive, shall be binding on Velasco.
Assignment by the Trust shall not affect the method of computing the Royalty Interests, and if more than one Person becomes entitled to participate in the Royalty Interests, Velasco may withhold from such other Person payments to which such Person
would otherwise be entitled hereunder and the furnishing of any data or information which Velasco is required by the terms hereof to furnish TEAI or the Trust until Velasco is furnished a recordable instrument executed by or binding upon all Persons
interested in the Royalty Interests designating one Person who is to receive such payments, data and information. 
 Section 9.04. Rights
of Mortgagee. If the Trust (as assignee of TEAI under the following Part II) should at any time execute a mortgage or deed of trust or security interest covering all or part of the Royalty Interests, the mortgagee or trustee therein named or the
holder of any obligation secured thereby shall be entitled, to the extent such mortgage, deed of trust or security agreement so provides, to exercise all the rights, remedies, powers and privileges conferred upon the Trust by the terms of this
Conveyance and to give or withhold all consents required to be obtained hereunder by the Trust, but the provisions of this Section 9.04 shall in no way be deemed or construed to impose upon Velasco any obligation or liability undertaken by the
Trust under such mortgage, deed of trust or security agreement or under the obligation secured thereby. 
 PART II 
 ARTICLE X 
 GRANT 
 Section 10.01. Royalty Interests. For and in consideration of good and valuable consideration paid to TEAI, the receipt and 

  

 – 28 – 

 
sufficiency of which are hereby acknowledged, TEAI does hereby BARGAIN, SELL, GRANT, CONVEY, TRANSFER and ASSIGN unto the Trust the Net Royalty Interest, the
Infill Net Royalty Interest and the Pre-1980 Net Royalty Interest, which were vested in TEAI under Part I of this Conveyance. 
 Section
10.02. Habendum Clause. TO HAVE AND TO HOLD the Net Royalty Interest, the Infill Royalty Interest and the Pre-1980 Net Royalty Interest, together with all and singular the rights and appurtenances thereto in anywise belonging, unto the Trust,
subject to and entitled to all the benefits of the terms and provisions of this Conveyance. 
 Section 10.03. Nature of Interests. The
Royalty Interests conveyed hereby are nonoperating, nonexpense-bearing variable royalty interests in and to the Subject Lands, and this Conveyance is an absolute conveyance of interests in real property. 
 THE FOLLOWING PROVISIONS SHALL BE DEEMED TO BE INCORPORATED IN BOTH PARTS OF THIS CONVEYANCE. 
 ARTICLE XI 
 MISCELLANEOUS 
 Section 11.01. Controlling Document. This Conveyance and any terms contained herein shall control over any other document between the parties
hereto with respect to the conveyance of the Royalty Interests. 
 Section 11.02. Proportionate Reduction. In the event of failure or
deficiency in title to any of the Subject Interests not in breach of the warranty as to title in Section 11.06 hereof, the portion of the production from such Subject Interest out of which the Royalty Interests attributable to such Subject
Interest shall be payable shall be reduced in the same proportion that such Subject Interest is reduced. 
 Section 11.03. Notices.
Any notice, request, consent, demand, statement, payment or other communication required or permitted between the parties to this Conveyance shall be in writing and shall be deemed to have been duly given on the date of service, if served personally
on the party or parties to whom such notice is 

  

 – 29 – 

 
directed, or on the date of receipt, if mailed to the party or parties to whom the notice is directed by registered or certified mail, return receipt
requested, postage prepaid, and properly addressed as follows: 
  

			
	VELASCO GAS COMPANY, LTD.
	1221 Lamar
	Suite 1600
	Houston, Texas 77010
	Attention:	  	Roland E. Sledge
		  	Senior Vice President and General Counsel
	
	TORCH ENERGY ADVISORS INCORPORATED
	1221 Lamar
	Suite 1600
	Houston, Texas 77010
	Attention:	  	Roland E. Sledge
		  	Senior Vice President and General Counsel
	
	and
	
	TORCH ENERGY ROYALTY TRUST
	c/o Wilmington Trust Company
	Rodney Square North
	1100 North Market Street
	Wilmington, Delaware 19890-0001
	Attention:	  	Torch Energy Royalty Trust

 Any party may change its address for purposes of this paragraph by giving the other parties hereto written notice
of the new address in the manner set forth above. 
 Section 11.04. Binding Effect. This Conveyance shall bind and inure to the
benefit of the successors and assigns of the parties hereto. 
 Section 11.05. Governing Law. This Conveyance shall be governed by the
laws of the State of Alabama, without regard to the conflict of laws principles thereof. 
 Section 11.06. Warranty as to Title to Subject
Interests. This Conveyance, in Part I and Part II, is made with warranty of title against every person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Velasco (in Part I) and TEAI (in Part II) and its
and their Affiliates, but not otherwise, except as provided in Section 11.08 below. Velasco warrants to the Trust, and its successors and assigns, by, through or under Velasco and its Affiliates, but not otherwise, that Velasco and its
Affiliates (i) have not taken any action or (ii) failed to take any action, with respect to the Subject Interests covering or attributable to each Well identified on 

  

 – 30 – 

 
Exhibit B attached hereto, which, in either case, pursuant to the terms of the Instruments by which title is held, (i) would result in a Net Revenue
Interest (as such term is defined in Exhibit B) in each Well which is less than the Net Revenue Interest specified in Exhibit B for that Well, or (ii) would result in a Working Interest (as such term is defined in Exhibit B) in each Well which
is greater than the Working Interest specified in Exhibit B for that Well. TEAI (under Part I) and the Trust (under Part II) each accepts the Royalty Interests conveyed hereby in an AS IS, WHERE IS condition. SUBJECT TO THE FOREGOING, EACH OF
VELASCO AND TEAI MAKES NO WARRANTIES, EITHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO ANY OF THE SUBJECT INTERESTS, THE WELLS OR THE ROYALTY INTERESTS, AND EACH OF VELASCO AND TEAI SPECIFICALLY DISCLAIMS ANY EXPRESS, IMPLIED OR STATUTORY
WARRANTY REGARDING THE CONDITION OF THE SUBJECT INTERESTS, THE WELLS AND THE ROYALTY INTERESTS, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR A PARTICULAR PURPOSE. Except as expressly set forth above, each of TEAI and the Trust acknowledges
and agrees that VELASCO (in Part I) and TEAI (in Part II) MAKES NO WARRANTIES EITHER EXPRESS, IMPLIED OR STATUTORY WITH RESPECT TO ANY PERSONAL PROPERTY OR FIXTURES LOCATED ON OR SERVING ANY OF THE SUBJECT INTERESTS, AND EACH OF VELASCO AND TEAI
SPECIFICALLY DISCLAIMS ANY EXPRESS, IMPLIED OR STATUTORY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE REGARDING THE CONDITION OF ANY SUCH PERSONAL PROPERTY OR FIXTURE. 
 Section 11.07. Substitution of Warranty. This instrument is made with full substitution and subrogation of TEAI and the Trust, as assignee of TEAI
under the foregoing Part II, in and to all covenants of warranty by others heretofore given or made with respect to the Subject Interests, or any part thereof, or interest therein. 
 Section 11.08. Consents and Waivers. For purposes of Section 11.06, it shall be considered a breach of Velasco’s warranty of title if
any necessary consent or approval has not been obtained or if any preferential purchase right has not been waived, in each case, where the failure to obtain any such consent, approval or 

  

 – 31 – 

 
waiver renders (i) any conveyance of the Subject Interests by an Affiliate of Velasco to another Affiliate of Velasco, (ii) the conveyance of the
Subject Interests by an Affiliate of Velasco to Velasco or (iii) the conveyance of the Royalty Interests to TEAI and then to the Trust, void or results in a valid action for breach of contract as a result of the failure to obtain such consent,
approval or waiver. 
 Section 11.09. Arbitration. ANY DISPUTE, CONTROVERSY OR CLAIM THAT MAY ARISE UNDER THIS CONVEYANCE SHALL BE
GOVERNED BY AND SUBJECT TO THE ARBITRATION PROVISIONS SET FORTH IN ARTICLE XI OF THE TRUST AGREEMENT. 
 Section 11.10. Counterpart
Execution. This Conveyance may be executed in several counterparts, all of which are identical and each of which will be an original. All of such counterparts together shall constitute one and the same instrument. 
 Section 11.11. Further Assurances. Velasco and TEAI agree to execute and deliver all additional instruments, agreements and other documents as may
be necessary or appropriate to effectuate fully the terms and conditions hereto, including, but not limited to, such other additional instruments, agreements and other documents as may be necessary to correct or more fully describe and identify the
properties and interests herein intended to be assigned and conveyed, or such other instruments as may be required by the appropriate governmental agencies or bodies having jurisdiction over such Federal, State or Indian lands as are covered by this
Conveyance. 
 Section 11.12. Filing. Velasco shall file this Conveyance in the real property records of the Counties in which the
Subject Interests are located as shown by the recitations in Exhibit A attached hereto and shall make all other appropriate filings with Federal, State and Indian agencies as determined appropriate by Velasco. 
  

 – 32 – 

 Section 11.13. Construction. In construing this Conveyance, the following principles shall be
followed: 
 (a) no consideration shall be given to the captions of the articles or sections, which are inserted for
convenience in locating the provisions of this Conveyance and not as an aid in its construction; 
 (b) the word
“includes” and its syntactical variants mean “includes, but is not limited to” and corresponding syntactical variant expressions; 
 (c) a defined term has its defined meaning throughout this Conveyance and in each exhibit, attachment and schedule to this Conveyance, regardless of whether it appears before or after the place where it is defined;
and 
 (d) each exhibit, attachment and schedule to this Conveyance is a part of this Conveyance, but if there is any conflict
or inconsistency between the main body of this Conveyance and any exhibit, attachment or schedule, the provisions of the main body of this Conveyance shall prevail. 
 IN WITNESS WHEREOF, each of the parties hereto has caused this Conveyance to be executed in its name and behalf and delivered on the 22nd day of November, 1993, effective as of the Effective Time. 
  

			
	VELASCO GAS COMPANY, LTD.
		
	By:	 	TORCH ENERGY COMPANY, its general partner
		
	By:	 	/s/ Sue Ann Craddock
	Name:	 	Sue Ann Craddock
	Title:	 	Vice President
	
	TORCH ENERGY ADVISORS INCORPORATED
		
	By:	 	/s/ Sue Ann Craddock
	Name:	 	Sue Ann Craddock
	Title:	 	Vice President

  

 – 33 – 

			
	TORCH ENERGY ROYALTY TRUST
	By	 	WILMINGTON TRUST COMPANY, its Trustee
		
	By:	 	/s/ Jim Lawler
	Name:	 	Jim Lawler
	Title:	 	Vice President

  

			
	 STATE OF TEXAS
	  	§
		  	§
	 COUNTY OF HARRIS
	  	§

 I, the undersigned, a Notary Public in and for said county and state, hereby certify that Sue Ann
Craddock, whose name as Vice President of Torch Energy Company, a corporation, as general partner of VELASCO GAS COMPANY, LTD., a limited partnership, is signed to the foregoing conveyance, and who is known to me, acknowledged before me on this day
that, being informed of the contents of the conveyance, she, in her capacity as aforesaid, and with full authority, executed the same voluntarily for and as the act of said corporation as such general partner on the day the same bears date.

 Given under my hand this 22nd day of November, A.D. 1993. 
  

	
	
	/s/ Barbara Ward
	 Notary Public in and for
 the State of
Texas

  

					
	 My Commission Expires:
	  		 	
	 May 16, 1995
	  	[NOTARY
SEAL]	 	BARBARA WARD
Notary Public
STATE OF TEXAS
My Comm. Exp. May 16, 1995

  

			
	 STATE OF TEXAS
	  	§
		  	§
	 COUNTY OF HARRIS
	  	§

 I, the undersigned, a Notary Public in and for said county and state, hereby certify that Sue Ann
Craddock, whose name as Vice President of Torch Energy Advisors Incorporated, a Delaware corporation, is signed to the foregoing conveyance and who is known to me, acknowledged before me on this day that, being informed of the contents of the
conveyance, she, as such officer and with full authority, executed the same voluntarily and for and as the act of said corporation. 
 Given
under my hand this 22nd day of November, A.D. 1993. 
  

	
	
	/s/ Barbara Ward
	 Notary Public in and for
 the State of
Texas

  

					
	 My Commission Expires:
	  		 	
	 May 16, 1995
	  	[NOTARY
SEAL]	 	BARBARA WARD
Notary Public
STATE OF TEXAS
My Comm. Exp. May 16, 1995

  

 – 34 – 

			
	 STATE OF TEXAS
	  	§
		  	§
	 COUNTY OF HARRIS
	  	§

 I, the undersigned, a Notary Public in and for said county and state, hereby certify that JIM
LAWLER whose name as VICE PRESIDENT of Wilmington Trust Company, as Trustee of TORCH ENERGY ROYALTY TRUST, a Delaware Business Trust, is signed to the foregoing conveyance, and who is known to me, acknowledged before me on this day that, being
informed of the contents of the conveyance, he, in his capacity as aforesaid, and with full authority, executed the same voluntarily for and as the act of said Wilmington Trust Company as such trustee on the day the same bears date. 
 Given under my hand this 22nd day of NOVEMBER, A.D. 1993. 
  

	
	
	/s/ Barbara Ward
	 Notary Public in and for
 STATE OF
TEXAS

  

					
	 My Commission Expires:
	  		 	
	 May 16, 1995
	  	[NOTARY
SEAL]	 	BARBARA WARD
Notary Public
STATE OF TEXAS
My Comm. Exp. May 16, 1995

  

 – 35 –Oil and Gas Purchase Agreement

 Exhibit 10.5 
 OIL AND GAS PURCHASE CONTRACT 
 This Oil and Gas Purchase Contract (the “Contract”) is made
and entered into as of the 1st day of October, 1993, by and between TORCH ENERGY MARKETING, INC., a Delaware corporation (hereinafter referred to as “Buyer”), and TORCH ROYALTY COMPANY, a Delaware corporation, and VELASCO GAS COMPANY LTD.,
a Texas limited partnership (hereinafter collectively referred to as “Seller”). 
 RECITALS 
 WHEREAS, Seller has a supply of Oil and Gas to be produced from the Subject Interests (as hereinafter defined) which Seller desires to sell; and

 WHEREAS, the parties hereto intend to provide for and desire to enter into a contract for the sale by Seller and the purchase by
Buyer of Oil and Gas produced from the Subject Interests pursuant to the provisions of this Contract: 
 NOW THEREFORE, in
consideration of the foregoing premises and the mutual promises, agreements and covenants herein set forth, Seller and Buyer agree as follows: 
 I. DEFINITIONS 
 The following terms, where used and whether or not capitalized in this Contract, and all recitals,
exhibits, and appendices contained in or attached to this Contract have the following meanings: 
 “Applicable Hub
Price” has the meaning set forth in Section 4.06. 
 “Applicable Hub Price-NYMEX Differential” for
each production Month and for each Field during such Month, means (in dollars per MMBtu) (i) the average of the last three days’ settlement prices for the corresponding Natural Gas futures contract on the New York Mercantile Exchange first
nearby contracts (i.e. settlement prices for the month of June are the settlement prices for the June futures contracts on the last three days in May during which such June futures contracts are traded) minus (ii) the Applicable Hub Price for
such Field for such Month. 
 “Austin Chalk Fields” means the Subject Interests identified as the Austin Chalk Fields
in the Conveyances. 
 “Barrel” means a barrel of Oil equal to 42 U.S. gallons at 60 degrees Fahrenheit. 

“Btu” means British thermal unit. As used herein, Btu content of an Mcf of gas will be calculated on a dry basis. MMBtu means
1,000,000 Btu. 
 “Chalkley Field” means the Subject Interests identified as the Chalkley Field in the Conveyances.

 “Contract Year” means the period beginning on January 1 and continuing thereafter for a period of 365 days
(or 366 days in the case of a leap year) and each succeeding 365 day (or 366 day as the case may be) period thereafter, except for the first Contract year, which shall commence on October 1, 1993 and end December 31, 1993. 
 “Conveyances” means the Net Overriding Royalty Conveyances to the Royalty Trust dated as of November 22, 1993. 

 “Cotton Valley Fields” means the Subject Interests identified as the Cotton
Valley Fields in the Conveyances. 
 “Day” means the period of time defined as “day” or “daily”
in the effective tariff or other operating rules, policies or procedures of the Receiving Pipeline. 
 “Deductible
Costs” means for each Month for each Field the amount, on a per MMBtu basis, specified on Exhibit A as deductible costs for such Field. 
 “Existing Burdens” has the meaning assigned to that term in the Conveyances. 
 “FERC” or “Commission” means Federal Energy Regulatory Commission or any successor thereto, having jurisdiction. 
 “Fields” means, collectively, the Chalkley Field, the Robinson’s Bend Field, the Cotton Valley Fields and the Austin Chalk Fields. 
 “Field Price” shall have the meaning set forth in Section 4.14. 
 “Field Price-NYMEX Differential” for each production Month during the term of this Contract and for each Field during such Month
means (in dollars per Barrel) (i) the average during such Month of the daily settlement prices of the first nearby futures contracts for West Texas Intermediate Crude Oil on the New York Mercantile Exchange minus (ii) the Field Price for
such Field for such Month. 
 “Gas” means any mixture of hydrocarbons or of hydrocarbons and noncombustible gases, in
a gaseous state, consisting essentially of methane and including gas produced in association with oil and commonly known as casinghead gas. Gas shall include, but shall not be limited to, methane produced from coal beds. 
 “Gas Gathering Agreement” shall mean the Gas Gathering Agreement, dated June 30, 1990, as amended, between Buyer, as
“Shipper,” and Bahia Gas Gathering Ltd., a Texas limited partnership, as “Gatherer.” 
 “Mainline
Point” means the location specified for each Field on Exhibit A. 
 “Maximum Volume” shall mean, prior
to January 1, 1995, the Btu equivalent of 730 MMcf of Seller’s Gas produced from the Robinson’s Bend Field during any quarter, and thereafter the Btu equivalent of 912.5 MMcf of Seller’s Gas produced from the Robinson’s Bend
Field during any Quarter. 
 “Month” means the period of time defined as “Month” or “Monthly” in
the effective tariff or other operating rules, policies or procedures of the Receiving Pipeline. 
 “Oil” means crude
oil and condensate. 
 “Producer Price Index” shall mean the Producer Price Index published by the Bureau of Labor
Statistics of the United States Department of Labor. 
 “Production Deficiency” means, for any Month, the amount
(expressed in MMBtu’s) by which the total production of Seller’s Gas from the Robinson’s Bend Field during such Month is, for any month ending prior to January 1, 1995, less than the Btu equivalent of 243,334 Mcf, and for any
month ending thereafter, is less than the Btu equivalent of 304,167 Mcf. 
  

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 “Weighted Average Field Price” for each Month during the term of this Contract,
means (in dollars per Barrel) the average of the Field Price for each Field, weighted for Oil production from each such Field. 
 “Weighted Average Hub Price” for each Month during the term of this Contract, means (in dollars per MMBtu) the result of (i) total Seller’s Gas production from each Field multiplied by the Applicable Hub
Price for such Field, divided by (ii) total Seller’s Gas production from the Fields during the Month. 
 “Weighted
Average Specified Gas Price” for each Month means (in dollars per MMBtu) the average of the difference between the Specified Price for Gas for such Month minus the Applicable Hub Price-NYMEX Differential for each Field during such
Month, weighted for Seller’s Gas production from such Field during such Month. 
 “Weighted Average Specified Oil
Price” for each Month means (in dollars per Barrel) the average of the difference between the Specified Price for Oil for such Month minus the Field Price-NYMEX Differential for the Month for each Field during such Month, weighted for
Seller’s Oil production from such Field during such Month. 
 “Wells” means any well described on Exhibit B,
including any infill or replacement wells drilled and completed after the date of this Contract which produce Seller’s Oil or Seller’s Gas from the Fields. 
 “Working Day” means a calendar day Monday through Friday and excludes Saturday, Sunday and nationally recognized holidays. 
 II. QUANTITY; COMMITMENT, RESERVATION 
 2.01 Quantity: Subject to
the terms and conditions herein, (i) Seller agrees to sell and deliver to Buyer and Buyer agrees to purchase and accept from Seller all of Seller’s Gas produced from the Wells, subject to applicable operating and Gas balancing agreements
covering the Wells; and (ii) Seller agrees to sell and deliver to Buyer and Buyer agrees to purchase and accept from Seller all of Seller’s Oil produced from the Wells, subject to applicable operating agreements covering the Wells.

 2.02 Commitment: Seller hereby commits and dedicates to the performance of this Contract all of Seller’s Oil and
Seller’s Gas. 
 2.03 Reservations: Seller specifically reserves and excepts the following quantities of Seller’s Gas
from the quantities to be delivered under the terms of this Contract: 
 a. All Seller’s Gas which Seller may require for
fuel for operation and development of the Subject Interests and all free gas which Seller is obligated to furnish under any operating agreements or leases which grant Seller the right to drill for, produce or dispose of Seller’s Gas in, under
and from the Subject Interests. 
 b. All volumes of Seller’s Gas which are contractually committed as of the date hereof
for delivery to others under the existing terms of leases or applicable operating agreements, provided that for purposes hereof, Buyer shall be deemed to purchase and Seller shall be deemed to sell all committed Seller’s Gas for the Monthly Gas
Price and to immediately resell such Seller’s Gas pursuant to such contractual commitments. 
 c. Subject to the terms of
the Conveyances, the right to operate or manage leases in such manner as Seller, in Seller’s sole discretion, may deem advisable and, acting as a prudent operator or working interest owner, to drill new Wells, repair or rework old Wells, renew
or extend, in whole or in 

  

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part, any lease or unit subject to this contract and abandon any Well or surrender, release or terminate any lease not deemed by Seller capable of producing
Gas in commercial quantities. 
 d. The right to use Seller’s Gas for cycling, repressuring and pressure maintenance on
the Subject Interests or Units to which the Subject Interests are or shall be committed; however, Seller’s Gas so used shall be tendered by Seller to Buyer for purchase hereunder when such Gas becomes available for delivery. 
 e. Seller’s Gas reasonably necessary for gas-lifting of oil produced on or attributable to leases; provided, however, if Seller uses
substantial volumes of Seller’s Gas for such gas-lifting operations Seller shall deliver such Gas pursuant to the terms hereof at the conclusion of each operation, or as it is produced, at a pressure sufficient to enable such Gas to enter the
system of the Receiving Pipeline at the pressure then existing therein. 
 2.04 Processing: Seller’s Gas will be delivered
hereunder before any processing occurs, and the right to process, or cause the processing of, all Seller’s Gas delivered hereunder, for the extraction of ethane, propane, butanes, pentanes and heavier hydrocarbons belongs to Buyer (which bears
so much methane as is necessarily removed in the employment of customary processes for the extraction of all such components and such Gas as is required for fuel or is otherwise lost in such extraction process), and all right, title, and interest to
all such components extracted belongs to Buyer (which bears all Seller’s Gas used or otherwise lost in such extraction process). 
 2.05
Verification: Upon written request from Buyer, Seller shall furnish Buyer, as available, all information concerning engineering, tests and basic geological data on all Wells. Such data shall include, but is not limited to, all
production data and flow potential data now or hereafter in existence. Seller shall furnish Buyer information concerning production allowables and proration status with respect to each Well connected under this Contract. 
 III. DELIVERY OF OIL AND GAS 
 3.01
Delivery Point: The delivery point, for Seller’s Gas produced from each Field, shall be the point described as the Delivery Point on Exhibit A or such other point or points as the parties may agree upon in writing from time to
time (the “Delivery Point”). The Delivery Point for Seller’s Oil is the point of transfer to Buyer or its designee from the lease tanks or other base measuring facility located on the Underlying Properties. 
 3.02 Transportation: Seller shall be responsible for all arrangements necessary to deliver Seller’s Oil and Gas sold hereunder to the
Delivery Point and Buyer shall be responsible for all arrangements necessary to receive Seller’s Oil and Gas purchased hereunder at the Delivery Point. 
 3.03 Delivery Pressure, Quality, and Measurement: Seller’s Gas delivered by Seller shall be of the same quality and heating value for the Gas as specified in the effective tariff or other operating
rules, policies or procedures of the Receiving Pipeline at the Mainline Point. Measurement shall be performed by the Receiving Pipeline. 
 3.04 Title: Title, ownership and risk of loss of Seller’s Oil and Seller’s Gas sold hereunder shall pass from Seller and vest in Buyer upon delivery and acceptance of such Oil and Gas at the Delivery Points.

 3.05 Delivery Rate: In connection with deliveries of Seller’s Gas hereunder, both parties shall be obligated to use
reasonable efforts to avoid causing pipeline imbalances and to determine the cause of any pipeline imbalances for which a charge or penalty may be imposed. The party responsible for such imbalance 

  

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charge or penalty shall be obligated to pay such imbalance charge or penalty regardless of whether it is the shipper on the subject pipeline. 
 IV. PRICE FOR OIL AND GAS 
 4.01
Gas Purchase Price:. Subject to Section 4.06 and subject to adjustment as provided in Section 4.02, the Monthly purchase price for Seller’s Gas (“Monthly Gas Price”) per MMBtu delivered to the Delivery Point
and sold by Seller and purchased by Buyer shall be the greater of (i) $1.70 per MMBtu (the “Minimum Price”) and (ii) the Index Price. The Index Price for any Month shall equal 97% of the result of the following for such Month:
(i) the Weighted Average Hub Price multiplied times the Variable Gas Ratio, plus (ii) the Weighted Average Specified Gas Price multiplied times the Specified Gas Ratio. 
 4.02 Primary Term: For the period commencing October 1, 1993 through December 31, 2001 (“Primary Term”), the Monthly
Gas Price for Seller’s Gas shall be subject to the following: 
 a. In the event the Index Price in any Month is greater
than $2.10 per MMBtu (the “Sharing Price”), then the Monthly Gas Price shall be an amount equal to the following: the Sharing Price per MMBtu plus fifty percent of the difference between the Index Price and the Sharing Price (such portion
of the difference being the “Price Differential”); provided Buyer has no accrued Price Credits (defined in paragraph 4.02b below) in the Price Credit Account (defined in paragraph 4.02b below). 
 b. In the event the Index Price in any Month is less than the Minimum Price per MMBtu, then the Monthly Gas Price shall be equal to the
Minimum Price per MMBtu and Buyer shall receive a credit (“Price Credit”) from Seller equal to the difference between the Index Price and the Minimum Price for each MMBtu of gas sold during such Month which shall be credited (dollar for
dollar) to an account (“Price Credit Account”) to be established by Buyer, for each MMBtu of Seller’s Gas so purchased by Buyer. No Price Credits will accrue in respect of production purchased by TEMI prior to January 1, 1994.

 c. Notwithstanding paragraphs a and b of this Section 4.02, if Buyer has any accrued Price Credits in the Price Credit
Account, the Monthly Gas Price for each MMBtu of Seller’s Gas purchased by Buyer will be reduced (but not below the Minimum Price) such that Buyer shall receive, with respect to Seller’s Gas purchased by Buyer during such Month, an offset
(dollar for dollar) against any Price Credits in the Price Credit Account. 
 4.03 Remaining Term: Following the expiration of
the Primary Term and for the remaining term of this Agreement, Buyer shall have the option (the “Option”) to cause the Monthly Gas Price to equal the Index Price for the remaining term of the contract. Buyer shall exercise the Option not
later than fifteen Days prior to the expiration of the Primary Term and, thereafter during the remaining term, not later than fifteen Days prior to the expiration of a Contract Year by notifying Seller in writing of Buyer’s election to exercise
the Option. In the event Buyer exercises the Option, Buyer shall be precluded from recovering any remaining Price Credits from the Price Credit Account after the purchase of Seller’s Gas at the Index Price becomes effective. The Option granted
herein once exercised shall be effective on the next following first Day of January. This Option shall not be exercised more than once during the term of this Agreement. If Buyer does not exercise the Option, then the Minimum Price and the Sharing
Price shall be increased for inflation based on the Producer Price Index on January 1 of each year commencing January 1, 2002. 
 4.04 Included Costs Prior to the Delivery Point: Buyer may deduct from the price paid for Seller’s Oil or Gas hereunder all Taxes, expenses and costs arising or attributable to Seller’s Oil or Seller’s Gas prior
to its delivery to the Delivery Point to the extent (if any) incurred by Buyer. If Buyer makes any such deductions, Buyer shall assume the obligation of applying the amounts so deducted to those entitled thereto. If 

  

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Buyer does not deduct royalties, Seller assumes the obligation, if any, to pay proceeds due royalty owners or any other persons entitled thereto. 

4.05 Robinson’s Bend field: Notwithstanding the provisions of Sections 4.01 and 4.02, the purchase price for Seller’s Gas
produced in the Robinson’s Bend field during any Month within a Quarter shall be subject to the following: 
 a. If,
during any Quarter, there is no Production Deficiency in any Month during such Quarter, with respect to production from the Robinson’s Bend Field, Buyer shall be deemed to purchase and Seller shall be deemed to sell, one third of the Maximum
Volume during each Month in such Quarter, for the Monthly Gas Price for such Month. 
 b. If, during any Quarter, there is a
Production Deficiency in one (but only one) Month during such Quarter, with respect to production from the Robinson’s Bend Field, Buyer shall be deemed to purchase and Seller shall be deemed to sell (i) one third of the Maximum Volume
during each of the Months during which there is no Production Deficiency for the Monthly Gas Price for such Month, (ii) all production during the Month during which there was a Production Deficiency at the Monthly Gas Price for such Month, and
(iii) an amount of Seller’s Gas equal to the lesser of the Production Deficiency and the aggregate Production Excess for the Quarter at a weighted average price computed based on the Monthly Gas Price and amount of Production Excess for
the Months in such Quarter during which there was no Production Deficiency. 
 c. If during any Quarter, there is a Production
Deficiency in two (but only two) Months during such Quarter, with respect to production from the Robinson’s Bend field, Buyer shall be deemed to purchase and Seller shall be deemed to sell (i) one third of the Maximum Volume during the
Month in which there was no Production Deficiency for the Monthly Gas Price for such Month, (ii) all production during each Month for which there was a Production Deficiency at the Monthly Gas Price during such Month, and (iii) an amount
of Seller’s Gas equal to the lesser of the aggregate Production Deficiency for such Quarter and the Production Excess for the Quarter at the Monthly Gas Price for the Month during such Quarter in which there was no Production Deficiency.

 d. If during any Quarter, there is a Production Deficiency in each Month during such Quarter, with respect to production
from the Robinson’s Bend field, Buyer shall be deemed to purchase and Seller shall be deemed to sell all production during each Month at the Monthly Gas Price during such Month. 
 4.06 Applicable Hub Prices: The Applicable Hub Price for each Field during the Month shall be the “Index Price” as published in
the first issue during such Month of Inside FERC’s Gas Market Report for the referenced pipeline and/or market hubs set forth below: 
  

			
	Chalkley Field	  	Tennessee Gas Pipeline; Louisiana & Offshore Southern National Gas Co., Louisiana
		
	 Robinson’s Bend Field
 Cotton Valley
Fields
	  	Natural Gas Pipeline Co., Texas (Gulf Coast Line)
		
	Austin Chalk Fields	  	Houston Ship Channel; Index (large packages only)

 provided that gas production from the Austin Chalk Fields shall be 83% of the Applicable Hub Price. In the event
the publishers of Inside FERC’s Gas Market Report determine there is insufficient data to publish an 

  

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Applicable Hub Price for any Field, and Inside FERC’s Gas Market Report instead publishes a range of prices at such hub, then the average of the
range of prices shall be the Applicable Hub Price for the Field. 
 4.07 Replacement Applicable Hub Price: In the event the
publisher of the Applicable Hub Price or any Replacement Hub Price (defined below) ceases publication of any of the foregoing referenced indices, substantially alters the method by which any of the foregoing referenced indices are calculated,
substantially alters the source of data utilized in calculating any of the foregoing referenced indices or otherwise substantially alters any of the foregoing referenced indices, then in that event Buyer and Seller shall promptly notify the other in
writing of such event and shall mutually agree in writing on an index price to replace the Applicable Hub Price or the replacement (“Replacement Hub Price”) within 30 Working Days (herein referred to as the “Negotiation Period”)
following the date of such written notice. In the event that Buyer and Seller are unable to agree on a Replacement Hub Price within the Negotiation Period, then in that event the parties shall submit the determination of such Replacement Hub Price
to arbitration as provided for in Sections 4.08 through 4.12 below. 
 4.08 Selection of the Arbitrator: Not later than ten
Working Days following expiration of the Hub Negotiation Period provided for in Section 4.07 above, Buyer and Seller shall mutually select and appoint a qualified neutral third party as arbitrator not having any prior, current or future
affiliation or association with Seller or Buyer, to determine a Replacement Hub Price. If at the end of such ten Working Day period the arbitrator has not been selected and appointed, then upon written request of either party an arbitrator shall be
promptly selected by the American Arbitration Association (“AA”), which shall select and appoint an arbitrator (such third party whether appointed by the parties or by the AA herein referred to as “Arbitrator”) with the following
minimum qualifications: 
 a. A minimum of ten years (immediately prior to the appointment) general experience in the purchase
and sale of natural gas. 
 b. A minimum of three years experience pricing natural gas in the Henry Hub area. 
 4.09 Arbitration: Upon selection and appointment of the Arbitrator each party shall deliver to the other party and to the Arbitrator within
ten Working Days of the appointment of the Arbitrator a written proposal stating a proposed Replacement Hub Price together with supporting materials and documentation. The other party may submit its written counterproposal together with supporting
materials and documentation within ten Working Days of receipt of the written proposal from the Party initiating arbitration, to both the party and the Arbitrator. The Arbitrator may request additional information or documentation from either party,
which information or documentation shall be timely provided. Upon receipt of each parties proposal the Arbitrator shall determine the Replacement Hub Price to be used in accordance with the following instructions, unless the parties agree in writing
upon other instructions: 
 a. The Replacement Hub Price selected for a Field shall be representative of the Spot Market price
for Gas delivered to the Mainline Point for such Field. 
 b. “Spot Market” shall mean the market price per MMBtu of
Gas sold and purchased for a period of thirty Days (or a lesser term if Monthly indices are not published). 
 c. The
Replacement Hub Price shall be reported on a Monthly basis in a publication of general circulation or dissemination. 
 d. The
Arbitrator shall determine the Replacement Hub Price no later than sixty Working Days after the Arbitrator’s appointment. 
  

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 4.10 Price Payable Prior to and During Arbitration: In the event arbitration is invoked
pursuant to Sections 4.07 through 4.08 of this Contract, then during the Negotiation Period through and until the Arbitrator has determined the Replacement Hub Price the price to be paid for all Seller’s Gas covered by this Contract shall be
the last price in effect before arbitration was invoked. Upon the conclusion of the arbitration the price shall be adjusted retroactively to the date the applicable index was altered or ceased publication and each party shall pay to the other such
amounts due under the Replacement Hub Price within twenty Working Days following the Arbitrator’s decision. 
 4.11 Finality of
Award;Costs of Arbitration: The determination of the Arbitrator shall be final and binding on the parties, save in the event of manifest material error or misconduct by the Arbitrator. Each party shall bear its own costs and expenses and
share equally the costs and expenses of the Arbitrator and the arbitration. 
 4.12 Supplemental Arbitration Rules: In the
event that the procedures or rules for arbitration set forth above are inadequate to arbitrate the matters described above, or in the event of the absence of procedures or rules necessary to arbitrate the matter then the foregoing procedures and
rules shall be supplemented by and the arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the AA. 
 4.13
Purchase Price for Oil: The purchase price paid for each Barrel of Seller’s Oil purchased during each Month under the Contract shall be 97% of the following: (i) the Weighted Average Specified Oil Price for such Month
multiplied times the Specified Oil Ratio plus (ii) the Weighted Average Field Price for such Month multiplied times the Variable Oil Ratio for such Month. 
 4.14 Field Price: The Field Price for Seller’s Oil produced each Month from each Field will be the average of Koch Oil Company’s daily posted prices for the Month for production from such Field
of like kind, quality and area, with applicable adjustments for gravity and transportation. In the event Koch Oil Company postings are not available, then another purchasing company’s posting will be chosen by mutual agreement between the Buyer
and Seller. 
 V. EFFECTIVE DATE AND TERM 
 5.01 Term: This Contract shall become effective on the date hereof and shall continue through December 31, 2012 or the earlier termination of the Royalty Trust. 
 VI. BILLING AND PAYMENT 
 6.01
Billing: Buyer shall obtain from the Receiving Pipeline information on the quantity of Seller’s Gas delivered hereunder. A statement setting forth and accounting for the quantity of Seller’s Gas delivered to Buyer and the
allocation of the Monthly Gas Price shall be furnished to Seller at the time of the payment set forth in paragraph 6.02 below. If a discrepancy occurs between Seller’s documentation and Buyer’s documentation, Buyer will render payment on
the undisputed volume. Upon agreement as to volume between Seller, Buyer and the Receiving Pipeline, the parties shall remit and/or refund payments to make such adjustments as are necessary. The records of the Receiving Pipeline shall control in the
event of a difference or dispute between Seller’s records and Buyer’s records. 
 6.02 Payment: Buyer shall render
the payment to Seller by wire transfer for Seller’s Oil and Gas delivered during any Month on the last Day of the second Month following the end of the calendar quarter during which the Oil and Gas was delivered. 
  

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 6.03 Auditing: Each party shall have the right at reasonable hours to examine the records
of the other party to the extent necessary to verify the accuracy of any statement made hereunder. In the event of any inaccuracy, any necessary adjustments in the billing shall be promptly made; provided that no adjustment for any billing and
payment shall be made after the lapse of two years from the rendition thereof. 
 VII. TAXES AND CHARGES 
 Seller shall pay, or cause to be paid, all Taxes or other sums due on production or severance of Seller’s Gas prior to delivery to Buyer at the
Delivery Point. All such Taxes shall be paid by Seller directly to the taxing authority unless Buyer is required by law to collect and remit such Taxes, in which event Buyer shall withhold from payments to Seller an amount required to be collected
and remitted by Buyer. In those states in which Buyer, as the first purchaser, is required to remit Taxes or file a response, Seller shall, upon the request of Buyer, provide Buyer with any necessary additional information. If any such Tax is
claimed, assessed or levied on Buyer, then Seller shall reimburse Buyer for the amount of such Tax. Buyer is entitled to purchase Seller’s Oil and Gas free from sales, use or gross receipts Taxes arising upon delivery of such Oil and Gas and
Buyer shall, upon request of Seller, furnish Seller with any applicable exemption certificates. 
 VIII. WARRANTY OF TITLE 

Seller warrants title to all Seller’s Oil and Gas delivered hereunder, that it has the right to sell and transfer title to the same and that said
Oil and Gas is free and clear of all liens, claims and encumbrances. In the event of any adverse claim being asserted against Seller’s Oil and Gas, Buyer shall have the right to withhold payment, of sums due hereunder up to the amount of the
claim until such claim shall have been finally determined or until Seller shall have furnished other adequate security to Buyer. Seller shall indemnify, defend and hold Buyer harmless from and against any loss, damage, cost or expense including
court costs, witness and attorney fees and expenses arising out of breach of the foregoing warranties. 
 IX. INDEMNITY 
 Buyer shall indemnify, defend and hold Seller harmless from and against all loss, cost and expense, including court costs and attorney fees, for any
claims, suits, judgments, demands actions or liabilities growing out of the operations conducted or performance hereunder by Buyer or arising while Seller’s Oil and Gas is in Buyer’s exclusive control and possession. Seller shall
indemnify, defend and hold Buyer harmless from and against any loss, cost and expense, including court costs and attorney fees, for any claims, suits, judgments, demands, actions or liabilities growing out of Seller’s operation hereunder or
arising while Seller’s Oil and Gas is in Seller’s exclusive control and possession. 
 X. FORCE MAJEURE 
 10.01 General: Neither party shall be responsible for any loss or damage to the other party resulting from any delay in performing or
failure to perform any obligation under this Contract (other than Buyer’s obligation to pay Seller for Seller’s Gas purchased and accepted hereunder) to the extent such failure or delay is caused by Force Majeure. 
  

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 10.02 Defined: “Force Majeure” means any event that, directly or indirectly,
renders a party unable, wholly or in part, to perform or comply with any obligation or condition of this Contract to the extent that the event, or the adverse effects of the event, could not have been prevented by the affected party with reasonable
foresight, at reasonable cost, and by exercise of reasonable diligence, including the following events (to the extent they otherwise satisfy the foregoing definition): 
 a. Acts of God, landslides, lightning, earthquakes, fires, explosions, and other casualties. 
 b. Strikes, lockouts and other industrial disturbances. 
 c. Acts of the public enemy, wars, blockades, insurrections, riots, epidemics, arrests or restraints of government (federal, state, local,
civil, tribal or military) or people, civil disturbances, national emergencies, and acts, orders or regulations of governmental agencies, or the affected party’s compliance therewith, or any governmental proration or priority. 
 d. The inability of the affected party to acquire, or delay on the part of the affected party in acquiring, materials, supplies,
machinery, equipment, servitudes, rights-of-way, easements, permits, licenses, or approvals or authorizations of regulatory bodies needed to enable that party to perform its obligations under this Contract. 
 e. The physical constraint or restriction, or breakage, freezing, rupture, accident or blockage of or to, equipment or lines of pipe.

 f. Interruption of any of Buyer’s gathering, treating, processing or transportation arrangements. 
 10.03 Notice: The party affected by Force Majeure shall give the other party notice of the occurrence of the Force Majeure as soon as
reasonably practicable after such occurrence. 
 10.04 Remedy of Force Majeure: The party affected by Force Majeure shall use
reasonable efforts to remedy each event of Force Majeure and resume full performance under this Contract as soon as reasonably practicable, except that the settlement of strikes, lockouts, and other labor disputes shall be entirely within the
discretion of the affected party. 
 XI. REGULATORY AUTHORITY 
 11.01 Laws and Regulations: This Contract and each provision hereof shall be subject to all valid applicable federal, state, county,
municipal and tribal laws and to the orders, rules and regulations of any duly constituted federal, state, county, municipal or tribal regulatory body or authority having jurisdiction. Either party shall have the right to contest the validity of any
such law, order, rule or regulation and neither acquiescence therein or compliance therewith for any period of time shall be construed as a waiver of such right. 
 11.02 Natural Gas Regulation: Seller represents to Buyer that all Seller’s Gas sold to Buyer hereunder has never been committed or dedicated to interstate commerce pursuant to the Natural Gas Act,
or that if any Seller’s Gas sold hereunder has ever been so committed or dedicated, it has been duly abandoned from such commitment or dedication pursuant to a rule, regulation or order of the FERC or it is no longer so committed or dedicated
by operation of the Natural Gas Wellhead Decontrol Act of 1989. Seller further represents that the sale(s) by Seller to Buyer under this Contract qualify as a first sale(s) as defined in Natural Gas Policy Act of 1978, Section 2(21).

 XII. SUCCESSORS AND ASSIGNS 
 This Contract shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto, provided that this Contract shall not be transferred or assigned, by operation of law or 

  

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otherwise, by either party without the other party’s prior written consent which consent shall not be unreasonably withheld. 
 XIII. NOTICES 
 Any notice, request,
demand or statement provided for in this Contract shall be in writing and directed to the address of Buyer or Seller as set forth below, or at such other address as Seller or Buyer shall designate in writing from time to time and shall be deemed
given when actually delivered in person or by a public or private mail delivery service or upon receipt of a telecopy or other electronic transmission to the following addresses and numbers designated below: 
  

			
	 SELLER:
	  	 BUYER:

		
	 For Payment:
  
 Torch Royalty Company
 P.O. Box 200021 Houston,
 Texas 77216-0021
	  	 For Billing Inquiries:
  
 Torch Energy Marketing, Inc.
 1221 Lamar, Suite 1600
 Houston, Texas 77010-3039
 Attn: TEMI

		
	 For All Other Matters:
  
 Torch Royalty Company
 1221 Lamar, Suite 1600
 Houston, Texas 77010-3039
 Attn: Gas Contract Admin.
	  	 For All Other Matters:
  
 Torch Energy Marketing, Inc.
 1221 Lamar, Suite 1600
 Houston, Texas 77010-3039
 Attn: Director, Gas Marketing

		
	TEAI:	  	
		
	 For All Matters:
  
 Torch Energy Advisors Incorporated
 1221 Lamar, Suite 1600
 Houston, Texas 77008
 Attn: General Counsel
	  	

 XIV. MISCELLANEOUS 
 14.01 Relationship: It is not the purpose of the parties hereto to create a partnership, joint venture or association, or the relationship
of agency or employer-employee and neither this Contract nor any of the operations hereunder shall be construed or considered as creating any such relationship. 
 14.02 Choice of Law: THIS CONTRACT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF TEXAS (EXCLUDING APPLICABLE CHOICE OF LAW RULES) AND VENUE SHALL BE IN THE STATE OF TEXAS. 

14.03 Attorney Fees: If it becomes necessary for either party to either initiate legal action to enforce or obtain compliance with any
provision of this Contract or to defend any legal action initiated by a party, the prevailing party in such action shall be entitled to recovery of all of its costs and expenses incurred in 

  

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such legal proceeding, including reasonable attorney fees and expenses, court costs, and expert witness, and consulting fees and expenses. The provisions of
this Section 14.03 do not apply to the determination of a Replacement Hub Price pursuant to Sections 4.07 through 4.12 above. 
 14.04
Changes: Any change, modification, amendment, or alteration of this Contract shall be in writing and signed by the parties hereto and no course of dealing between the parties prior or subsequent to the date of this Contract shall be
construed to change, modify, amend, alter or waive the terms hereof. Seller and Buyer shall not make any amendment that would materially reduce the revenues received by Seller which, in turn, would adversely impact the revenues paid by Seller to the
Royalty Trust unless the Trustee approves such amendment. 
 14.05 Waivers: No waiver by a party of its rights or of any
default by the other party under this Contract shall operate or be construed as a continuing waiver of such rights or a waiver of any future default, whether of a like or different character. 
 14.06 Headings: The headings or captions in this Contract are for the convenience of the parties in identification of the provisions hereof
and shall not be considered when interpreting or construing the provisions of this Contract, or determining the rights, obligations or liabilities of any party hereto. 
 14.07 Recitals: The recitals contained herein form a part of this Contract and should be considered when determining the rights, obligations or liabilities of any party hereto. 
 14.08 Context of Words: In this Contract, unless there is something in the subject matter or context inconsistent herewith (i) words
importing the singular shall include the plural and vice versa; (ii) words importing gender shall include the masculine, feminine and neuter genders, and (iii) references to the Contract shall include all exhibits attached hereto.

 14.09 Severability: In the event that any of the non-material provisions of this Contract are determined to be invalid,
illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining Provisions contained herein shall not in any way be affected or impaired thereby. 
 14.10 Limit of Liability: NEITHER PARTY SHALL BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE OR SIMILAR
DAMAGES INCLUDING, WITHOUT LIMITATION, DAMAGES TO THE WELLS, THE RESERVOIR, THE RESERVES OR PRODUCTION FROM THE WELLS. 
 14.11
Exhibits: The exhibits referenced in this Contract are incorporated and made a part of this Contract as if fully set forth herein. 
 14.12 Dispute Resolution: The parties agree in the event of a dispute (other than the determination of a Replacement Hub Price as provided in Sections 4.07 through 4.12 above) to negotiation and submission of such dispute to
alternative dispute resolution (“ADR”) before pursuing litigation. 
 14.13 Entire Contract: Unless otherwise
provided herein, this Contract constitutes the entire agreement of the parties. Seller and Buyer covenant and agree that this Contract shall be deemed and considered for all purposes as prepared through the joint efforts of the parties and shall not
be interpreted or construed against one party or the other as a result of the preparation, submittal or other event of a party or the negotiation, drafting or execution hereof. 
 14.14 Intended Beneficiaries: Seller’s Oil and Seller’s Gas have been dedicated to purchase under this Contract, and Buyer and
Seller each agree that the terms of this Contract are intended to induce Royalty Trust to accept the Conveyances and issue units of beneficial interests therefor, and that the Royalty Trust is 

  

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intended to rely on and be a beneficiary of each of the terms and provisions of this Contract. The Royalty Trust and Trustee shall be third party
beneficiaries of this Contract, entitled to enforce this agreement against Buyer as if a party hereto. 
 IN WITNESS WHEREOF, the parties
have executed the foregoing as of the day and year first above set forth. 
  

									
	WITNESSES	 		 	BUYER:
			
	/s/ illegible	 		 	TORCH ENERGY MARKETING, INC.
				
	/s/ illegible	 		 	By:	 	/s/ Michael D. Watford
		 		 		 	Name:	 	Michael D. Watford
		 		 		 	Title:	 	President
			
	WITNESSES	 		 	SELLER:
			
	/s/ illegible	 		 	TORCH ROYALTY COMPANY
				
	/s/ illegible	 		 	By:	 	/s/ Roland E. Sledge
		 		 		 	Name:	 	Roland E. Sledge
		 		 		 	Title:	 	Vice President
			
	WITNESSES	 		 	VELASCO GAS COMPANY LTD.
				
	/s/ illegible	 		 	By:	 	/s/ Roland E. Sledge
		 		 		 	Name:	 	Roland E. Sledge
	/s/ illegible	 		 	Title:	 	Vice President of Torch Energy Company, its general partner

  

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